Is VAT on Directors’ Fee in Bahrain Taxable Under the Bahrain VAT Law?

To know whether the Directors’ Fee in Bahrain is taxable or not, this blog will shed some light on a recent VAT public clarification VAT/PC/19/2 published by the National Bureau for Revenue (NBR)  on the applicability of VAT on Directors’ Fee in Bahrain. This clarification will state the liability of VAT on Directors’ fees earned by board members or directors while carrying out their duty as a board member of a company, governmental organization, institution or similar body, which will be known as Directors Fee.

The only intention of this Public Clarification by the NBR is intended to clarify the below matters corresponding to the implementation of the Decree-Law No. 48 for the year 2018 Regarding Value Added Tax and its Executive Regulations 

Is the Directors’ Service Fee taxable in Bahrain?

The Board members and the core team along with the Directors are to be considered as the most important catalyst in an organization that they are representing. The duties that are performed are based on the capacity of their involvement in the organization. Therefore, a Board Member or a Director is not to be considered doing an independent form of activity and the remuneration for such kind of services does not fall under the purview of VAT and considered as Out of Scope of VAT in Bahrain. Hence, VAT on Directors’ Fee in bahrain will not be taxable.

Core duties are those that are required to be carried out under the Commercial Companies Law (Decree Law No. (21) for the year 2001 and its amendments in Decree No. (50) for the year 2014, Decree No. (27) for the year 2015, Decree No. (1) for the year 2018), as may be amended from time to time.

What are the exceptions on Directors’ Service Fee?

If a board member or a director of a company is conducting some kind of activity in an independent way on behalf of the business which other than the duty and responsibility than member, then it shall be considered as an economic activity and he/she shall be obliged to register an account for himself/herself for VAT purposes in the Kingdom of Bahrain.

Let us give you one practical example of an exception in Directors’ Service Fee:

If Ms. Suravi is a board member of ABC WLL, she is providing some consultancy services to XYZ WLL independently and takes a fee on the consultancy that has been given. In such circumstance, Ms. Suravi has to register for VAT in Bahrain if the amount of her annual supplies is exceeding the mandatory registration threshold in Bahrain. Know more about VAT Registration in the Kingdom of Bahrain .

What is meant by Professional Directorship Services and is it taxable under the Bahrain VAT Law?

Professional Directorship Services are provided by Third Parties. A third party may be a service provider professional firm or trust or firm providing accounting, tax services. A third party is a part of a business who provides service for a fee or arranges another person to act as a board member of a business shall be considered to act independently. If a third party provides this kind of services will be considered as an economic activity and will have to register for VAT in Bahrain and is required to account for VAT  on the services that are being provided.

If a legal person appoints a board member, this will not be treated as the legal person providing a professional directorship service. For such cases, the legal person will be treated as exercising its shareholder right to appoint a board member and not appointing an independent member. Hence, if there are any fees paid by the entity to the legal person or the board member it will not fall under the purview of Bahrain VAT and will be considered as Out of Scope from VAT in Bahrain

Let us learn Directors’ Service Fee in Bahrain with a practical example:

Example 1.

Emirates Chartered Accountants Group (ECAG) is a Bahrain based company, a professional service provider providing a wide range of services which also includes – Company Set Up, Registered Offices and Office space for the companies. ECAG also arranges professionals to act as directors for their clients.

The Fees that are charged to arrange this another person to act as directors for Bahrain Clients, this kind of activity will be a consideration as an economic activity for ECAG. Hence, the fee charged will be taxable at a standard rate as per Bahrain VAT.

Are you looking for VAT Services in Bahrain?

Emirates Chartered Accountants in Bahrain Branch provides everything you need to run a smooth flow of your business. Our wide range of professional services comes with a cost-effective and tailor-make option that is preferred by businesses all over. Our team of professionals is well versed with the Bahrain VAT Law as well as the UAE VAT Law. They are also equipped with practical experience of implementing VAT in UAE  and VAT in Bahrain

Our wide range of services includes:

• VAT Registration
• VAT Training 
• VAT Implementation 
• VAT Return Filing
• VAT Consultancy 
• Accounting for VAT Compliance

You may reach our Executives: