Category: Public Clarifications

A VAT-registered person may earn interest income by depositing money in a bank account or by holding fixed deposits, recurring deposits, or any other similar bank deposit. In addition, a VAT-registered person may earn dividend income by holding shares in a company.

This Public Clarification discusses the VAT implications of the interest income generated from bank deposits and dividend income.

Passively earned interest income generated from bank deposits does not amount to consideration for a supply. Similarly, dividend income received by merely holding shares in a company does not constitute consideration for a supply.

Passively earned interest income from bank deposits and dividend income is, therefore, outside the scope of VAT, and there is no requirement to report them in the VAT return.

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Article 1 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”) defines consideration as “all that is received or expected to be received for the supply of Goods or Services, whether in money or other acceptable forms of payment”.

A taxable person may receive payments in the nature of donations, grants, and sponsorships from third parties including but not limited to employees, customers, suppliers, etc. In order to determine whether such donations, grants, or sponsorships are subject to VAT, one needs to identify whether such money can be treated as a consideration against “taxable supplies”.

This Public Clarification discusses the principles that must be applied to ascertain the taxability of donations, grants, and sponsorships.

The VAT treatment of donations, grants, and sponsorships depends on whether the donor, grantor, or sponsor, as the case may be, has received any benefit in return for such payments. Where any benefit is received in return for the payments, VAT implications will arise. However, where no benefit is received, the payments will be treated as outside the scope of VAT as they will not be seen as consideration for a supply.

The use of the terms donation, sponsorship, and grant are not in themselves determinative of the VAT treatment of the payments, and a business must consider all the facts and circumstances before arriving at a conclusion.

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Importation of goods from outside the UAE into the UAE mainland is subject to VAT. When a VAT-registered person imports goods, he may, subject to certain conditions, account for VAT in the tax return (“VAT return”), rather than at the time of importation of the goods. However, when a person is not registered for tax imports goods, VAT needs to be paid before the goods are released to the person.

There will be situations where a VAT registered owner of the goods may request another VAT registered person (“importing agent”) to import goods on behalf of the former. This will happen when the person importing the goods is, for example, an agent of the owner of the goods, or in some cases, the customer of the owner of the goods.

In the above situations, as the VAT registered importing agent would have provided their TRN at the time of importation of the goods, the VAT amount would be automatically pre-populated in Box 6 of the VAT Return of the importing agent.

This Public Clarification discusses the adjustments that should be made in the VAT returns of the importing agent on one hand and the owner of the goods on the other hand. The Public Clarification also discusses who can recover the import VAT.

The VAT registered importing agent who acts as the importer of record would be required to make a negative adjustment in Box 7 of the VAT Return, in order to nullify the amount pre-populated in Box 6 of the VAT Return. At the same time, the VAT registered owner of the goods would be required to make a positive adjustment in Box 7 of the VAT Return to include the value of goods imported on its behalf by the importing agent.

The owner of the goods would be entitled to recover the import VAT as per its normal VAT recovery position.

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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.

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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.

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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.

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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.

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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.

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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.

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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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