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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.

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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.

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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.

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On 1 September 2020, the Cabinet issued a Cabinet Decision No. 9/12 O of 2020 (“Cabinet Decision”). The Decision concerns the temporary application of VAT at the 0% rate on certain supplies and imports of medical equipment. Furthermore, the Ministerial Decision No. 380 of 2020 (“Ministerial Decision”) issued by the Minister of Health and Prevention on 6 December 2020 (with effect from 1 September 2020) specifies the medical equipment that is zero-rated in accordance with the Cabinet Decision. In accordance with Cabinet Decision No. 15/3 O of 2021, the above decisions shall be effective until 31 December 2021.

This Public Clarification provides a summary of the zero-rating rules introduced by the abovementioned Decisions.

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A natural or legal person may own a number of sole establishments. There has been uncertainty on whether each sole establishment needs to obtain a separate VAT registration or whether all such establishments should be included under one VAT registration.

A person owning a number of sole establishments should obtain only one VAT registration for all its, and it is not permissible to register each it separately for Value Added Tax. The Federal Tax Authority (‘FTA’) will review, in certain cases, and will inform them of the corrective steps to be taken if any.

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While many countries are still struggling to get their citizens vaccinated against COVID-19, the UAE has done so with about 70 percent of its population and witnessing an uptick in economic growth. The accelerated vaccination has placed UAE among the top in terms of vaccine distribution rates.

The success of this is largely attributed to the government’s collaborative approach with businesses in the region. As part of their corporate social responsibility (CSR) initiative, businesses too joined hands by organizing vaccination drives for employees and their families, ensuring adherence to regulations with sterilization of commercial space, regular PCR tests for employees, property improvements, and supporting infected staff by sponsoring hotel accommodation, all at the expense of the company.

The recovery of VAT charged on such CSR spends has remained a grey area, and businesses are unsure whether they should expense or treat it as a recoverable VAT. Generally, VAT incurred on indirect expenses, except entertainment-related, are recoverable as general overheads.

In the case where expenses are incurred for employee welfare free of any charge, input VAT is recoverable only when the following three conditions are satisfied: (i) it is a legal or commercial obligation or an HR-documented policy, (ii) it is necessary for employees to perform their role (iii) and it can be proven to be normal business practice in course of employing people.

Office makeovers

For most businesses improvements and renovations to their premises had to be made as a precautionary measure or in compliance with local regulations. These improvements included the installation of glass dividers between dining or working areas to maintain distancing, setting up a sanitation booth at the entrance, placement of contactless fixtures such as water stations or touch-free biometrics, as well as putting up stickers and signages all over the location.

Though no specific input VAT recovery rule is prescribed under the law, businesses may be able to argue that these should be considered general overhead expenses essential to carry out business operations and consequently, and thus recoverable for VAT purposes.

The pandemic has undeniably popularized the work-from-home concept. Many organizations have provided office furniture to their employees to set up an office desk at home. Input VAT recovery on such outlays may be recoverable only if the purchases are made and ownership of the items remains under the name of the company.

Ambiguities remain

Where such items are given to the employees for free, it could be treated either as a deemed supply, or recovery of input VAT could be prohibited unless businesses can demonstrate the three conditions discussed above.

In the recent workshop organized by the FTA for tax agents, office sterilization expenses and PCR tests conducted for employees were clarified to be treated as general overhead expenses for input VAT recovery. However, ambiguity remains on the cost incurred by businesses for arranging a vaccination drive for employees and their dependents.

Certain businesses, for example, restaurants, retail sector, or other businesses where employees cannot work remotely and must be on-site to do their jobs, can take a position that the cost of arranging vaccination drive for employees and their dependents is critical to ensure the safety of customers.

Input VAT recovery on the fixed-mobile post-paid plan provided to employees is another contemporaneous issue. Since mobile phones are inherently available for personal use by employees, demonstration of official usage for input VAT recovery is becoming a challenge for most businesses.

Many telecom companies have offered extra bandwidth to their employees free of charge during a pandemic for uninterrupted work. Clarification in this direction would be beneficial.

Claim on a hotel stay?

There are also cases where businesses have sponsored hotel accommodation for the infected staff for quarantine purposes. In general, input VAT recovery on hotel accommodation has been prohibited by the FTA in most cases, as it innately denotes entertainment and leisure.

Since the VAT Law does not cover such a scenario where accommodation is provided due to medical exigencies, input VAT recovery on such expenses remains a question. In a nutshell, different businesses resort to different practices depending on their specific circumstances.

Some businesses are recovering VAT on various CSR spends and opting for a liberal interpretation, while others take a conservative approach in expensing the VAT cost.

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On 28 April 2021, the Cabinet issued Decision No. 49 of 2021 on Amending some Provisions of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE (“Cabinet Decision No. 49 of 2021”). Cabinet Decision No. 49 of 2021 amended some of the administrative penalties applicable to certain violations and allows for a redetermination of some of the penalties already imposed.

This Public Clarification provides detailed information on the introduced amendments to some of the administrative penalties.

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On 28 April 2021, the Cabinet issued Decision No.49 of 2021 on Amending some Provisions of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE (“Cabinet Decision No. 49 of 2021”)1. Cabinet Decision No. 49 of 2021 amended some of the administrative penalties applicable to certain violations and allows for a redetermination of some of the penalties already imposed.

This Public Clarification provides detailed information on the redetermination of some of the penalties already imposed.

Details relating to the amendments to administrative penalties in accordance with the First Article of Cabinet Decision No. 49 of 2021 are discussed in the Tax Procedures Public Clarification “TAXP001 – Amendments to the Penalties Regime”, available on the FTA’s website

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