Federal Tax Authority Confirms ‘Systems for VAT Refund Scheme for Tourists Are Ready’ for Steady Growth in Tourist Footfall

The Federal Tax Authority (FTA) confirmed that the VAT Refund Scheme for Tourists is witnessing continuous development, advancement, and expansion by introducing more facilities to streamline and speed up the refund process for tourists eligible for a tax refund. 

The Authority noted that the system witnessed a significant increase in demand recently, as travel restrictions are gradually relaxed. The tourism sector in the UAE started showing signs of recovery from the COVID-19 pandemic, driven by the mega-event Expo 2020 Dubai and the government’s efforts in supporting the travel industry.

During the Global Tourism Forum Pre – Post the COVID-19 Pandemic – which was held at Expo 2020 Dubai and organized by the Federal Tax Authority in collaboration with Planet (FTA’s authorized VAT Refund Scheme for Tourists operators) – the Authority showcased the pandemic’s implications on shopping patterns and purchasing consumers’ behaviors along with economic indicators of the recovery of the tourism sector globally and locally. The event brought together representatives from many departments including the Department of Economic Development, Tourism Development Department, and Department of Finance.

During the opening of the forum, His Excellency Khalid Ali Al Bustani, Director-General of the FTA, assured the utmost readiness and efficiency of the VAT Refund Scheme for Tourists. The system is one of the most innovative digital systems based on smart connectivity without paper transactions. The system is part of FTA’s integrated electronic platforms, which contributes to promoting an innovation-friendly environment and improving quality of life, in line with the vision of the wise leadership to make the UAE one of the best and most developed countries in the world.

Commenting on the indicators, His Excellency noted the high level of tourist satisfaction with the system. The UAE is one of the first countries to implement such a VAT Refund Scheme for Tourists that is characterized by the speed of completion of refund requests in mere minutes, ease of procedures, and clarity.

“Despite the significant negative implications of the COVID-19 pandemic in the past two years, the tourism sector, among others, has gradually begun to recover. The sector witnessed positive growth driven by the increasing rate of immunization against the virus, coupled with easing restrictions,” H.E. added. “Considering the current state of the tourism sector, the electronic VAT Refund Scheme for Tourists is gaining increasing importance. The system reflects the continuous development the UAE is leading in all fields and contributes to strengthening the tourism and travel sectors. As one of the leading sectors playing a major role in enhancing the local economy, the UAE’s tourism industry contributes significantly to the country’s GDP. The sector is characterized by its safe environment, hospitable people, attractive landmarks, and services that meet the highest international standards.”

The VAT Refund Scheme for Tourists includes a fully integrated electronic system that creates a direct link between 13 air, land, and maritime entry and exit ports across the UAE, with more than 13,800 stores registered with the Authority, allowing tourists to submit tax refund requests on their purchases. The system relies on advanced technologies allowing tourists eligible for tax refunds to reclaim the VAT they incurred, provided they meet the conditions and criteria specified in the government decisions issued in this regard.

The Self-Service Kiosks provide more facilities for tourists and are equipped with the necessary technology to enable tourists to complete tax refund procedures automatically. Visitors at Expo 2020 Dubai admired the devices, which can process tax refund procedures for tourists within two minutes. There are more than 82 operational Self-Service Kiosks, spread across major malls and hotels, while the VAT Refund Scheme for Tourists is available at air, land, and maritime entry and exit ports across the UAE.

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UAE Corporate – Other taxes

Value-added tax (VAT)

VAT was introduced in the United Arab Emirates on 1 January 2018. The general VAT rate is 5% and applies to most goods and services, with some goods and services subject to a 0% rate or an exemption from VAT (subject to specific conditions being met).

The 0% VAT rate applies to goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states, international transportation, the supply of crude oil/natural gas, the first supply of residential real estate, and some specific areas, such as health care and education.

Further, according to Cabinet Decision (No. 46 of 2020) on 4 June 2020, a person shall be considered as being ‘outside the state’, and thus fall under zero-rating export of services, 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.

A VAT exemption applies to certain financial services, as well as to the subsequent supply of residential real estate. Further, transactions in bare land and domestic passenger transport are also exempt from VAT.

