Insights VAT
VAT on Directors' Fees in the UAE: What Changed and Who Still Pays
How the UAE treats VAT on directors' fees since 2023 — when board remuneration falls outside VAT scope, when it stays taxable, and who needs to check.
Key takeaways
- Since 1 January 2023, a natural person's fees for sitting on a UAE board of directors are outside the scope of VAT, not a taxable supply of services
- The change came through Cabinet Decision No. 99 of 2022, amending the VAT Executive Regulations under Federal Decree-Law No. 8 of 2017
- It applies whether the director is resident or non-resident, and whether the remuneration is paid in cash or in kind
- It does not cover a company appointed as director, or non-board services an individual supplies — those stay within the normal VAT rules
- A director registered for VAT only because of board fees should check whether registration or deregistration is now appropriate
Few VAT questions in the UAE generate as much confusion as the treatment of directors’ fees. For years the answer depended on how the director worked, how often, and for whom — and plenty of individuals ended up registered for VAT and charging 5% on their board remuneration without ever being sure they had to. Then, at the start of 2023, the rules changed in a way that made most directors’ fees far simpler to deal with. This guide sets out what the position actually is now, where the old treatment still bites, and the practical checks a director or a company should run before assuming the fees are clean.
The short answer
For a natural person — an individual — the fees paid for serving on a board of directors in the UAE are outside the scope of VAT. Since 1 January 2023, performing the function of a director on a board is not treated as a supply of services at all. There is no supply to tax, which means no 5% to charge, no VAT invoice to raise for the board fee, and nothing for the paying company to account for on that fee.
That is the headline, and for the great majority of individual directors it is the whole story. But two words in it carry a lot of weight — natural person and board. Get outside either of those and the old rules return. So it is worth understanding exactly what changed and why, because the boundary is where the mistakes happen.
What actually changed in 2023
The rule sits inside the VAT Executive Regulations. The UAE’s VAT system runs on Federal Decree-Law No. 8 of 2017, with the detail filled in by the Executive Regulations that accompany it. In 2022 the Cabinet issued Cabinet Decision No. 99 of 2022, which amended Article 3 of those Regulations — the article that defines what counts as a supply of services. The amendment added the position that the functions of a member of a board of directors, performed by a natural person for a government or private sector entity in return for remuneration, are not a supply of services. It took effect on 1 January 2023.
1 Jan 2023
Date from which a natural person's board director fees stopped being a supply of services for UAE VAT, under Cabinet Decision No. 99 of 2022
Before that date, the treatment was messier. A person who sat on boards regularly, independently and for a fee was generally regarded as carrying on a business, which made their directorship services taxable supplies. If their taxable turnover crossed the registration threshold, they had to register and charge VAT. That produced a lot of borderline cases: the one-off director, the executive who also held a board seat, the retiree on three or four boards. The 2023 change swept most of that away for individuals by simply taking the board function out of scope.
It is important to be precise about the mechanism. This is not an exemption. An exempt supply is still a supply — it just does not carry VAT, and it can affect input tax recovery. Here, the board function is defined as not a supply of services in the first place. That distinction matters most when you look at registration, which we come to below.
The conditions that have to be met
The exclusion is narrower than it first sounds. Two conditions do the work.
First, the services must be performed by a natural person. This is about an individual holding the seat in a personal capacity. It does not extend to a company that is appointed as a director and delegates one of its staff to attend in its name.
Second, the person must be performing the function of a director on a board. This is the formal role — attending and voting at board meetings, discharging the duties that come with the seat, and being remunerated for that role. The remuneration can be cash or in kind; both are covered. The nationality and residence of the director do not matter, so a non-resident who sits on a UAE board is treated the same as a resident one.
Where both conditions are met, the fee for the board role is out of scope. Where either fails, you are back in the normal VAT world, and that is precisely where directors and finance teams need to be careful.
When directors’ fees are still taxable
Two situations commonly fall outside the 2023 relief, and both are easy to miss.
A company appointed as director. If a corporate entity is appointed to a board — a management company, a professional-services firm, a shareholder’s holding company — and it nominates an individual to attend on its behalf, the supply is made by the company, not by the individual. The relief was written for a natural person holding the seat, so a corporate director’s services remain a taxable supply of services. That supply can carry 5% VAT and can count towards the company’s registration position. Groups that route board representation through an entity for governance reasons should not assume the fee is now VAT-free.
Services beyond the board role. A director is very often more than a director. The same person might also provide consultancy, act as a chief executive under a separate contract, deliver advisory work, or licence intellectual property to the company. Those are not board-director functions, and the 2023 change does not touch them. Each is assessed on its own terms under the ordinary rules, and each can be a taxable supply. The practical discipline is to look at what a payment is for, not just who it is paid to. A single individual can quite legitimately receive an out-of-scope board fee and a taxable consultancy fee from the same company in the same year.
