Blog

Initiative issued by Dubai Customs to the e-commerce businesses who are interesting to register or registered already with the Dubai Customs platform will be exempted from the relevant customs services charges for a lot of types of declarations (i.e. import from GCC and RoW; import to local from FZ; transfer between Dubai FZ; transfer within the FZ; etc…). However, the value of the goods should remain under AED 30,000. This notice will be effective from 14/11/2021.

For more information on these services, please contact us:

There has been uncertainty regarding the VAT treatment of options supplied in return for premiums – specifically, whether they are exempt or taxable for VAT purposes. This Public Clarification clarifies the FTA’s views on this issue.

Supplies of options in respect of debt securities and equity securities in return for premiums are exempt from VAT.

For more information on these services, please contact us:

In accordance with Article 7(2) of the Federal Decree-Law No. (8) Of 2017 on Value Added Tax (the “Decree-Law”), the transfer of whole or an independent part of a business from a person to a taxable person for the purposes of continuing the business that was transferred is not considered to be a supply for VAT purposes.

As a consequence of not being a “supply” for VAT purposes, such transfer of a business, commonly known as a “transfer of a business as a going concern” or a “TOGC”, is not subject to VAT. This rule has a compulsory application.

This Public Clarification discusses the conditions that have to be met for a transfer to qualify as a transfer of a going concern under Article 7(2) of the Decree-Law.

For more information on these services, please contact us:

The United Arab Emirates (UAE) Federal Tax Authority (FTA) has made substantial efforts in amending some of its provisions relating to violation of the tax laws by taxpayers, which have been appreciated by the business community, especially during the Covid-19 pandemic. The purpose of this article is to examine the salient features of the new UAE penalty laws.

Before we start to analyze the provisions of the new penalty laws, it is useful to reiterate that there are, generally, two types of penalties.

Firstly, a fixed penalty: Fixed penalties usually have a lower imposition for a first-time violation and a higher imposition for a repeated violation.

Secondly, a percentage-based penalty: Percentage based penalties can be calculated either daily (for example, penalty amounting to 1% of unpaid tax, calculated every day), or monthly (for example, penalty amounting to 4% of unpaid tax, calculated every month), or even be based on a percentage of the unpaid tax. Percentage-based penalties sometimes have an upper ceiling on the amount of penalty that can be imposed (for example a provision may state that the maximum penalty that can be imposed is 300% of unpaid tax). Some provisions may also have both a fixed penalty and a percentage-based penalty.

Background of New Penalty Provisions

On April 28, 2021, the UAE government issued Cabinet Resolution No. 49 of 2021 Amending some Provisions of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violation of Tax Laws in the UAE (Cabinet Resolution No. 49 of 2021) (New Law), effective from June 28, 2021 (Effective Date). In the majority of cases, the New Law led to a substantial reduction in penalties as compared to the previous regime under Cabinet Resolution No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE (Old Law).

The New Law contains among others two important provisions, Article 1 and Article 3, which primarily deal with penalties covering two periods (before June 28, 2021, and after June 28, 2021).

Article 1 relates to penalties that would replace the tables under the Old Law and are effective from June 28, 2021. Article 3 refers to those penalties that have already been imposed before June 28, 2021.

Structure of Article 1 of New Law

Article 1 of the New Law contains three tables:

Table 1 covers Administrative Violations and Penalties related to the application of Federal Law No. 7 of 2017 on Tax Procedures.

Table 2 covers Administrative Violations and Penalties related to the application of Federal Decree-Law No 7 of 2017 on Excise Tax.

Table 3 covers Administrative Violations and Penalties related to the application of Federal Decree-Law No. 8 of 2017 on Value-Added Tax. We will discuss these three tables below.

