Why it is important to determine date of supply for independent directors?

The answer to the question is very simple because VAT needs to be accounted for in the same month or quarter where the date of supply falls.

Possible Scenarios:

1. Director Free is not known to the director at the outset and he became aware only upon conclusion of Annual General Meeting
2. Director Fee is known to the director at the outset and periodic or multiple payments are made
3. Director Fee is known to the director at the outset but there are no periodic or multiple payments

VAT Treatment of all three scenarios is highlighted below for the purpose of understanding

 

1. Scenario 1: Director Free is not known to the director at the outset and he became aware only upon conclusion of Annual General Meeting:

In case the Board fee for independent director was known only at the conclusion of Annual General Meeting and the independent director has not issued any invoice nor received any payment prior to the date, date of supply shall be the date on which the services was completed in accordance with Article 25 of the VAT Law.

Federal Tax Authority has clarified that the provision of services is completed only when such fees is known to the director despite of the fact that provision of services continues throughout the year.

Therefore when fees is known to the director he shall issue an invoice within 14 days as per the VAT law and account for VAT in the same quarter.

2. Scenario 2: Director Fee is known to the director at the outset and periodic or multiple payments are made:

Date of supply shall be determined in accordance with Article 26 of the VAT law i.e.

Earliest of:

• Date of issuance of tax invoice
• The date payment is shown as due on the tax invoice
• Date of receipt of payment
• In case none of the aforesaid events has taken place date of supply shall be triggered at the end of 12 months

3. Scenario 3: Director Fee is known to the director at the outset but there are no periodic or multiple payments:

Date of supply shall be determined in accordance with the Article 25 of the VAT law i.e.

Earliest of:

• Date of issuance of Tax Invoice
• Date of Receipt of Payment
• Date on which provision of services was completed