Board of Director fee and VAT implication

    10 months ago


Board of Director fee and VAT implication

Member of the Board of directors, not an employee of the business unless they are specifically appointed.


Members of the board of directors who have not been appointed under contracts of employment and who receive fees in consideration of membership of the board of directors will be treated as carrying on an economic activity independently in their capacity as suppliers of services, and consequently they may be liable to register for VAT if the remuneration they receive for those activities is above the registration threshold.

Example: Ali retires from his executive role with a company in the Kingdom in 2019, and now occupies a position as a member of the board of directors in four companies in the KSA. He charges an annual director’s fee of SAR 100,000 to each company for his membership. Ali is treated as carrying on an Economic Activity with the purpose of generating income and must register for VAT as his annual turnover exceeds the mandatory registration threshold in force in 2019. His invoice will show as follows:

Similarly, management fee for holding company will come under the definition of Economic activity and subject VAT law if the threshold lime reaches.

Example: Holding Company B, the resident in the KSA, is the 100% owner of a group of companies consisting of seven subsidiary companies. Holding Company B has some employees and it carries out some administrative functions for the group of companies. These employees also spend some time working for group companies, and their costs are re-charged. Holding Company B incurs centralized costs for the group’s financial and administrative functions, and make a re-charge to group entities. In such case, Holding Company B carries on an Economic Activity for VAT purposes, on the grounds that it receives its revenues from fees for services performed for the subsidiary companies within the group. It may register for VAT if annual supplies exceed the optional VAT registration threshold or may form a group with one or more of its subsidiary companies.

 


Gazt VAT Guideline

Recent Comments 0


Back to List