Imports are taxable under VAT. When a person registered under VAT in UAE imports goods or services, the importer has to pay VAT on imports on reverse charge basis. This is in addition to customs duty levied on imports. The scenarios of import can be divided as follows:

• Import by a person registered under VAT
• Import by a person not registered under VAT
• Goods trans-shipped via UAE to other GCC countries
• Goods imported to UAE and exported to other countries

All importers in UAE should register for VAT before 31 December 2017 if their taxable supplies made and imports received exceed AED 375,000 for the last 12 months. Registration for VAT purposes will mean that an importer can defer payment of VAT, so payment shall be due on submission of the return (28 days following the tax period in which the import happened). From 1 January 2018, import of goods that are subject to VAT into the UAE will be affected as follows:

If the Importer wants to pay the VAT on Import he can pay through one of the certified import clearance companies registered with the Federal Tax Authority (FTA) by  Submitting the customs declaration in the FTA e-services portal and also if the Importer wants to provide e-Guarantee he can apply  by , Submitting the customs declaration through the FTA e-services portal.

When a supply is made, usually, the supplier of goods or services is liable to collect and pay tax to the Federal Tax Authority (FTA). This is called forward charge. Under reverse charge, the recipient of the supply is liable to pay the tax on the supply to the Federal Tax Authority. In the case of imports, as the supplier is outside UAE and is hence, not registered in UAE, the liability to pay tax on the import is on the importer registered under VAT in UAE.

On imports, VAT rate of 5% will be applicable. The only exception is import of precious metals, on which VAT rate of 0% is applicable. The rate of VAT applicable on imports is kept same as the VAT rate applicable on domestic supplies, in order to ensure that imports are taxed equally as domestic supplies and the tax paid by the recipient of the supply on imports is eligible for input tax recovery.  The records of imports are required to be maintained for a minimum of 5 years from the end of the year to which the invoices pertain.

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The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published an updated version of the Executive Regulations to the Federal Decree Law No. 8 of 2017 on Value Added Tax (VAT), on its website.

This version includes updates made through Cabinet Decision No. 46 of 2020, however, the specific Cabinet Decision has not been published separately.

The main update includes a change made in Article 31(2) on the Export of Services rules. The Article now reads:

“For the purpose of paragraph (a) of Clause 1 of this Article, a Person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month and the presence is not effectively connected with the supply”.

In the updated article above, the word “AND” replaces the word “OR” and thus requires both conditions included in this Article to be met in order for a supply of services made to non-resident persons to be zero-rated for VAT purposes.

This change to Article 31(2) appears to direct that supplies made to overseas businesses which have a fixed establishment in the UAE, such as a branch or representative office, are within the scope of UAE VAT and there are limited circumstances where zero-rating is applicable.

Accordingly, where a UAE business provides a taxable service to a business established outside the UAE, further due diligence will be required to determine whether the zero-rate can be applied in practice.  

The obligation to prove that a local establishment of an overseas business is not present in the UAE may lead to an additional layer of administration for the supplier, in order for the supplier to gain comfort that VAT should not be charged.

 The ability of the UAE branch to recover the input tax incurred will need to be considered in line with the normal VAT recovery rules.  There may also be practical challenges for branches in cases where the branch may have to fund the cost of VAT (and the cost of services), where the branch considers that it has not actually been the recipient of the services at hand.

Given the change has been made to the Executive Regulations by way of a Cabinet Decision, this is a change to the existing legislation which is expected to have prospective effect, however the FTA’s interpretation of the effective date of this change has not been confirmed.

Businesses should assess the implications of this change and undertake a review of all contracts on which the zero-rate has been applied to exported services in order to determine whether this warrants any changes to the VAT treatment applied to date.

The process of determining the VAT liability applicable to such services should also be carefully reviewed, and consideration given to introducing additional controls in order to ensure that zero-rating is applied only where the conditions in the Executive Regulations are met.

UAE Economic Substance Regulations(ESR) Updated notification :

The UAE Economic Substance Regulations(ESR) Test requires a Licensee to demonstrate that: the Licensee and Relevant Activity are being directed and managed in the UAE; the relevant Core Income Generating Activities (“CIGAs”) are being conducted in the UAE; and. the Licensee has adequate employees, premises and expenditure in the UAE

In UAE Economic Substance Regulations(ESR) Updated notification filing requirements,the approach of the different authorities in relation to which entities should be filing the initial notification is currently inconsistent, and therefore it is important to monitor announcements/ clarifications that are made by the relevant Regulatory Authorities.

