Country-specific updates: United Arab Emirates

Director services undertaken by natural persons serving as members of boards no longer subject to VAT from 1 January 2023.

Services provided by directors, whether performed by a natural person or a legal person, have historically been subject to VAT since the implementation of VAT in the United Arab Emirates on 1 January 2018, provided such services were rendered independently, regularly and for remuneration. Directors whose fees exceeded the mandatory registration threshold (i.e., AED 375,000 or circa USD 100,000) were therefore required to register for VAT purposes.

The Ministry of Finance recently announced a new amendment to the Executive Regulation of the Federal Decree-Law on VAT, which was implemented by way of a Cabinet Decision. According to the new amendment, which will go into effect on 1 January 2023, services provided by natural persons performing duties as a member of a board of directors for public or private entities will no longer be considered as a supply of services for the purposes of VAT. Director services provided by non-natural legal persons will remain subject to VAT.

In response to the recent amendment, the Federal Tax Authority (FTA) has published a Public Clarification (VATP031) which includes detailed guidance regarding the new amendment.

Natural persons performing the function(s) of a Director on a board of directors, must review their tax obligations for the period prior to and from 1 January 2023. The applicable date of supply rules will be critical in determining whether services performed before or after 1 January 2023 will be subject to VAT. In this respect, it is worth noting that the FTA has previously issued a separate Public Clarification regarding the date of supply for services rendered by independent directors (VATP009).

Natural persons who do not carry out any taxable activities other than performing the function of director on a board of directors, may be required to deregister for VAT purposes going forward.