Certain transactions in goods between companies established in UAE Designated (Free) Zones (DZs) may not be subject to VAT. The supply of services within DZs is, however, subject to VAT in accordance with the general application of the UAE VAT legislation.

For UAE resident businesses, the mandatory VAT registration threshold is 375,000 United Arab Emirates dirham (AED), and the voluntary registration threshold is AED 187,500. No registration threshold applies to non-resident businesses making supplies on which the UAE VAT is required to be charged.

VAT grouping is allowed, provided certain conditions are met.

There are specific documentary and record-keeping requirements, such as the requirement to issue tax invoices and submit VAT returns (on a quarterly or monthly basis depending on the allocation by the Federal Tax Authority [FTA]).

Excess input VAT can, in principle, be claimed back from the FTA, subject to a specific procedure. Alternatively, VAT credits may be carried forward and deducted from future output VAT.

Businesses that do not comply with their VAT obligations can be subject to fines and penalties. There are both fixed and tax-geared penalties.

Customs duties

Generally, a customs duty of 5% is imposed on the cost, insurance, and freight (CIF) value of imports. Other rates may apply to certain goods, such as alcohol and tobacco, and certain exemptions and reliefs may also be available. Further, the United Arab Emirates imposes anti-dumping duties on imports of certain goods, such as car batteries, ceramic and porcelain tiles, and hydraulic cement. The anti-dumping duty rates vary depending on the HS codes of the goods and country of export and/or origin. In some cases, the anti-dumping duty is 67.5% of the CIF value of the goods.

The United Arab Emirates is part of the GCC Customs Union, which was established in 2003 to remove customs and trade barriers among the GCC member states. No customs duties are levied on trade between the GCC member states (subject to certain conditions). Additionally, the United Arab Emirates grants duty-free imports to most national goods originating in member countries of the Greater Arab Free Trade Agreement, Singapore, and the European Free Trade Association countries (i.e. Norway, Switzerland, Iceland, and Liechtenstein).

While the UAE free trade zones (FTZs) are areas within the territory of the United Arab Emirates, these are, however, considered outside the scope of the customs territory. Therefore, goods imported into the UAE FTZs are not subject to customs duty. Customs duty is suspended until the goods are imported into the GCC local market.

Excise taxes

On 1 October 2017, the United Arab Emirates introduced an excise tax on tobacco and tobacco products, carbonated drinks, and energy drinks.

On 1 December 2019, the United Arab Emirates expanded the scope of excise tax to include sweetened drinks, electronic smoking devices, and tools, as well as liquids used in electronic smoking devices and tools.

The applicable tax rates are as follows:

• 100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools, and energy drinks.
• 50% on carbonated drinks and sweetened drinks.

Municipal or property tax

Most Emirates impose a municipality tax on properties, mostly by reference to the annual rental value. It is generally the tenants’ obligation to pay the tax. In some cases, separate fees are payable by both tenants and property owners. For example, in the Emirate of Dubai, the municipality tax on the property is currently imposed at 2.5% on the annual rental value for commercial properties (paid by property owners) and 5% for residential properties (paid by tenants).

A registration fee may be levied on the transfer of ownership of land or real property. For example, a land registration fee is levied in the Emirate of Dubai at a rate of 4% of the fair market value of the property (a cost generally shared between the buyer and seller), payable to the Dubai Land Department. In Dubai, the registration fee may also apply to the direct or indirect transfer of shares in an entity that owns real property.

These levies are imposed and administered differently by each Emirate.

Stamp taxes

Currently, there are no separate stamp taxes levied in the United Arab Emirates.

Payroll taxes

Since there is currently no personal income tax in the United Arab Emirates, there is no payroll tax withholding obligation for employers.

Social security contributions

There is a social security regime in the United Arab Emirates that applies to qualifying UAE and other Gulf Cooperation Council (GCC) national employees only. Non-GCC nationals are not subject to social security in the United Arab Emirates.

