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VAT applicable on Directorial Services

A director is required if a Limited Liability Company (LLC) is created in the United Arab Emirates. This director is paid a set fee for the services he performs regularly. This remuneration for his managerial services is subject to a 5% Value Added Tax (VAT) rate. Management needs to guarantee that the director’s salary takes into account the VAT that applies to him, as well as that the business follows all of the jurisdiction’s norms and regulations.

We shall discuss the VAT rules that apply to the directors of a Limited Liability Company in the United Arab Emirates in this article.

Conditions for Value Added Tax Applicability (VAT)

There are a few requirements that must be met before the salary of an LLC’s director can be processed for VAT purposes. The following are the conditions:

1. As the company’s director, a person or entity should give services to the company. He or she can be an executive or non-executive, and these services should be provided on a regular and independent basis. This person can be a member of a single board of directors or numerous boards of directors.
2. If the entire value of all the services given by the director exceeds the registration benchmark, which is AED 375000 yearly, the director’s services are subject to VAT.

If a director meets any of the aforementioned criteria, he or she should be subject to VAT. To have a better grasp of the situation, the management should engage the services of a financial firm that will consult with the company’s management and provide a deeper understanding of the current situation.

When is it appropriate for a director to register for VAT?

If the fees charged by the firm on an annual basis exceed the mandatory benchmark of AED 375,000, a person serving as a director of the company should register for Value Added Tax. This restriction does not apply to a person functioning as a director of a limited liability company (LLC) who is covered by the business’s employment visa. The employment visa will create an employer-employee relationship between the corporation and the entity, which will not be considered taxable.

How to determine Place of supply for Director Services

o comprehend the location of supply of the services given by a director, several conditions must be met by the director. The following are the conditions:

1. Value Added Tax (VAT) is only applied to a director’s salary when the services are provided in the United Arab Emirates.
2. According to UAE VAT guidelines, the supplier’s domicile would be considered the site where the director’s services are supplied.
3. In many circumstances, the company receiving the services of a director is based in another GCC country and is VAT registered there. In such a circumstance, the director’s place of business will be treated as the director’s place of residence.
4. If the receiver company of the services is located in the UAE but the director does not, the place of provision of the services is regarded to be the UAE.

The application of Value Added Tax to the director’s salary has a significant impact on a company’s profitability. It is also vital for the firm to guarantee that all of the jurisdiction’s rules and regulations are adhered to avoid any problems shortly. This is why a company must seek financial consulting businesses’ aid, as they will be able to assess the existing state of the company and provide appropriate solutions.