Director’s Fees Are NOW Taxable | Know From VAT Consultancy Services

Do you know Director’s fees are now taxable in Dubai? Well, arrange a meeting, sooner, with a VAT consultancy services to prepare your new plan concerning to this issue.
According to the VAT Guide – VATGDS 01, issued on April 2018, Director’s Service fee has become taxable under the UAE VAT Law. The Federal Tax Authority has confirmed the news, informing about certain strict rubrics concerning to Director’s fees otherwise called as Management fees.
As you proceed with the blog, you can find all the nitty-gritty associated with this new include in the VAT system.
Conditions to be satisfied for considering Director’s Service fees as taxable under the UAE VAT law:
Only if a director meets the following conditions, his or her Director’s Service Fee appears to be taxable according to UAE VAT law. This situation compels a person to visit a VAT consultancy as immediately as possible. However, you must be assured of the service provider’s authenticity before visiting them.
Check the conditions –
  • The individual provides independent director’s services to different other legal entities or to a particular accredited entity
 
  • The annual fee, of the person, in cash or in any other form of transaction, exceeds the monetary value of AED 375,000/-
 
  • Between the director and the concerning firm, there should not be any employer-employee relationship
Now, that you are acquainted with the necessary conditions, here is the standard tax rate applicable for the director’s according to UAE VAT law.
Tax rate applicable for Director’s Service fees:
The standard VAT rate on director’s service fees or management fees is 5% in UAE. However, the rate differs in certain specific occasions. In the subsequent scenario, the tax rate varies accordingly –
 
  • If a UAE firm has a non-resident director, his or her service fees are no more booked under RCM (Reverse Charge Mechanism) by the concerned company i.e., the director need not to register for UAE VAT under FTA
Does the manager need to register for UAE VAT in their personal capacity?
If the manager or the managing partner in a free-zone firm or a LLC organization, withdraws management service as the director to the company and if their annual fee exceeds AED 375,000/- per annum, he or she has to enlist themselves under VAT in their personal capacity.
If the managing partner or the director of the company is under an employment VISA, he or she needs not to enroll themselves under UAE VAT in their personal capacity. The reason is nothing but, there exists an employer-employee relationship between the organization and the managing person. In this scenario, the payments that are made to the person by the company are no more considered as independent service and therefore, taxability does not apply.
If the director or the managing partner withdraws profit from the organization as a declaration of the dividend, it is it is no more treated as director’s service and thus, they need to register under UAE VAT law.
This new regulations often appear to be confusing and the trick lies in hiring a tax consultant company for further clarifications.
 
Summary
According to VAT Law issues on April 2018, director’s service fees are now taxable under definite conditions. You, being a director to a company, must register yourself as a tax paying entity if you satisfy the required conditions.
Author Bio
Al Amari Asker, PhD in Bookkeeping, from a reputed UAE university, has been associated with Uaevatexpert.ae for more than 2 years. He is one of the most favorite among the other tax consultants for his strategic VAT consultancy services.
 

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