Immediate actions

To avoid non-compliance with these rules and potential penalties, as a first and immediate step all UAE entities (both companies and branches) should assess whether they fall under the UAE Economic Substance rules (in 2019) and which of the below compliance obligations they may have (if any):

• Notification filing
• Having sufficient substance in the UAE and how to demonstrate this
• Filing of an annual substance return

If the entity does fall under these rules and has to demonstrate sufficient substance in the UAE, it should also make an assessment as to whether it can satisfy the economic substance tests prescribed by the regulations.

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The UAE Ministry of Finance in late May 2020 issued an advisory notification that provides certain relief with regard to requirements under the UAE’s economic substance regulations—relief provided in response to the corona virus (COVID-19) pandemic.

Under economic substance regulations, there is a legal requirement for all UAE entities, including branches of local and foreign companies that carry on any of nine relevant activities, to maintain economic substance in the UAE specific to each relevant activity. The nine activities relate to banking, insurance, investment fund management, lease-finance, shipping, headquarters, holding companies, intellectual property, and distribution and service centers.

The economic substance regulations have an effective date of 30 April 2019, with reporting required from financial years ending on or after 1 January 2019. Under these rules, certain annual regulatory filing requirements (that include notification and reporting) must be met in order to comply with the regulations as well as to avoid penalties for non-compliance.

Certain “free zones” have already announced the deadline for the first economic substance notifications—such as, DIFC with a deadline of 12 June 2020; ADGM with a deadline of 30 June 2020; and DMCC with a deadline of 30 June 2020.

In general, economic substance notifications across the UAE must be filed by the deadline of 30 June 2020, and the due date for the economic substance report for FY 2019 is 31 December 2020. However, the UAE Ministry of Finance also granted certain relief concerning the economic substance reporting requirements in response to the COVID-19 situation.

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The Federal Tax Authority (FTA) of the United Arab Emirates has issued a Public Clarification No. VATP017 clarifying the FTA position, about interpretation of Article 55 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT Law), regarding time-period within which input tax should be recovered by a taxable person. A summary of the subject Public Clarification is as under.

Article 55(1) of the VAT Law provides that input tax must be recovered in the first tax period in which the following conditions are satisfied:

1. The taxable person receives the tax invoice; and
2. The taxable person pays the consideration for the supply or any part thereof.

Article 54(2) of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the VAT Law (Executive Regulations) by referring Article 55(1) of the VAT Law provides that a taxable person is treated as having made a payment of consideration of a supply to the extent that the person intends to make the payment before the expiration of six months after the agreed date of payment for the supply.

Reading Article 55(1) of the VAT Law and Article 54 of the VAT Executive Regulations in juxtaposition reveals that input tax must be recovered in the first tax period in which the following two  conditions are satisfied:

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

There could be a situation where a taxable person may receive a tax invoice but may not have an intention to make the payment until the internal approval process for the invoice is completed. In such cases, the condition of Article 55(1) of the VAT Law regarding intention to make the payment before the expiration of six months after the agreed date of payment is not fulfilled.

The FTA, in the subject Public Clarification, states that the conditions of Article 55(1) of the VAT Law will only be met when the taxable person completes the internal approval process and forms an intention to make the payment within the prescribed period.

In view of this, before recovering input tax, a taxable person needs to substantiate that in addition to receiving a tax invoice, he has also satisfied the condition of forming an intention to make the payment within the prescribed period.

The subject Public Clarification further states that where a tax invoice is received in one tax period and the intention to make the payment is formed in a later tax period, the input tax can only be recovered in such later tax period.

Further, where the input tax is not recovered in the tax period in which both of these conditions are satisfied, the taxable person can recover the input tax in the immediate next tax period.

The subject Public Clarification further states that if input tax is not recovered in the first two tax periods, a taxable person is required to submit a voluntary disclosure. The voluntary disclosure should amend the input tax reported in the VAT return of one of the two tax periods.

Non-payment of consideration before the expiration of six months after the agreed date of payment

The subject Public Clarification in the end clarifies that in case a taxable person fails to make the payment of consideration before the expiration of six months after the agreed date of payment, the taxable person should reduce the input tax in the VAT Return of the tax period following the expiry of the six-month period. However, once the payment is made, the taxable person will again be entitled to recover the input tax.

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Even with Saudi Arabia hiking its value-added tax (VAT) from July, businesses in the UAE and Bahrain are hopeful these governments would hold back for now. And even if they do raise it, it won’t be to the levels imposed by Saudi Arabia.