Table 1

Clauses 1 through 8 of Table 1 are not that significant and may not require an in-depth explanation. Clause 9 of Table 1 covers a situation where the taxable person fails to pay the tax (as shown as a tax payable in return/voluntary declaration/assessment). This late payment penalty has been reduced from 1% per day to 4% per month (up to 300%), which is a substantial reduction in penalty liability. This penalty also mirrors the penalty mentioned in Clause 14 of Table 1 of Article 1 (Clause 14 of Table 1: The registrant has failed to calculate tax on behalf of another person when the registered taxable person is obligated to do so in accordance with tax law).

An important aspect to note here is that just like the Old Law, the New Law in Clause 9 of Table 1 specifically covers a situation where a tax that has been declared has not been paid. It does not cover a situation where the tax return submitted is, in the opinion of the FTA, incorrect. That is covered specifically in Clause 10 of Table 1 to Article 1.

The penalty under Clause 10 has a lower threshold of a fixed penalty of 1,000 Emirati Dirham ($272) for a first-time violation, and 2,000 Emirati Dirham for a repeat violation (which has been reduced from 3,000 Dirham/5,000 Dirham respectively under the Old Law).

Interestingly, the percentage-based penalty levied under the Old Law (between 5% and 50%, depending on certain circumstances) has been removed. Hence, this is also a major reduction in the penalty liability under the Old Law. This is another welcome step for the taxpayer.

Next, we will consider the penalty imposed under Clause 11 of Table 1 (which is without prejudice to that mentioned in Clause 10). This penalty provision ought to be interpreted to cover a situation where the taxpayer makes a voluntary declaration to fix errors in the tax return or the tax refund application, in accordance with Clauses (1) and (2) of Article 10 of Federal Law No. (7) of 2017 (Tax Procedures Law).

The event which triggers the imposition of the penalty is the act of filing a voluntary declaration rectifying an error in a tax return/refund application. The penalty here is a percentage-based penalty, between 5% and 40% depending on how long after the due date of the tax return/refund application the voluntary declaration was filed. This is in sharp contrast to Clause 11 to Table 1 in the Old Law, which has a fixed penalty (3,000 Dirham for the first time, and 5,000 Dirham for repeat offenses), and an increasing slope of penalties, depending on the circumstances surrounding the initiation of audit if any.

It is noticeable here that Clause 11 of the New Law does not determine the penalty with respect to the act of initiation of the tax audit, as in the case of the Old Law. Instead, it determines the penalty with respect to the time limit from when the tax return/refund application took place. Here, it is rather challenging to determine, just by comparatively reading the provisions of the Old Law and the New Law, which of them would be more beneficial for a taxpayer. Any conclusions may be drawn by considering the individual facts and circumstances of the taxpayer’s case.

Clause 12 of Cabinet Resolution No. 49 of 2021 deals with a situation of a failure to make a voluntary declaration before being notified of a tax audit. Under the Old Law, there is a fixed penalty and a 50% unpaid-tax penalty.

The New Law, on the other hand, no longer imposes a fixed penalty. It retains the 50% unpaid-tax penalty, and in addition, it envisages a 4% monthly penalty from the due date of payment/refund until the date of receipt of the assessment.

Also, it is to be noted that the penalty in Clause 12 does not cover a situation where a voluntary declaration has indeed been filed before notification of the audit. The intention of the New Law is to give benefits to taxpayers. However, at a first glance at the New Law, it may be challenging to determine the exact quantum of the benefit available to a business. Businesses would have to look at their current situation and apply the New Law accordingly.

Tables 2 and 3

Having discussed the major penalty provisions in Table 1, we will now proceed to the penalties in Tables 2 and 3.

Of these penalties, the most stringent provisions are Clause 2 of Table 2 and Clause 3 of Table 3. The former covers a situation involving failure to comply with the conditions and procedures for transporting excise goods from one designated zone to another, and the mechanism of preserving, storing, and processing them in it. The latter covers a situation of failure to comply with the necessary conditions and procedures for storing goods in a designated zone or moving them to another designated zone.

