FTA Announces New VAT Guidance for BOD Members


On May 13, 2024, the Federal Tax Authority (FTA) of the United Arab Emirates (UAE) revoked the previously issued Public Clarification VATP031. It was replaced with VATP037, which addresses the VAT requirements for natural persons serving as directors on boards of directors. The newly released Public Clarification introduces significant modifications to Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Executive Regulation”).

This article will explain the new Public Clarification and essential considerations for current and future members of boards of directors (BOD).

What Led to New Clarification?

The Public Clarification itself highlights the reason for the FTA to replace Public Clarification VATP031. Cabinet Decision No. 99 of 2022 introduced an amendment, VATP037, to Article 3 of the VAT Executive Regulation. The new amendment added clause 2 to Article 3, stating, “As an exception to Clause 1 of this Article, the functions of a member of a board of directors, performed by a natural person appointed as such, for any government entity or private sector establishment, shall not be considered a supply of Services.”.

To clarify the VAT implications of this amendment, the FTA replaced Public Clarification VATP031 with Public Clarification VATP037.

What is the Key Concept of the New Amendment?

Services rendered by a BOD member to the company for which he is serving as a BOD member were typically subject to VAT at the standard rate of 5% by the regular VAT requirements before the implementation date of the modification implemented via Cabinet Decision No. 99 of 2022.

Services rendered by a BOD member to the company for which he is acting as a BOD member will be excluded from UAE VAT, as of the effective date of the modification proposed via Cabinet Decision No. 99 of 2022, provided that two essential conditions are met:

  • A natural person provides the services. The FTA clarified that a natural person appointed by one company to serve as a director for another company under the name of the delegating company will not meet this requirement; instead, it will be regarded as a business-to-business (B2B) service.
  • The individual is nominated to the board of directors of any public or private organization.

The Effect of Transitional Provisions

The sections addressing the transitional provisions related to BOD members are perhaps the most crucial topics covered in the FTA’s new Public Clarification VATP037 on the Role of a Natural Person as a Director on a Board of Directors. This is particularly important given that the amended Article 3 of the VAT Executive Regulation does not address this matter.

The VAT treatment for services rendered by a BOD member will depend on the date such supplies occurred, as outlined in the recently released Public Clarification. In other words, consideration must be given to the date of supply provisions stipulated in Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT), specifically Articles 25 and 26.

FTA Announces New VAT Guidance for BOD Members

Here are the steps for a BOD Member to assess if the services fall under UAE VAT legislation:

  1. For UAE VAT, assume that the “provision” of services is always a “supply of services” and that it is governed by the regulations on the date of supply.
  2. According to Articles 25(6) and (7) of the VAT Decree-Law, determine the date of delivery using the general date of supply standards.
  3. Examine if, in certain circumstances, Article 26 of the VAT Decree-Law applies to the date of supply. If relevant, recalculate the delivery date under Article 26 of the VAT Decree-Law and disregard the date of supply established in Step 2.
  4. Determine if the date of supply occurs before or after January 1, 2023.
  5. Based on the result of Step 4, determine the VAT treatment in compliance with the relevant circumstances.
  6. If incorrect treatment has been applied, attempt to correct the issue using the legally mandated remedies found in the TPL and VAT laws, if necessary.

Final Thoughts

The FTA’s recent replacement of Public Clarification VATP031 with VATP037, particularly concerning natural persons serving on boards of directors, clarifies significant changes in VAT obligations. BOD members can proactively safeguard themselves against VAT-related issues by understanding the core concepts in the updated guidance and applying the provided insights. Additionally, staying informed about regulatory changes and seeking expert advice when necessary will be crucial for adapting to the evolving VAT landscape.

Although the regulatory environment may continue to change, BOD members who thoroughly understand their VAT responsibilities and the associated legislative changes will be better equipped to fulfill their roles effectively. This knowledge will help promote resilience and sustainable growth within their organizations.

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