Dubai Custom and UAE VAT Update on Indirect Exports

On a report issued on 17 March 2021, new Export Mechanism in coordination with FTA is issued by Dubai Customs

Problem Faced by Traders in Dubai:

• Traders pay VAT when goods are imported into local market.
• These goods are then sold in local market to overseas buyers.
• Overseas Buyers’ arrange Export Agent to collect goods from different sellers and submits a single ‘Export’ Declaration. Export declaration has single Exporter Business Code and Name.
• Exporter arranges with original Importer to provide Exit Certificate upon Export for purpose of VAT Refund. Export declaration does not mention each original Importer names. This results in non-approval of VAT Refund to original Importer by FTA even after submitting details of Export Declaration and Exit Certificate.
• FTA is unable to refund VAT in the absence of Importer Name and Import Declaration details between original Imports and subsequent Exports.

What is the new system?

• A new Service called “Export Verification Report” will be introduced on 26th March 2021 by Dubai Customs on Dubai Trade Portal for VAT refund against the Cleared Export Declaration for the maximum period of 3months.
• Customs Bureau Officers, FTA users, Importers and Authorized Customs Brokers can generate “Export Verification Report” if the Exporter has mentioned valid M2 Import Declaration No. in Export Declaration and Importer has a Tax Registration Number [TRN].
• Provide an option in Export Declaration to mention valid M2 original Import Declaration No. as a reference [Previous Declaration Number]. VAT refund can be claimed only if Previous Declaration Number is provided in the Export Declaration
• Importers and Authorized Customs Brokers can login to Dubai Trade Portal:
  • “Generate VAT Export Report”
  • “Search VAT Export Report”, View and Download the existing reports
• FTA and Customs Bureau Officer can generate Consolidated “Export Verification Report” of all importers under single Tax Registration Number [TRN] which is associated with multiple Business codes.

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UAE VAT Public Clarification on Bad Debt Relief Adjustment

FTA has published public clarification (VAT P024) on bad debt relief adjustment.

Some of the key highlights of VATP024 are as follows:

• If a supplier does not receive payment from customer, supplier may adjust the Output vat on the bad debt subject to certain conditions. Following four conditions must be met:

1. VAT charged and accounted for (to FTA via tax returns) on the supply
   1. Consideration should have been written off in full or part
   1. More than 6 months should have passed from the date of supply
   1. Supplier should have notified the customer that amount has been written off

• Bad debt relief can only be taken to the extent of consideration written off in the accounts
• During the period of 6 months, FTA considers that supplier should engage with customer to recover the debt
• The notification to the customer for the write-off must include:

• Invoice number
• Date of invoice which has not been paid
• Amount of consideration which has been written off

• FTA considers the requirement of notifying a customer will be satisfied where a supplier sends a letter, email, post, or any other similar communication to the customer stating the amount of consideration that has been written off.
• It is not necessary to have acknowledgment from the customer however evidence of providing notification must be retained
• Adjustment on account of bad debt relief should be made in the “Adjustment column” of Box 1 of the VAT Return and adjustment amount should be the VAT amount only

Source : premier-brains.com

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VAT treatment of the repair/refurbishment work provided by to the Customers including replacement of parts

As per Article 2 of the VAT Decree Law, “VAT shall be imposed on every taxable supply and deemed supply made by a taxable person and import of concerned goods into the UAE”.

The term “taxable supply” is defined in the VAT Decree Law as “a supply of goods or services for a consideration by a person conducting business in the UAE and does not include exempt supply.”

Article 30 (3) of the VAT Decree Law states that for the supply of services related to goods, such as installation of goods supplied by others, the place of supply shall be where said services were performed.

Article 31 of the Executive Regulations states that the export of services shall be zero-rated in the following cases:

“a. If the following conditions are met:

1. The services are supplied to a recipient of services who does not have a   place of residence in the State and who is outside the State at the time the services are performed 
2. The services are not supplied directly in connection with real estate situated in the State or any improvement to the real estate or directly in connection with moveable personal assets situated in the State at the time the services are performed.”

Referring to above, repair or refurbishment services provided by UAE Company in relation to the Goods/ machines located in the UAE cannot be considered as zero-rated export of services as these services are supplied directly in connection with the moveable personal assets (i.e. the machines) situated in the UAE at the time the services are performed.

Note that the word ” moveable personal assets ” is to be construed as “moveable assets”.

Source : gccfintax.com

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New Dubai Tax Dispute Resolution Committees now deciding on 2020 and 2021 objections

Since around September 2020, the tax dispute resolution committee of the Emirate of Dubai has been inoperable (under reformation).

On 25 November 2020, the UAE Minister of Justice issued Ministerial Decree No. 691/2020 on the Formation of Tax Dispute Resolution Committees for the Emirate of Dubai.

The Emirate of Dubai previously had only one tax dispute resolution committee to hear objections against reconsideration decisions of the Federal Tax Authority. However, the Decree formed two tax dispute resolution committees for the Emirate of Dubai (Dubai TDRCs).

The two new Dubai TDRCs began practically operating on 16 February 2021 and had docketed all tax objections lodged in 2021 for review and issuance of a decision.

Decisions for objections filed in 2021 have begun being issued as of mid-March 2021.

As of the fourth week of March 2021, objections filed in 2020 are also being considered by the Dubai TDRCs.

However, taxpayers could be required to communicate with the Ministry of Justice and confirm the validity of the objections and continued request by the taxpayer/objector for the Dubai TDRC to decide on the objection.