What it means for VAT registration
Because board fees paid to an individual are now out of scope rather than exempt, they do not count as taxable supplies. That has a direct effect on registration.
If you registered for VAT primarily because your directorship income used to be taxable, that basis has gone. Out-of-scope income does not count towards the mandatory registration threshold or the voluntary one. So a person whose only relevant income is board fees may find they no longer meet the conditions to be registered, and may be required to deregister. Someone who also runs a genuinely taxable business — trading, consultancy, or other services above the threshold — stays registered on the strength of that other activity, and simply stops treating the board fees as taxable.
This is worth acting on rather than leaving to drift. Holding a VAT registration you no longer qualify for is not harmless; it carries ongoing filing duties and the risk of getting the returns wrong. If you are unsure which side of the line you fall, it is a quick review of your income streams against the thresholds — the same analysis covered in our walkthrough on how to register for VAT in the UAE, read in reverse. A structured VAT advisory review will confirm whether registration, deregistration, or no change is the right answer for your particular mix.
The transitional trap: before and after the change
The rule applies from 1 January 2023 and is not backdated. That creates a narrow but real complication for fees that straddle the change.
The date that matters is when the director’s service is actually performed, not simply when the invoice is raised or the fee is paid. A board fee that relates to duties carried out in 2022 does not become out of scope just because it was invoiced or settled in 2023. Equally, work done from 2023 onwards is covered even if the arrangement began earlier. Where a fee covers a period spanning the cut-off, it may need to be apportioned between the taxable pre-2023 element and the out-of-scope element after it.
The FTA’s public clarification on directors’ services — VATP037, which replaced the earlier VATP031 in May 2024 — works through exactly these timing questions, including how the date-of-supply rules apply to fees voted at a general meeting after the period they relate to. If you have fees sitting on either side of the 2023 boundary, that is the material to reason from, and the treatment should follow the facts rather than a convenient assumption.
The 2023 change is a simplification, not a loophole. It removes VAT from the board seat itself — it does not remove it from everything a director does, and it does not rewrite what happened before the change.
For most directors reading this in 2026, the straddle problem is long behind them and the position is simply that board fees are out of scope. But anyone reconstructing older records, responding to a query on historical returns, or preparing for a review still needs the pre-2023 treatment in mind. The rules that applied at the time are the rules that govern the period.
Directors’ fees and corporate tax are different questions
It is easy to read “outside the scope of VAT” and hear “tax-free”. They are not the same thing. The 2023 amendment is a VAT rule and says nothing at all about corporate tax, which is a separate system with its own logic.
For the individual receiving the fee, whether directorship income falls within UAE corporate tax depends on their wider circumstances and on whether the income is treated as arising from a business. Board fees for a natural person are not automatically inside or outside corporate tax by virtue of the VAT position — the two regimes are assessed independently. Individuals who sit on several boards, or who combine directorships with other self-employed work, should look at this properly rather than reading across from the VAT answer; our note on corporate tax for freelancers and sole establishments is a useful starting point for how the regime treats individuals.
For the company paying the fee, a corporate tax deduction has to meet the normal conditions — the cost must be incurred wholly and exclusively for the business. There is an extra layer where the director is a connected person, such as an owner or a relative of an owner. Payments to connected persons are only deductible to the extent they reflect market value, which is one of the reasons directors’ remuneration to related parties should be documented and benchmarked rather than set arbitrarily. Our overview of related-party disclosures for corporate tax explains where those transactions surface in a return.
The takeaway is to keep the two questions apart. A board fee can be out of scope for VAT and still be a live matter for corporate tax, for the individual, the company, or both.
A short checklist before you treat a fee as VAT-free
Running through a few questions saves a lot of second-guessing:
- Is the recipient an individual, in a personal capacity? If a company holds the board seat, the relief does not apply.
- Is the payment for the formal board-director function? Consultancy, executive services, or IP licensing bundled under the same relationship are assessed separately and may be taxable.
- Does the person have other taxable supplies? If board fees were the only reason for a VAT registration, check whether that registration still stands up.
- Do any fees relate to periods before 1 January 2023? If so, the older treatment governs that portion, and apportionment may be needed.
- Have you looked at corporate tax separately? The VAT answer does not settle deductibility for the company or the individual’s position.
None of these is difficult on its own. The value is in asking them deliberately, in the right order, before a payment is classified — because the cost of an incorrect assumption is either VAT charged in error or, worse, VAT that should have been accounted for and was not. The recent round of UAE VAT amendments is a reminder that the detail moves, and that classifications worth getting right are worth checking against the current rules.