For UAE national employees (with the exception of those employed in Abu Dhabi), social security contributions are calculated at a rate of 20% of the employee’s gross remuneration as stated in the local employment contract. Social security obligations also apply to employees of companies and branches registered in a free trade zone (FTZ). Out of the 20%, 5% is payable by the employee, 12.5% is payable by the employer, and an additional 2.5% contribution is made by the Government. A higher rate of 26% is applied in the Emirate of Abu Dhabi, where the contribution of the employer is increased to 15%, the Government’s contribution is increased to 6%, and the employee’s contribution remains 5%. 

For other GCC nationals working in the United Arab Emirates, social security contributions are determined in accordance with the social security regulations of their home country.

The employer is responsible for withholding and remitting employee social security contributions together with the employer’s share.

In the Dubai International Financial Centre (DIFC), the DIFC Employee Workplace Savings Scheme (DEWS) has been introduced, replacing the End of Service Gratuity Benefit (EOSG), with the aim of protecting long-term employee savings. The new scheme was rolled out on 1 February 2020, and employers now are required to make monthly contributions to DEWS or an alternative regulated Qualifying Scheme, as opposed to paying a lump sum ‘gratuity payment’ to an employee at the end of their employment.  Employers are required to contribute monthly contributions of 5.83% or 8.33% of the employee’s basic salary (the actual percentage is contingent upon the employee’s length of service) into the scheme.

Hotel tax and tourism levies

Most Emirates impose hotel levies, which apply to the value of hotel room rental, services, and entertainment. These levies are imposed and administered differently by each Emirate.

A Tourism Dirham fee is levied in the Emirate of Dubai. This is a charge on hotel guests and tenants of hotel apartments ranging from AED 7 to AED 20 per room per night depending on the star classification of the hotel, for example, a five-star hotel will levy a Tourism Dirham fee equal to AED 20 per room per night whereas a two-star hotel will levy a Tourism Dirham fee equal to AED 10 per room per night. In the Emirate of Abu Dhabi, hotels will levy a tourism fee equal to 6% of the hotel room rental and a destination fee of AED 15 per night.

In addition to the above tourism fees, the Emirate of Dubai also requires hotels to levy a 7% municipality fee on each hotel sale. Likewise, in the Emirate of Abu Dhabi, hotels are required to levy a 4% municipality fee. A hotel sale is a revenue generated by a hotel for services provided to their guests or visitors, which includes rent for the hotel room, food, beverages, and other services.

Hotels in all Emirates levy an additional service charge equivalent to 10% of the hotel sale revenue.

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UAE to introduce 9% corporate tax on business profits from June 1, 2023

UAE introduce 9% corporate tax, The UAE Ministry of Finance will introduce a corporate tax on business profits on financial years starting on or after June 1, 2023. The Ministry also confirmed that there will be no tax on profits of up to Dh375,000, in a move that will help small businesses.

No corporate tax will apply on personal income from employment, real estate, and other investments, or any other income earned by individuals that do not arise from business or other forms of commercial activity, licensed or otherwise.

“The UAE is moving gradually from a non-tax environment to a tax environment – that will give the UAE Government additional income to fund the country’s development activities,” said Rizwan Sajan, Chairman of Danube Group. “This comes about four years after the introduction of VAT – on January 1, 2018.

Across the board tax

Until now, UAE’s corporate taxes only applied to banks and insurance companies. They are taxed at 20 percent. Individual emirates have already imposed a limited corporate tax on enterprises engaged in the exploration and production of oil and gas at rates up to 55 percent.

Although personal income tax is still absent in the Gulf, many countries have in recent years rolled out VAT (value-added tax) on individuals and business activities, with Saudi Arabia tripling the rate to 15 percent last year.

The latest UAE announcement should be seen as a natural progression to leading economies of the world wanting to set a minimum tax on corporate. It is intended to stop the practice of corporate titans – especially US technology ones – having skeletal operations in a low tax regime and then paying little on their profits in their home country.

The effort at a minimum corporate tax-cutting across jurisdictions gained traction in the months after the pandemic broke out and nations were facing severe economic disruptions. The UAE’s move to introduce across-the-board capital gains tax “brings the UAE’s corporate tax regime to be in sync with the global moves,” said a tax consultant.