The Ministry of Justice may request confirmation as to whether the objector had proceeded to file an appeal before the Federal Primary Court pursuant to Article 33(2)(b) of the Tax Procedures Law which grants objectors the opportunity to challenge the non-issuance of a decision by a tax dispute resolution committee.

(The Tax Disputes Circuit of the Federal Primary Court is responsible to hear challenges against rulings of a TDRC. Both the taxpayer and the FTA may challenge a ruling of the TDRC before the Federal Primary Court, Federal Appeals Court, and finally the Federal Supreme Court.)

 Timelines

 If a person (domiciled in Dubai for tax purposes) disagrees with a decision by the FTA and commences the reconsideration process but does not obtain a favorable outcome, the subsequent procedure would be to object before the Dubai TDRCs.

The objection is lodged with the tax dispute resolution department of the Ministry of Justice that is responsible for lodging the objection with the Dubai TDRCs within two weekdays as of the date of the filing.

Once the Dubai TDRCs receive the objection, a decision must be rendered within a maximum of forty weekdays which comprises of an initial twenty-weekday period and an additional twenty-weekday extension period. The extension can be granted based on the request of the objector or the Federal Tax Authority, or if the Dubai TDRC deems it necessary.

After the procedure before the Dubai TDRC is concluded, either the objector or the Federal Tax Authority can challenge the committee’s decision before the Federal Primary Court.

Source : GCCFintax

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VAT on Transportation Under UAE VAT Law

The UAE Federal Tax Authority or FTA has clarified exemptions that are granted by local VAT regulations to public and private transportation. Cabinet Decision (No 52) of 2017 on Executive Regulations of Federal Decree-Law (No 8) of 2017 Re: UAE Value Added Tax provides specific transactions which are exempt from VAT and considered as zero-rated. The exempt transactions related to transportation or transport operations include:

• Local transport of passengers (not by train or bus)
• Transport originating and ending outside the UAE (outside the scope of VAT)
• transport-related services intended for cross-trade transportation (outside the scope of VAT)

Apart from the exemptions listed above, the following transactions that are related to public and private transport operations are considered as zero-rated under the UAE VAT law:

• Transportation of passengers, inbound and outbound (including intra-GCC)
• Transportation of goods, inbound, and outbound (including intra-GCC)
• Transport-related services that are for transportation, inbound and outbound
• Local transport part or for the purpose of transportation, inbound or outbound
• International transportation, including related supplies
• Supplies of certain air, land, and seas mean of transportation e.g. aircraft and ships

The UAE VAT Law clarified that transportation transactions that are VAT-taxable at the standard rate of five percent are as follows:

• Local transport of passengers in means of transport that don’t qualify for zero-rate or exemption from VAT
• Local transport of passengers in means of transport that qualify for zero-rate or exemption from VAT but for sight-seeing, pleasure, etc.
• Local transport of goods
• Transport-related services that are for the local transport of goods

What means of transport qualify as zero-rate taxability?

As per the local VAT regulations in UAE, the supply of these means of transport, either sea, air, or land, is subject to VAT at zero rates:

• Supply of train or bus that’s designed or adopted in order to be utilized for public transportation (must be for ten or more passengers)
• Supply of boat, ship, or any floating structure that’s designed or adopted in order to be utilized for commercial purposes, but isn’t designed or adapted to provide pleasure, recreation, or sports-related economic activities
• Supply of any aircraft that’s designed or adopted in order to be utilized for commercial transport of goods and passengers, but not designed or specifically adapted for the purpose of sports, pleasure, or recreation

With respect to the aforementioned means of transport and their supply, it’s the responsibility of suppliers to determine whether means of transport supplied isn’t utilized for sports or recreation. Suppliers may ascertain the intended use of customers by obtaining written declarations that specifically state means of transport will be used ONLY for the designated commercial purposes.

Furthermore, the supply of services and goods related to the supply of means of transport designed for operation, maintenance, conversion, or repair of transport will remain zero-rated. Repair and maintenance, therefore, which are provided to any means of transport will be considered as zero-rated in relation to VAT, subject to certain regulatory conditions.

VAT-Related Responsibilities for Transportation Businesses

All businesses in UAE providing transportation-related services need to record financial transactions and make sure financial records are updated and accurate. The following VAT compliances are required of UAE businesses:

• VAT Registration – an entity registered in UAE is required in obtaining registration when the total value of supplies has reached the threshold for mandatory VAT registration or AED 375,000 for the previous twelve months. A VAT registration application can be filed within thirty days from being required to undergo the registration process.
• VAT Returns – all taxable entities are required in filing VAT returns and make VAT payments on or prior to the twenty-eight days of the month after a tax period concerned. When the due date falls on any public holiday or a weekend, the due date will be on the following working day.
• Filing of Voluntary Disclosure – voluntary disclosure is for a taxable entity to notify the Federal Tax Authority regarding an omission or error in the tax return, tax refund, or tax assessment of a business. If there’s an error that resulted in the tax payable amount being less than what’s required by AED 10,000 or more, then the entity has to file a voluntary VAT disclosure twenty business days starting from the date of when the taxable entity was made aware of the mistake. If there’s an error that resulted in the tax payable amount being less by less than AED 10,000, the taxable entity is obligated in submitting a tax return to correct the mistake from the previous ta return for a specific tax period or file a voluntary disclosure.

Source : Farahat

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