The penalty in both cases shall be the higher of 50,000 Dirham, or 50% of the tax, which was the same as the Old Law (i.e., no changes in this regard in the penalty regime).

The other penalties under Article 1 are of smaller amounts and may not require an in-depth discussion.

The FTA has also issued Tax Procedures Public Clarification—Amendment to the Penalties Regime for penalties mentioned in Article 1 in TAXP001 which largely reiterates the provisions in Article 1 of Cabinet Resolution No. 49 of 2021, referring to some very useful examples.

Structure of Article 3 of New Law

Perhaps the most interesting article in the New Law is Article 3. This Article reads that for those penalties that have been imposed before the Effective Date and are not paid, the taxpayer is required to pay only 30% of the total unpaid penalties, subject to the following conditions:

• the penalties ought to have been imposed prior to the Effective Date;
• such penalties imposed ought to have not been (fully) paid by the Effective Date;
• tax due has been paid by December 31, 2021; and
• 30% of the penalties payable (and which are unpaid) until the Effective Date, is actually paid by December 31, 2021.

One important factor to reiterate here is that the penalties covered under this provision are only the penalties that have already been imposed before June 28, 2021, and not those penalties that have not been imposed by then.

With respect to Article 3, the FTA had issued clarifications in TAXP002. TAXP002 also provides some interesting examples. Two sample calculations of the application of Article 3 based on the principles enunciated in the examples in TAXP002 are given below.

Example 1

At the start of May 2021, a penalty of 15,000 Dirham was imposed on a registrant as per the Old Law. The registrant paid a penalty amounting to 3,000 Dirham on June 1, 2021. As of June 28, 2021, penalties amounting to 12,000 Dirham remained unpaid. The registrant paid all tax due including that relating to the last return due in 2021 and 30% of the penalties (i.e., 3,600 Dirham) by December 31, 2021.

In this case, the registrant qualified for redetermination under Article 3 of the New Law. Consequently, the registrant will no longer be required to pay the remaining 8,400 of the administrative penalties, and the administrative penalty imposed before June 28, 2021, shall equal 3,600 Dirham that was already paid by the registrant. A summary is provided in the table below:

For more information on these services, please contact us:

News Courtesy :  Bloombergtax

Depending on the circumstances, a provider of healthcare services may be contractually supplying these services to another provider of healthcare services.

For example, a doctor may have contracted with a hospital to provide certain healthcare services from the hospital’s premises. Alternatively, a hospital may have contracted with a laboratory or another hospital for conducting tests or medical procedures for the hospital’s patients.

The question is whether such business-to-business healthcare services are eligible for zero-rating.

A supply of healthcare services may only be zero-rated if the recipient of the supply is also the person who receives the treatment.

For more information on these services, please contact us:

Article 55 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”) prescribes the time period within which input tax should be recovered by a taxable person.

This Public Clarification clarifies the FTA’s position relating to the interpretation of Article 55 of the VAT Law and discusses the time period within which the input tax must be recovered. This Public Clarification also discusses the recourse available to taxable persons in the instance where input tax is not recovered within the prescribed time period.

Input tax must be recovered in the first tax period in which two conditions are satisfied:

1. the tax invoice is received; and
2. An intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed.

Upon receipt of a tax invoice, a taxable person can recover input tax only when an intention to make the payment within a prescribed period is formed. Therefore, if the intention to make the payment is formed in a tax period that is later than the tax period in which the tax invoice is received, the input tax can be recovered only in the later tax period.

For more information on these services, please contact us:

The supply of a building may be standard-rated, zero-rated, or exempt from VAT, depending on the nature of the building and the permitted use thereof at the date of supply.

Since VAT is a transaction-based tax, the VAT treatment shall be determined independently at each date of supply.

This Public Clarification clarifies the VAT treatment of the sale of a building and the subsequent use thereof by the purchaser.