Where Velmont Crest fits
Most directors and finance teams do not need a lengthy engagement to settle this — they need a clear, correct answer for their specific facts and a check that nothing else has been swept up with it. That is the work: confirming a fee is genuinely for the board function, separating out any taxable services attached to the same person, reviewing whether a VAT registration is still appropriate, and making sure the corporate tax treatment has been considered rather than assumed. Where a company routes directorship through an entity, or a director carries several income streams, a short review avoids a wrong turn that is awkward to unwind later.
Velmont Crest is a DED-licensed UAE accounting firm providing advisory, preparation and compliance support to SMEs across Dubai mainland and the free zones — from VAT advisory and registration reviews to corporate tax preparation. Read more on our insights hub or get in touch through our contact page.
Disclaimer: Velmont Crest is a DED-licensed accounting firm providing advisory, preparation and compliance support services. We are not a law firm, the Federal Tax Authority, or an FTA-registered tax agent representing clients before the FTA. UAE VAT and corporate tax rules depend on your specific facts and can change — verify the current position with the FTA and the Ministry of Finance, and consult a licensed professional for advice specific to your circumstances before acting.
References
Frequently asked questions
- Is VAT charged on directors' fees in the UAE?
- Not for a natural person sitting on a board of directors. Since 1 January 2023, the function performed by an individual as a member of a board — for a government or private sector entity, in return for remuneration in cash or in kind — is not treated as a supply of services, so it falls outside the scope of VAT. This came in through Cabinet Decision No. 99 of 2022, which amended the VAT Executive Regulations. The position is different where a company (rather than an individual) is appointed as director, or where a person provides services beyond the formal board role. In those cases the normal VAT rules still apply and 5% VAT may be due, subject to registration.
- Does the VAT exclusion apply to non-resident directors?
- Yes. The exclusion is based on the person being a natural person performing the board director function, not on where they live. A director who is resident outside the UAE but sits on the board of a UAE company is covered in the same way as a resident director. In practical terms this also removes the reverse-charge question that a UAE company might previously have faced when paying board fees to a non-resident individual, because there is no supply of services to account for in the first place. As always, other services the same person might provide to the company are assessed separately under the standard rules.
- What if a company is appointed as a director rather than an individual?
- The exclusion does not reach that arrangement. Where a legal person — a company — is appointed as a director and puts forward one of its own people to act in its name, the service is supplied by the company, not by the individual in a personal capacity. That supply remains a taxable supply of services under the normal rules, so it can carry 5% VAT and may trigger registration obligations for the company making it. The 2023 change was written specifically around a natural person holding a board seat, so structures that route directorship through a corporate entity should be reviewed carefully rather than assumed to be out of scope.
- Are directors' fees earned before 2023 affected?
- The exclusion took effect on 1 January 2023 and is not backdated. For directorship services performed before that date, the earlier treatment stands, which generally meant a taxable supply where an individual provided the services on a regular, ongoing and independent basis for consideration. The complication arises where fees straddle the change — for example, work done across 2022 and 2023, or a fee only voted at a general meeting after the change. The FTA's public clarification on directors' services (VATP037, which replaced the earlier VATP031) addresses these timing questions and points to when the service is actually performed. Where fees span the cut-off, the position should be worked through on the facts rather than assumed.
- Do I need to deregister from VAT if my only income was directors' fees?
- Possibly. If you registered for VAT largely because your board fees were taxable, and those fees are now outside the scope of VAT, they no longer count towards the mandatory or voluntary registration thresholds. If you have no other taxable supplies keeping you above the threshold, you may be required to deregister, or you may choose to. If you do have other taxable business — consultancy, trading, or other services — that continues to count and you stay registered for it. This is a facts-and-figures review rather than a formality, and it is worth doing promptly, because carrying a registration you no longer qualify for creates its own compliance obligations.
- Does this change mean directors' fees escape corporate tax too?
- No — VAT and corporate tax are separate systems and the 2023 VAT change says nothing about corporate tax. Whether a director's remuneration is within the scope of UAE corporate tax depends on the individual's circumstances and whether the income is treated as arising from a business. Separately, for the company paying the fees, a deduction for corporate tax must meet the usual conditions, and payments to owners or their relatives (connected persons) are only deductible to the extent they reflect market value and are incurred wholly for the business. Treat the VAT answer and the corporate tax answer as two distinct questions about the same payment.
Filed under: vat on directors fees, directors fees uae, uae vat, board of directors, VATP037, Cabinet Decision 99 of 2022, natural person, VAT scope
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