VAT on Directors Earnings: Company directors are required to pay 5% VAT

VAT on Directors Earnings : The earnings of the director of a company are subject to value-added tax (VAT) if he undertakes services on a regular and independent basis and if the earnings exceed the mandatory registration threshold of Dh 375,000, according to a note issued by the UAE’s Federal Tax Authority (FTA).

VAT on Director’s Earnings

Specifically, services provided by a director should be taxable if:

a) the director undertakes services on a regular, ongoing and independent basis and

b) the total value of taxable supplies made by the director, including supplies of director services, exceed the mandatory threshold.

The exception where a director’s earnings may not attract VAT is when s/he is an employee of the company or if it is provided overseas or to an overseas entity which shall be considered as zero-rated. While the services would be taxable, the director can recover input tax on the purchase of goods and services in the course of business, subject to certain conditions. And a director should not recover any VAT in respect of expenses incurred for solely non-business purposes.