The sale of a building constitutes the supply of a single indivisible good at the date of supply. If the purchaser subsequently changes the permitted use of the building, it does not impact the VAT treatment of the preceding sale.

Consequently, where a building was sold as a serviced/hotel apartment and the purchaser subsequently change the permitted use of the building to residential use only, the preceding sale will remain subject to 5% VAT whereas the purchaser should not account for VAT on the subsequent exempt supply.

If a building was sold as a residential building but the permitted use is subsequently changed to use as a serviced/hotel apartment, the VAT treatment of the original sale will remain the same regardless of the purchaser’s subsequent use of the building, i.e. exempt from VAT, except if it was the first supply of the building, in which case the supply may be zero-rated. After the permitted use is changed, the purchaser will have to account for 5% VAT on the supply of the building to a third party if the purchaser is a Taxable Person.

For more information on these services, please contact us:

Article 31(1)(a)(1) of Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments1 (the “Executive Regulation”) prescribes rules for the zero-rating of certain exports of services. This zero-rating rule is further supplemented by additional rules and conditions in Article 31(2)2 and (3) of the Executive Regulation.

This Public Clarification provides a high-level clarification of the FTA’s view of the zero-rating conditions in Article 31(1)(a) of the Executive Regulation relating to the residency and location of the recipient of services, taking into account the amendments made to Article 31(2) of the Executive Regulation in Cabinet Decision No. 46 of 2020.

In accordance with Article 31(1)(a)(1) of the Executive Regulation, a supply may only be zero-rated where the recipient of services does not have a place of residence in an Implementing State and is outside the UAE at the time the services are performed.

In determining whether these conditions are met, the supplier must consider all available facts in order to identify the residency status and the location of the recipient. Where the recipient has multiple establishments, the supplier must also determine which establishment of the recipient is most closely related to the supply.

For more information on these services, please contact us:

Numerous retailers are offering “VAT-free special offers” as promotions to entice prospective buyers to purchase goods or services within a promotional period.

Referring to “VAT-free special offers” is misleading and contrary to the VAT legislation since the goods or services are not actually supplied free of VAT.

This Public Clarification clarifies the VAT treatment of promotions where the seller absorbs VAT on promotional goods. For purposes of this clarification, the term “promotional goods” refers to goods that are sold as part of a special promotion.

VAT registered businesses should not advertise taxable goods or services as free of VAT or sell such goods or services without accounting for 5% VAT, except where the supply qualifies for zero-rating.

For more information on these services, please contact us:

Law No. 6 of 2019 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai (“Law No. 6”) was issued on 4 September 2019 and has a significant impact on Dubai Owners’ Associations and Management Entities.

As a result of Law No. 6, Dubai Owners’ Associations no longer make taxable supplies and are, therefore, required to deregister for VAT. There are, however, numerous Dubai Owners’ Associations that are still registered for VAT

This Public Clarification clarifies the VAT implications of Law No. 6 on Dubai Owners’ Associations and Management Entities.

On 3 November 2019, all rights and obligations of Dubai Owners’ Associations were transferred to Management Entities, which resulted in Dubai Owners’ Associations no longer making taxable supplies.

Dubai Owners’ Associations were, therefore, required to apply for VAT deregistration within the period prescribed in the tax legislation of 20 business days; that is, no later than 4 December 2019.

Management Entities are regarded as making supplies to the owners of Jointly Owned Real Property and required to fulfill VAT obligations in this regard, including the issuing of valid tax invoices and VAT reporting.

For more information on these services, please contact us:

Where a VAT registered supplier supplies goods or services to its customers but is not paid (wholly or partially) within a specified period, such supplier may be able to adjust the VAT on the bad debts, subject to meeting the conditions prescribed in Article 64(1)1 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (‘Decree-Law’).

This Public clarification discusses the conditions which must be met in order to benefit from the Bad Debt relief scheme.

For more information on these services, please contact us: