Dubai Custom and UAE VAT Update on Indirect Exports

On a report issued on 17 March 2021, new Export Mechanism in coordination with FTA is issued by Dubai Customs

Problem Faced by Traders in Dubai:

• Traders pay VAT when goods are imported into local market.
• These goods are then sold in local market to overseas buyers.
• Overseas Buyers’ arrange Export Agent to collect goods from different sellers and submits a single ‘Export’ Declaration. Export declaration has single Exporter Business Code and Name.
• Exporter arranges with original Importer to provide Exit Certificate upon Export for purpose of VAT Refund. Export declaration does not mention each original Importer names. This results in non-approval of VAT Refund to original Importer by FTA even after submitting details of Export Declaration and Exit Certificate.
• FTA is unable to refund VAT in the absence of Importer Name and Import Declaration details between original Imports and subsequent Exports.

What is the new system?

• A new Service called “Export Verification Report” will be introduced on 26th March 2021 by Dubai Customs on Dubai Trade Portal for VAT refund against the Cleared Export Declaration for the maximum period of 3months.
• Customs Bureau Officers, FTA users, Importers and Authorized Customs Brokers can generate “Export Verification Report” if the Exporter has mentioned valid M2 Import Declaration No. in Export Declaration and Importer has a Tax Registration Number [TRN].
• Provide an option in Export Declaration to mention valid M2 original Import Declaration No. as a reference [Previous Declaration Number]. VAT refund can be claimed only if Previous Declaration Number is provided in the Export Declaration
• Importers and Authorized Customs Brokers can login to Dubai Trade Portal:
  • “Generate VAT Export Report”
  • “Search VAT Export Report”, View and Download the existing reports
• FTA and Customs Bureau Officer can generate Consolidated “Export Verification Report” of all importers under single Tax Registration Number [TRN] which is associated with multiple Business codes.

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UAE VAT Public Clarification on Bad Debt Relief Adjustment

FTA has published public clarification (VAT P024) on bad debt relief adjustment.

Some of the key highlights of VATP024 are as follows:

• If a supplier does not receive payment from customer, supplier may adjust the Output vat on the bad debt subject to certain conditions. Following four conditions must be met:

1. VAT charged and accounted for (to FTA via tax returns) on the supply
   1. Consideration should have been written off in full or part
   1. More than 6 months should have passed from the date of supply
   1. Supplier should have notified the customer that amount has been written off

• Bad debt relief can only be taken to the extent of consideration written off in the accounts
• During the period of 6 months, FTA considers that supplier should engage with customer to recover the debt
• The notification to the customer for the write-off must include:

• Invoice number
• Date of invoice which has not been paid
• Amount of consideration which has been written off

• FTA considers the requirement of notifying a customer will be satisfied where a supplier sends a letter, email, post, or any other similar communication to the customer stating the amount of consideration that has been written off.
• It is not necessary to have acknowledgment from the customer however evidence of providing notification must be retained
• Adjustment on account of bad debt relief should be made in the “Adjustment column” of Box 1 of the VAT Return and adjustment amount should be the VAT amount only

Source : premier-brains.com

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VAT treatment of the repair/refurbishment work provided by to the Customers including replacement of parts

As per Article 2 of the VAT Decree Law, “VAT shall be imposed on every taxable supply and deemed supply made by a taxable person and import of concerned goods into the UAE”.

The term “taxable supply” is defined in the VAT Decree Law as “a supply of goods or services for a consideration by a person conducting business in the UAE and does not include exempt supply.”

Article 30 (3) of the VAT Decree Law states that for the supply of services related to goods, such as installation of goods supplied by others, the place of supply shall be where said services were performed.

Article 31 of the Executive Regulations states that the export of services shall be zero-rated in the following cases:

“a. If the following conditions are met:

1. The services are supplied to a recipient of services who does not have a   place of residence in the State and who is outside the State at the time the services are performed 
2. The services are not supplied directly in connection with real estate situated in the State or any improvement to the real estate or directly in connection with moveable personal assets situated in the State at the time the services are performed.”

Referring to above, repair or refurbishment services provided by UAE Company in relation to the Goods/ machines located in the UAE cannot be considered as zero-rated export of services as these services are supplied directly in connection with the moveable personal assets (i.e. the machines) situated in the UAE at the time the services are performed.

Note that the word ” moveable personal assets ” is to be construed as “moveable assets”.

Source : gccfintax.com

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New Dubai Tax Dispute Resolution Committees now deciding on 2020 and 2021 objections

Since around September 2020, the tax dispute resolution committee of the Emirate of Dubai has been inoperable (under reformation).

On 25 November 2020, the UAE Minister of Justice issued Ministerial Decree No. 691/2020 on the Formation of Tax Dispute Resolution Committees for the Emirate of Dubai.

The Emirate of Dubai previously had only one tax dispute resolution committee to hear objections against reconsideration decisions of the Federal Tax Authority. However, the Decree formed two tax dispute resolution committees for the Emirate of Dubai (Dubai TDRCs).

The two new Dubai TDRCs began practically operating on 16 February 2021 and had docketed all tax objections lodged in 2021 for review and issuance of a decision.

Decisions for objections filed in 2021 have begun being issued as of mid-March 2021.

As of the fourth week of March 2021, objections filed in 2020 are also being considered by the Dubai TDRCs.

