VAT

UAE VAT on Directors' Fees

2025-12-15 · 5 min read · By Aureus Worldwide

The VAT treatment of directors' fees in the UAE has been a moving target, and it changed in a way that affects many board members and the companies that pay them. Under updated rules, the performance of a director's function by a natural person has been treated as outside the scope of VAT, subject to conditions, a significant shift from earlier treatment. This guide explains the position, who it affects, and what to confirm, because this is exactly the kind of changeable area where you should check the current rules with the FTA.

The change in treatment

For a period, services performed by directors were generally treated as a taxable supply of services, meaning a director making such supplies above the threshold had to register for VAT and charge 5%. Under updated rules, the performance of a director's function by a natural person on a board of directors has been treated as outside the scope of VAT, subject to conditions. This means the director function itself is no longer a taxable supply in the way it once was.

Because this is a change that took effect from a particular point and has conditions, the single most important step is to confirm the current position and effective date with the FTA rather than relying on older guidance.

Who the outside-scope treatment covers

The treatment generally focuses on:

The relief is aimed at the director function performed by an individual. If a person who happens to be a director also provides separate consultancy, management or other services, those other services are assessed on their own merits and may still be taxable.

Why the distinction matters

The reason this matters is straightforward: if the director function is outside the scope of VAT, then:

• A director should generally not charge 5% VAT on the director fee for that function
• Those fees generally do not count towards the VAT registration threshold in the same way
• A director whose only taxable supplies were directorship fees may need to review their VAT registration

Conversely, charging VAT on a fee that is now outside scope, or continuing to treat directorship fees as taxable when they are not, creates errors that the FTA can correct. The general framework for services is covered in our VAT on services guide.

The headline is that the director function by an individual has been moved outside the scope of VAT, but separate services that director provides are not automatically swept along with it.

Impact on VAT registration

A practical consequence concerns registration. Some individuals registered for VAT specifically because their directorship fees pushed them over the threshold. If those fees are now outside the scope:

1. Recalculate your taxable supplies excluding the director-function fees
2. Check whether you remain above the registration threshold on your other taxable supplies
3. If directorship was your only taxable activity, consider whether deregistration is appropriate
4. Confirm the position with the FTA before deregistering, to avoid acting prematurely

Our VAT registration guide covers the thresholds and process that this assessment turns on.

Companies that pay directors

For the company paying the fees, the change affects input VAT and invoicing. If the director function is outside the scope of VAT, there is generally no VAT charged on those fees for the company to recover. Companies should review their treatment of director payments, ensure they are not recovering input VAT on fees that no longer carry VAT, and update their processes accordingly. Where a company provides directors to other entities (rather than an individual sitting on a board), the treatment may differ, so assess that arrangement separately.

Transitional and timing points

Because the treatment changed from a particular point, timing matters. Fees for the director function relating to periods before and after the change may be treated differently, and there can be nuances for fees that straddle the change or are paid in arrears. This is precisely the kind of detail that turns on the effective date and the specific facts, so map your director fees against the timeline and confirm the treatment of any straddling amounts with the FTA.

Practical steps

• Identify all director fees and separate the director function from other services
• Stop charging VAT on the director function where it is outside scope, once confirmed
• Reassess VAT registration for directors whose only supplies were director fees
• Review input VAT recovery on director payments at the company level
• Document the basis and effective date for the treatment you apply
• Confirm the current position and timing with the FTA

Record-keeping

Keep clear records distinguishing the director function from any other services a director provides, the dates fees relate to, and the VAT treatment applied to each. For companies, keep evidence of why input VAT was or was not recovered on director payments. Good records make the position defensible if the FTA reviews it. Integrating this with ongoing accounting keeps the treatment consistent.

A note on changeable detail

The VAT treatment of directors' fees has changed and is exactly the kind of specific, changeable area where current guidance and effective dates govern. Treat this guide as an explanation of the shift and confirm the current position, conditions and timing with the FTA or a qualified adviser before acting.

How Aureus Worldwide helps

Aureus Worldwide helps directors and the companies that pay them apply the current VAT treatment of director fees, separate the director function from other taxable services, and reassess VAT registration where directorship was the only supply. Our VAT and accounting teams update invoicing and input recovery accordingly, and we direct you to confirm the current rules and timing with the FTA. To review your director-fee VAT, contact us.

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