“Several business sectors had submitted requests to the UAE authorities for a six-month VAT holiday until things get back to normal and consumers regain their confidence,” said the head of an industry grouping in Dubai. “The Saudi announcement comes as a complete jolt, and it will be difficult for consumers to sustain the tripling of VAT.”

The UAE and Saudi Arabia rolled out VAT on January 1, 2018, and Bahrain followed exactly a year later. The other Gulf states had delayed the transition to a VAT regime. (VAT-generated revenue for UAE in 2018 was Dh27 billion. In mid-November, Saudi Arabia said it had collected 46.7 billion riyals as VAT up to that point.)

Before the COVID-19 crisis, the International Monetary Fund (IMF) had advised Saudi Arabia to increase its VAT rate to 10 per cent.

The UAE is now holding a three-day government summit. Changes to VAT could be on the agenda – more so, with Saudi Arabia announcing its plans on Monday. The UAE has, for now, said there are no plans to hike VAT and match the Saudi move.

Why did Saudi Arabia triple its VAT rate?

The Saudi Finance Minister Mohammed al-Jadaan was fairly candid about the reason. “These measures are painful, but necessary to maintain financial and economic stability over the medium to long term. And to overcome the unprecedented coronavirus crisis with the least damage possible.”

And this time, Saudi Arabia did not attempt to lessen the pain on residents through offering incentives elsewhere. The kingdom will also be withdrawing the cost-of-living allowance offered to Saudi nationals working in the government sector.

According to Reuters, Saudi government had limited options, with revenues from selling oil dropping significantly. Extended restrictions on commercial activity through the COVID-19 lockdown period also hastened the revenue drop.

“Any short- to medium-term austerity measures will be significant and have a dramatic impact on businesses,” said Sachin Kerur, Head of Middle East Region, Reed Smith. “But it is hard to see how the Saudi fiscal position can be controlled without any shock treatment. After that, the fundamentals for Saudi should remain strong and Vision 2030, albeit refined and adjusted, can still play a key role in the beneficial diversification of the Saudi economy.

“Minister Al-Jadaan has said the government could lose half of its oil income, which contributes 70 per cent public revenues, given plummeting oil prices. So this is not a surprise and indeed many businesses in Saudi Arabia had been anticipating this for a little while now.

“Indeed, many expect more measures to come in soon. These latest measures are an obvious and necessary response to the growing Saudi fiscal deficit.”

What about UAE deciding not to raise VAT for now

Retaining VAT rates at the current 5 per cent would give this market a significant price advantage over Saudi retail prices. Wherever such price advantages open up, it creates opportunities for consumers and sellers.

“It’s unclear what the quantifiable advantages will be for cross-border transactions,” said Sameer Lakhani, managing director at Global Capital Partners. “But on the surface, it does appear that certain ‘arbitrage’ opportunities might open up if there are differences in VAT rates.”

Kerur agrees there are gains. “But the reality is that every regional government will implement its own fiscal measures to combat budgetary pressures and these are likely to be tough across the whole region,” he added.

What does it mean for the consumer

Saudi Arabia and the UAE are the two leading gold consuming markets in the Gulf. But there are differences in the demand pattern. In Saudi Arabia, the interest is principally for 21K gold and mostly from national and Arab shoppers.

But in the UAE, 22K rules.

“The Saudi VAT hike to 15 per cent will have a significant impact on domestic demand there,” said Abdulsalam K.P., executive director at Malabar Gold & Diamonds and a member of Dubai Gold & Jewellery Group. “In Saudi Arabia, there are two gold base rates – one for 21K (and which includes making charges) and another for 22K.

“The 22K prices are comparable to Dubai, but 21K is already much higher. With 15 per cent VAT, the price gap will widen further.”

Malabar operates 14 stores in the kingdom and confirmed it will be shutting down two of those keeping in mind market circumstances.

“In the gold jewelry trade, there is a vast unorganized retail sector, and with 15 per cent VAT hike, there are concerns there could be higher incidence of under-reporting of sales,” said Salam.

What it might mean for prices at local level

For Saudi consumers, a VAT increase will have a domino effect on what they will eventually pay at the checkout counter in stores.

Cost of import and delivery will all ratchet up in proportion, and these will add to the cost of merchandise at the store.

