DIRECTORS SERVICE VAT GUIDE
The Director’s Service VAT guide also called as VATDGS01 was issued by the Federal Tax Authority. This has been issued to provide guidance to anyone who has either been appointed as director or who are key stakeholders responsible for tax matters in order to provide a characterization of the director’s services for determining as to whether a taxable supply of services exists for VAT purposes or not.
The guides deal with several aspects such as the determination of the applicability of VAT on the services of the director and its reasons. It also aids in determining the place of supply of the services provided by the director and the manner in which VAT is to be imposed. It further deals with the aspect of the application of the director’s fees in various circumstances.
TREATMENT OF VAT ON DIRECTOR’S SERVICES
The directors are liable to register and charge VAT on the director’s fees if in case the fees charged by them exceeds the mandatory registration threshold ( AED375000). Further, if a person provides services regularly and independently in the director’s capacity, he would be required to charge VAT on their services.
DETERMINATION OF PLACE OF SUPPLY OF THE SERVICES PROVIDED BY THE DIRECTOR’S
The VAT is only charged where the supply is treated as taking place in the UAE. This makes it important to identify the rules of the place of supply which are applicable to the directors.
- A default rule states that the place of supply of services is the place of residence of the supplier that is the place of residence of the director.
- Further, the place of supply would be the place of residence of the recipient of services if in case the recipient of service has a place of residence in another GCC implementing state and is registered for VAT.
- The place of supply would be UAE if the recipient of services is in business and has a place of residence in the UAE and the director does not have a place of residence in the UAE.
IMPOSITION OF VAT
The director would charge VAT at the appropriate rate on the value of its supplies if it is determined that a director is a taxable person making taxable supplies. The value of supply is calculated with reference to the consideration which is either monetary or non-monetary which the director receives in respect of the services.
SPECIAL SCENARIOS FOR DIRECTOR’S FEES
2.5.1.Director providing services overseas
If the director who is a resident in the UAE provides his services which are physically performed outside the GCC implementing state, then such services would be zero-rated. The supply of these services can be zero-rated since the nature of the service requires its physical performance outside the GCC implementing states. On the other hand, if the services are provided physically in another GCC implementing state to a company which is resident and is registered in that other GCC implementing state then the supply would be treated as taking place in that other implementing state and would not attract any VAT.
2.5.2.Director providing services to the overseas company
If the director who is a resident of UAE provides services from the UAE to a company which is not a resident in the GCC implementing state, then the services may be zero-rated if in case the company doesn’t have a presence in the UAE and the performance of service has not been received in the UAE by any person who would be able to recover the incurred VAT. If services are provided to a company which is resident and is registered in another GCC implementing state, then the supply would be treated as taking place in that other implementing state and would not attract VAT.
2.5.3. Business supplied director
Normal rules relating to supply apply in cases where a business or government entity provides an employee or a director to serve as a director of another government entity, company or another type of business. The supplier entity is required to account for VAT on any payment which it receives for agreeing to the appointment provided that the place of supply is in the UAE. 2.5.4. Common director
If in case the individual acts as a director of a number of companies then one company is firstly required to pay all the director’s fees a allocate the costs for recovering appropriate proportions from others. Services of individuals such as attending meetings or approving expenditure are supplied by the individuals to the companies of which they are a director. If there is no supply between the companies then no VAT is due on the share of money which is recovered from each company.
2.5.4. Right to a director
A company which selects a director on the basis of its specialized knowledge charges a fee which is paid by the company to which the director has been appointed. This fee is to be treated as a consideration for a taxable supply which is made by the director’s original company and is subject to VAT.