The GCC remains an attractive jurisdiction for foreign investment due to favorable tax regimes in most countries in the region. However, a number of reforms have been underway to create new revenue streams while reducing dependence on mainstream sources of revenues in the region. In some countries, value-added taxes have already been announced, while in other countries different forms of taxes are being introduced.

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News Courtesy:gulfnews.com

VAT Corner: What is the nature of supply?

Article 1(20) of the GCC VAT Framework (‘the Framework’) states that “Any form of supply of Goods or Services for consideration” is called supply. From this definition, taxpayers can infer that supply by nature can be classified into (i) a supply of goods or (ii) a supply of services. It’s very important to establish whether a registered taxpayer is supplying goods or services since different rules are applicable to identify the tax point, establish the place of supply, adopt a proper tax position and apply correct rates.

Supply of Goods

Article 5 of the UAE VAT Law (‘the Law’) states that: “The following shall be considered a supply of Goods:

1. Transfer of ownership of the Goods or the right to use them to another person according to what is specified in the Executive Regulation of this Decree-Law.

2. Entry into a contract between two parties entailing the transfer of Goods at a later time, pursuant to the conditions specified in the Executive Regulation of this Decree-Law”.

Article 2 of the VAT Executive Regulations (‘the Regulations’) states that:

1. “A transfer of ownership of goods or of the right to use them from one Person to another Person shall include for instance the following:

a. A transfer of ownership of Goods under a written or verbal agreement for any sale;

b. A transfer of ownership for a Consideration in a compulsory manner pursuant to the applicable legislation.

2. For the purposes of Clause (1) of this Article, a transfer of the right to use any assets shall not be treated as a supply of goods unless the other person is able to dispose of them as owner.

3. Entry into a contract between two parties causing the transfer of Goods at a later time shall be considered a supply of Goods where the agreement mentions a transfer or intention to transfer the ownership of Goods or a future transfer of ownership of Goods.

4. The following shall be considered a supply of Goods:

a. A supply of water.

b. A supply of real estate including sale and tenancy contracts.

c. A supply of all forms of energy, which includes electricity and gas, including biogas, coal gas, liquefied petroleum gas, natural gas, oil gas, producer gas, refinery gas, reformed natural gas, and tempered liquefied petroleum gas, and any mixture of gases, whether used for lighting, or heating, or cooling, or air conditioning or any other purpose”.

The word contract has not been defined in the Framework, Law, and Regulations, businesses can conclude that’s its formal agreement which is binding for both/all related parties and legally enforceable by the law. Usually, contracts are in written form, but the regulations specifically highlighted that verbal agreement that is binding for all related parties will fall under the definition of contract as well. The supply of goods under the contractual terms includes sales of goods where ownership is being transferred, handing over goods under the hire purchase agreement, etc.

Under the special rules given above in Article 2(4) of the Regulations, supply of water, supply of real estate, and supply of all forms of energy is also called the supply of goods. So, where water is being supplied, or real estate is being supplied in the form of sales or lease still it will fall under the definition of supply of goods. Energy like electricity and any form of gas whether used for lighting, or heating, or cooling, or air conditioning or any other purpose will fall under the supply of goods.

Supply of Services

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News Courtesy: Khaleej Times

Dubai: VAT-free shopping deal announced

The Dubai Shopping Festival has just announced a shopping experience that is free of value-added tax (VAT).

From Monday, December 27, till Sunday, January 2, 2022, Club Apparel and 6th Street.com will cover the VAT for shoppers.

Participating brands include ACO Price, Aeropostale, Aldo, Aldo Accessories, Anne Klein, Ardene, Athlete’s Co, BBZ, Beverly Hills Polo Club, Birkenstock, Call It Spring, Calvin Klein, CCC, Charles & Keith, Crocs, Dune London, HEMA Amsterdam, Herschel, Hush Puppies, Inglot, La Vie En Rose, Lakeland, LC Waikiki, Levi’s, Moreschi, Naturalizer, Nautica, Nine West, R&B, Rituals, Skechers, Skyzone, The Children’s Place, Tommy Hilfiger, and Toms.

The shopping festival, which kicked off on December 15, will be in till January 30, 2022. More than 1,000 brands and over 4,000 outlets are taking part in the festival.

News Courtesy: Khaleej Times

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