“Even if the duty amount is tolerable, the VAT, which is a direct tax, will have an enormous effect on the price of landed goods,” said Thomas Gregory, executive director at Fusion Specialized Shipping & Logistics. “Along with duties, the landed cost is going to be costlier by 20 per cent.

“The direct impact of VAT on exports will not be a significant impact as most services are exempted.”

On the cost of delivery, “Local moves will be impacted big time as the VAT component has increased by 300 per cent. For example, if a local move costs 500 Saudi riyals, with the new VAT rules, it could cost 575 riyals. “With companies working at a 10-12 per cent margin, this could be seen as a step that will increase product prices.

“Customers may refrain from buying non-essentials and luxury goods, but essential commodities must move.

“Logistics is a derived demand, hence there will not be a significant impact on the industry. It is a matter of time to get accustomed to the new realities of life.”

courtesy : https://gulfnews.com/

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The Federal Tax Authority (“FTA”) has recently updated a VAT Administrative Exception Guide.

WHAT IS VAT ADMINISTRATIVE EXCEPTION? 

The UAE VAT Law specifies administrative requirements, which, in general, should be fulfilled by all UAE VAT-registered businesses and individuals, despite the size of the business, volume of transactions, or any other unique aspects of the business.

Often many businesses find it challenging to comply with these administrative requirements resulting in a potential risk of penalties during an audit by FTA.

However, as per the VAT Administrative Exception mechanism, VAT-registered businesses and individuals may apply for concessions/exceptions from UAE VAT Law requirements in respect of the following:

• Tax Invoices and Tax Credit Notes
• Length of the Tax Period
• Stagger
• Extension of the time of Export of goods

WHAT’S NEW?

The updated mechanism provides a new category of VAT Administrative Exception relating to “Evidence to prove export of goods.”

According to the updated Guide, VAT-registered businesses and individuals may submit a request to approve the use of an alternative form of evidence to prove the Export of goods.

WHO MAY APPLY?

Any VAT-registered business or individual who can justify the FTA with actual reasons/circumstances for which the request for usage of an alternative form of evidence may apply for an administrative exception in this scenario.

WHAT THE OUTCOME OF THIS VAT EXCEPTION?

According to UAE VAT Law, the Export of goods shall be subject to the zero-rating relief if the following conditions are met:

• The Goods are physically exported to a place outside the Implementing States or are put into a customs suspension regime in accordance with GCC Common Customs Law within 90 days of the date of the supply.
• The official and commercial evidence of Export or customs suspension is retained by the exporter.

“Official evidence” means Export documents issued by the local Emirate Customs Department in respect of Goods leaving the State.

“Commercial evidence” shall include any the following:

• Airway bill
• Bill of lading
• Consignment note
• Certificate of shipment

If the application for VAT Administrative Exception is approved, the Tax Payer will have official permission from the FTA to use of an alternative form of evidence export documents to be able to consider this Export as zero-rated supply.

The alternative form of evidence export documents may be any of the following:

• Proforma invoice
• Export Invoice
• Packing List
• Sales Contract
• Insurance Certificate, etc.

HOW CAN WE HELP?

Al Nuaimi Auditors as an entity provides VAT advisory, optimization, registration, implementation and compliance services in Bahrain, UAE, KSA, and the GCC.

Our team is here to guide you through the VAT Administrative Exception process and liaise with FTA in obtaining an exception.

Our team of senior qualified tax advisors, finance experts, and tax accountants will ensure timely and cost-effective VAT services.

Based on our local and international experience, we understand that VAT is a complex tax and will certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises.

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The Federal Tax Authority (FTA) on Tuesday announced the decision to extend the tax period for excise tax registrants, which began on March 1, 2020, for one month on an exceptional basis.

The Federal Tax Authority (FTA) on Tuesday announced the decision to extend the tax period for excise tax registrants, which began on March 1, 2020, for one month on an exceptional basis.

The FTA said it is fully committed to support taxpayers and enabling them to fulfil their tax obligations during these exceptional times, as authorities’ ramp up their precautionary efforts to prevent the spread of the coronavirus (COVID-19).

The tax period now covers the months of March and April 2020, and ends on April 30, 2020, allowing registered businesses sufficient time to fulfill their tax obligations before the deadline.

New deadlines

Excise tax registrants are required to file two separate tax returns, one for March and one for April 2020, and settle the total amount due for the two months no later than Sunday, May 17, 2020.

A statement from FTA said that the new deadline takes into consideration the date set by the UAE authorities to impose the 24-hour restrictions on movement for individuals and vehicles, implemented in certain areas of the UAE.

