UAE VAT treatment of 'Director's fees' charged for services provided before introduction of VAT but fixed in the AGM & received post introduction of VAT

A peculiar situation was noticed when a Person (an individual) was highlighted a portion of the Director’s fee he received in 2018 for the board meetings that he attended in 2017, was not accounted for VAT.

The question was whether such services should be subject to VAT or is the amount received an ‘Out of scope’ transaction since the services were rendered in 2017 (i.e. before the introduction of VAT).

It is important to note that the fee that was paid to the Director was not fixed when he provided the services in 2017, but the amount was finalized in the AGM held in 2018 and paid thereafter.  This means that the Director provided his services in 2017 but the amount of fee to be billed to the Company was only determined in 2018 and therefore, he could neither issue an invoice nor receive any advance.

This is a peculiar situation because such instances require an analysis of the ‘transitional’ provisions under Article 80 (3) of the UAE VAT law that covers situations where the contract to provide a service is entered into before 1st Jan, 2018 but the service is completed post 1st January, 2018.

It is also important to look at the Public Clarification on ‘place of supply for independent directors’ that clarified that when the director’s fee is not determined at the time of provision of services but later in the AGM, the time of supply shall be the time when such amount is fixed in the AGM.  It was clarified that the service of providing directorship services shall be deemed to be completed when the fee amount was determined in the AGM.

The above is subject to the condition that the Director had neither issued any invoice nor had received any advance. If either of these events occur, the time of supply shall trigger upon happening of these events.

Thus, in this given case itsa possibility that the Director who rendered his services in 2017 could be liable to VAT on his board fee, both determined and paid in 2018. This is on the basis that the time of supply clarified by FTA read with Article 80(3) of the UAE VAT law could potentially make this transaction subject to VAT.

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