Revised rules for Directors’ Fees

SAUDI ARABIA - Revised rules for Directors’ Fees

June 2019

The General Authority for Zakat and Tax (GAZT) has issued a press release regarding fees charged by directors for their services as board members where the directors do not have a contract of employment with the company.


GAZT’s original approach to directors who do not have a contract of employment was to treat them as acting independently from the companies to which they provide services. As a result, they were obliged to register for VAT if the value of their services exceeded the VAT registration threshold of SAR 375,000 (approximately USD 100,000) per year.

Many such directors registered for VAT based on this approach. However, not all directors were aware of their VAT obligations and there were some late registrations and those directors were subject to penalties for late registration and late payment of VAT.

Directors who have a contract of employment with their company are treated the same as any other employee and there has never been any question that their salary is outside the scope of VAT.

The revised approach

GAZT has re-examined the treatment of such directors and concluded that directors are never completely independent of the companies they represent. Consequently, they cannot be seen as carrying on an independent economic activity and should not be liable to register for, or charge, VAT. GAZT has confirmed that this decision applies from 1 January 2018, the date on which VAT was introduced in Saudi Arabia.

GAZT’s decision was published on its website as a press release in April. Since then, no formal guidance notes or any further information has been issued. 


Directors that registered for VAT solely on account of their services as company directors should be able to deregister for VAT.

To date, GAZT has not given any guidance on whether adjustments should be made to past transactions or on whether directors who received late registration penalties or interest charges can claim a refund.

It should be noted that the revised guidance from GAZT only applies to fees relating to directors’ services. If directors have income from other sources – for example, from real estate or other consultancies - they may still have an obligation to remain registered for VAT.

Excise Tax

Earlier this year the Board of Directors of the GAZT issued an amendment to the Implementing Regulations of the Excise Goods Tax Law. The amendment extends the application of the Excise Tax as follows:

  • The tax applied to soft drinks and energy drinks is extended to all sweetened beverages. The tax rate is 50%.
  • The tax applied to tobacco products is extended to electronic smoking devices and liquids used in such devices. The tax rate is 100%.

The amendment to the Implementing Regulations is expected to become effective shortly.

Other developments

GAZT has continued to issue new detailed guidance notes and to produce English language versions of the guidance that was previously only available in Arabic. There are now 27 dual-language guides.

Brian Conn

Mohammed Madbouly