“The FTA appreciates that current conditions may prevent taxable persons from fulfilling these obligations within the legal timeframes, the statement continued. The taxable persons registered for excise tax – constituting 1,100 registrants – are required to submit several declarations detailing their production, import, or release of excise goods from designated zones.

Online services

The FTA said that it will continue providing all of its services remotely, facilitating registration procedures, as well as the filing of periodic tax returns and payment of due taxes. The advanced electronic system promotes and facilitates self-compliance, as it allows Taxable Persons or their representatives to complete all transactions quickly, easily, and with no need for personal contact or paper documents. The Authority said it is fully committed to maintain contact with all stakeholders in the tax system, answering their enquiries, and providing them with the information they need on systems, legislation, and executive procedures. Registrants can get in touch through the call center or by email.

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source : https://gulfnews.com/business/federal-tax-authority-extends-tax-period-for-excise-tax-registrants-1.1586887271846

The Federal Tax Authority (FTA) on Tuesday issued a directive on an exceptional basis providing an alternative date of May 28, 2020 for the deadline of submitting value-added tax (VAT) returns and the payment of due tax for the tax period ended March 31, 2020, enabling taxable persons to meet their tax obligations without facing any difficulties.

This decision has been taken to support VAT registrants and the unprecedented intensive precautionary measures undertaken by the UAE to curb the spread of the novel Covid-19 coronavirus imposing restrictions on the movement of individuals and vehicles implemented in certain areas of the UAE, which coincided with deadlines for filing VAT returns.

In a press statement issued on Tuesday, the FTA confirmed that, as per the directive, VAT registrants who have monthly tax periods must submit their returns, and settle the payable tax for the tax period from March 1 to 31, 2020, no later than Thursday, May 28, 2020.

Meanwhile, VAT registrants having quarterly tax periods must submit their returns and settle the payable tax for the tax period from January 1 to March 31, 2020, by Thursday, May 28, 2020.

The FTA urged VAT registrants to ensure the data they include in their VAT returns is accurate, and to also ensure that the FTA receives the payable tax for the tax period ending March 31, 2020, by Thursday, May 28, 2020, calling on all registrants to continue to abide by all other tax obligations as usual.

This exceptional directive for the deadline pertains only to VAT Returns for the tax periods that ended on March 31, 2020, and does not affect any other tax periods where the deadline for filing tax returns and settling of payable taxes does not fall in April 2020.

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Source : https://www.khaleejtimes.com/business/vat-in-uae/deadline-for-submitting-vat-returns-extended-in-uae

The FTA has made the provision for qualified and licensed persons to assist Taxable Persons in compliance under VAT. These persons are called Tax Agents. Let us understand more about Tax Agents under VAT.

Who is a Tax Agent?

FTA and assist in fulfilling his/her tax obligations and exercising his tax rights. A Tax Agent can assist taxable persons to fully meet their tax obligations and save them the time and effort required in compliance.

What are the duties of a Tax Agent?

The duties of a Tax Agent are the following:

• Assist Taxable Persons with their tax obligations as per the contractual agreement between the Taxable Person and the Tax Agent.
• Maintain the confidentiality of any information obtained in the course of performing his/her duties as a Tax Agent.
• Refuse to participate in any work or plan which may result in the breach of any Law by any person or which may jeopardise the integrity of the tax system.
• If and when requested by the FTA, provide all information, documents, records and data required regarding the Taxable Person he/she represents.

What are the conditions to register as a Tax Agent in UAE?

A person wanting to register as a Tax Agent should fulfil the following conditions:

• Be of good conduct and behaviour and never have been convicted of a crime or misdemeanour prejudicial to honour or honesty
• Should hold a certified Bachelor or Master degree in tax, accounting or law from a recognised educational institution. If the applicant holds a bachelor degree in any other field, he/she should submit a tax certification from an internationally recognised tax institute
• Should hold a certification of relevant and recent experience of at least 3 years in tax, qualified accounting or Law
• Provide a certificate proving their verbal and written communication in both Arabic and English
• Pass the FTA’s Tax Agent exam
• Provide a medical fitness certificate
• Hold professional indemnity insurance

When can application for registration as a Tax Agent be rejected?

The FTA will reject an application for registration as a Tax Agent in the following 2 cases:

• The applicant does not meet the registration requirements
• The person’s registration as a Tax Agent will adversely affect the integrity of the tax system in UAE

What is Tax Agent register?

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