The fees charged by independent Directors to the Companies are subject to VAT in UAE. Independent Directors who provide managerial services to Companies and where their annual revenue exceeds the VAT registration criteria in UAE, such independent Directors must apply for VAT registration and should comply with UAE VAT regulations.
The Federal Tax Authority (FTA) has levied certain VAT implications on the fees of Independent Directors of Companies. It mandated a basis for accounting VAT for the registered members providing independent Director’s services to Companies. According to which the date of supply for VAT concerning the independent Directors’ services is determined either as per the general laws or special laws of date of supply. The date of supply is greatly determined by whether the Director’s fee is known from the outset or not.
When the Director knows the fees from the outset, the date of supply shall be determined based on Article 25 or 26 of Federal Decree-Law No. (8) of the year 2017 on Value Added Tax.. While in case such fees are not known from the outset, they shall be determined upon the conclusion of the Annual General Meeting and only then the date of supply shall be known. These could be classified as three conditions for determining the date of supply for the Director’s fees.
With Shuraa’s excellent consultancy services and guidance, let’s understand it in a more detailed format.
Independent Director unaware of the fee at the outset and gets to know only after the conclusion of the Annual General Meeting
In certain cases, to know the Director’s fee, it’s possible only upon the conclusion of the Annual General Meeting. It’s after this point that attempts can be made to determine the Independent Directors’ fees and only then the date of supply shall be triggered. As the Director is not able to issue an invoice or receive any payment before the date of the conclusion of the AGM, the date of supply for VAT would be that date on which provisions of services may have been completed according to Article 25 of the Federal Decree-Law of the VAT law.
For FTA, the Director’s services seem to be completed only when the fees are known to the Directors which is after the AGM’s conclusion, in spite of the fact that provision of services may have been completed earlier. Hence, according to this view, Independent Directors are required to account for VAT only after they know about their fees as only then the date of supply for VAT could be known. As per Article 67 of UAE’s VAT law, the Director is supposed to issue invoices within 14 days of the date of supply, if there is no periodic/ consecutive invoice issuance system.
Independent Director knows the fee at the outset and periodic payments and invoices are made timely
When the Independent Director knows its fee and periodic or multiple payments and invoices are made, the date of supply would be determined under Article 26 of the Federal Decree-Law Nos. (8) of 2017 on VAT law, which is earliest of below dates:-
- When the tax invoices will be issued
- Due date of payment as mentioned in the Tax invoice
- The date on which payment is received
In situations where none of the events take place, the date of supply shall be triggered by the end of 12 months.
Independent Director knows the fee at the outset but no periodic payments or invoices are made.
When Directors make no periodic payments or issue any invoices, the date of supply is known as per Article 25 of UAE’s law on VAT according to which the date of supply would be determined at the earliest of:
- Date of issue of the tax invoice
- Date of payment receipt
- Date when the provision of services was completed
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