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Performing the Function of Director on a Board of Directors by a Natural Person

Article 3 of Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax (“Executive Regulation”) has been modified by the Federal Tax Authority (FTA) by Cabinet Decision No. 99 of 2022.

With effect from January 1, 2023, the performance of a Director’s function in a formal capacity, by a natural person (whether or not they are a resident of the UAE), and for payment (in cash or in kind), on a board of directors of any government or private sector entity, shall not be regarded for VAT purposes as a supply of services.

The services of an independent director provided to another legal entity by a taxable person are not regarded as a taxable supply of services. With effect from January 1, 2023, the natural person is required to deregister for VAT.

  • A private or public legal entity that appoints a non-legal person to serve as a director in its own name is not covered by this amendment.
  • The reverse charge mechanism is not applied when a natural person is not a resident.
  • Only the performance of functions as a Director on a Board of Directors shall be excluded from the calculation of the registration threshold if the natural person also engages in activities, other than performing the function of Director on a Board of Directors, that qualify as supplies of goods or services or any other activities under Article 19 of the Decree-Law.
  • Previously, these services were taxable if both of the following conditions were met:
  1. The Director provided the services on a regular, ongoing, and independent basis; and
  2. The Director’s total value of taxable supplies and imports, but also including the Director services, exceeded the threshold for mandatory registration.

This article was published on  5 March 2023

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