If a Limited liability company (LLC) is formed in the United Arab Emirates, then it is bound to have a director. This director receives a fixed remuneration for the services he provides on a regular basis. This remuneration for his management services is eligible for Value Added Tax (VAT) at a rate of 5%. It is necessary that the management ensures that the remuneration of the director takes into consideration the VAT applicable to him and also ensure that the business complies with all the rules and regulations of the jurisdiction.
In this article we will talk about the VAT requirements which are applicable to the directors of a Limited liability Company in the United Arab Emirates.
Conditions for applicability of Value Added Tax (VAT)
There are certain conditions which need to be fulfilled so that the remuneration of the director of an LLC can be processes for Value Added Tax. These conditions are mentioned below:
- A person or entity should provide its services of a company as the director of the company. He or she can be an executive or a non-executive individual and should provide these services on a regular and independent basis. This person can also be part of a single board of director or can be a part of multiple such boards.
- The services of a director come under the purview of Value Added tax if the total value of all the services provided by the director are more than the registration benchmark which is AED 375000 annually.
If any of the above conditions are fulfilled by a director then he or she should be charged under the purview of Value Added Tax. To understand the conditions in a deeper manner, the management should avail the services of a financial firm which will consult the company management and provide a deeper understanding of the current predicament faced by the business.
When should a director register for Value Added Tax
A person who is serving as a director of the company should register for Value Added tax of the fees charged by the entity on an annual basis is more than the compulsory benchmark of AED 375,000. This condition is not applicable to the person acting as the director of a LLC who comes under the purview of the employment visa provided by the company. The employment visa will establish an employer and employee relationship between the company and the entity and thus will not be considered as a taxable situation.
How to determine Place of supply for Director Services
There are certain conditions which need to be fulfilled by the director in order to understand the place of supply of the services provided by a director. The conditions are mentioned below:
- Value Added Tax (VAT) is charged on the remunerations of a director only when the supply of these services take place in the United Arab Emirates.
- According to the VAT rules in the UAE, the residence of the supplier will be regarded as the place for the supply of services of the director.
- In many cases, the company receiving the services of a director is a resident of other GCC country and is registered for VAT in that jurisdiction. In such case the place of supply of the services will be regarded as the place of residence of the recipient of the said services of the director.
- In case the recipient company of the services resides in the UAE but the director does not have a place of residence in the country, then the place of supply of the services are considered to be UAE.
The applicability of Value Added Tax to the remuneration of the director plays a big role for the profitability of a business. It is also necessary that the business ensures that all the rules and regulations of the jurisdiction are followed properly so that the business does not face any problem in the near future. This is why it is recommended that a business should take assistance from financial consulting firms which will understand the current situation of the business and accordingly provide the solution for the business.
If you are looking for such a financial firm which will understand the present situation of the business and provide a customized solution according to the situation then you must have a look at the services provided by JAXA Chartered Accountants. JAXA also provides many other services such as Accounting Services, Auditing Services, VAT and TAX related services. For details on the services provided, feel free to Contact Us. We will be glad to assist you.