However, taxpayers could be required to communicate with the Ministry of Justice and confirm the validity of the objections and continued request by the taxpayer/objector for the Dubai TDRC to decide on the objection.

The Ministry of Justice may request confirmation as to whether the objector had proceeded to file an appeal before the Federal Primary Court pursuant to Article 33(2)(b) of the Tax Procedures Law which grants objectors the opportunity to challenge the non-issuance of a decision by a tax dispute resolution committee.

(The Tax Disputes Circuit of the Federal Primary Court is responsible to hear challenges against rulings of a TDRC. Both the taxpayer and the FTA may challenge a ruling of the TDRC before the Federal Primary Court, Federal Appeals Court, and finally the Federal Supreme Court.)

 Timelines

 If a person (domiciled in Dubai for tax purposes) disagrees with a decision by the FTA and commences the reconsideration process but does not obtain a favorable outcome, the subsequent procedure would be to object before the Dubai TDRCs.

The objection is lodged with the tax dispute resolution department of the Ministry of Justice that is responsible for lodging the objection with the Dubai TDRCs within two weekdays as of the date of the filing.

Once the Dubai TDRCs receive the objection, a decision must be rendered within a maximum of forty weekdays which comprises of an initial twenty-weekday period and an additional twenty-weekday extension period. The extension can be granted based on the request of the objector or the Federal Tax Authority, or if the Dubai TDRC deems it necessary.

After the procedure before the Dubai TDRC is concluded, either the objector or the Federal Tax Authority can challenge the committee’s decision before the Federal Primary Court.

Source : GCCFintax

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VAT on Transportation Under UAE VAT Law

The UAE Federal Tax Authority or FTA has clarified exemptions that are granted by local VAT regulations to public and private transportation. Cabinet Decision (No 52) of 2017 on Executive Regulations of Federal Decree-Law (No 8) of 2017 Re: UAE Value Added Tax provides specific transactions which are exempt from VAT and considered as zero-rated. The exempt transactions related to transportation or transport operations include:

• Local transport of passengers (not by train or bus)
• Transport originating and ending outside the UAE (outside the scope of VAT)
• transport-related services intended for cross-trade transportation (outside the scope of VAT)

Apart from the exemptions listed above, the following transactions that are related to public and private transport operations are considered as zero-rated under the UAE VAT law:

• Transportation of passengers, inbound and outbound (including intra-GCC)
• Transportation of goods, inbound, and outbound (including intra-GCC)
• Transport-related services that are for transportation, inbound and outbound
• Local transport part or for the purpose of transportation, inbound or outbound
• International transportation, including related supplies
• Supplies of certain air, land, and seas mean of transportation e.g. aircraft and ships

The UAE VAT Law clarified that transportation transactions that are VAT-taxable at the standard rate of five percent are as follows:

• Local transport of passengers in means of transport that don’t qualify for zero-rate or exemption from VAT
• Local transport of passengers in means of transport that qualify for zero-rate or exemption from VAT but for sight-seeing, pleasure, etc.
• Local transport of goods
• Transport-related services that are for the local transport of goods

What means of transport qualify as zero-rate taxability?

As per the local VAT regulations in UAE, the supply of these means of transport, either sea, air, or land, is subject to VAT at zero rates:

• Supply of train or bus that’s designed or adopted in order to be utilized for public transportation (must be for ten or more passengers)
• Supply of boat, ship, or any floating structure that’s designed or adopted in order to be utilized for commercial purposes, but isn’t designed or adapted to provide pleasure, recreation, or sports-related economic activities
• Supply of any aircraft that’s designed or adopted in order to be utilized for commercial transport of goods and passengers, but not designed or specifically adapted for the purpose of sports, pleasure, or recreation

With respect to the aforementioned means of transport and their supply, it’s the responsibility of suppliers to determine whether means of transport supplied isn’t utilized for sports or recreation. Suppliers may ascertain the intended use of customers by obtaining written declarations that specifically state means of transport will be used ONLY for the designated commercial purposes.

Furthermore, the supply of services and goods related to the supply of means of transport designed for operation, maintenance, conversion, or repair of transport will remain zero-rated. Repair and maintenance, therefore, which are provided to any means of transport will be considered as zero-rated in relation to VAT, subject to certain regulatory conditions.

VAT-Related Responsibilities for Transportation Businesses

All businesses in UAE providing transportation-related services need to record financial transactions and make sure financial records are updated and accurate. The following VAT compliances are required of UAE businesses:

• VAT Registration – an entity registered in UAE is required in obtaining registration when the total value of supplies has reached the threshold for mandatory VAT registration or AED 375,000 for the previous twelve months. A VAT registration application can be filed within thirty days from being required to undergo the registration process.
• VAT Returns – all taxable entities are required in filing VAT returns and make VAT payments on or prior to the twenty-eight days of the month after a tax period concerned. When the due date falls on any public holiday or a weekend, the due date will be on the following working day.
• Filing of Voluntary Disclosure – voluntary disclosure is for a taxable entity to notify the Federal Tax Authority regarding an omission or error in the tax return, tax refund, or tax assessment of a business. If there’s an error that resulted in the tax payable amount being less than what’s required by AED 10,000 or more, then the entity has to file a voluntary VAT disclosure twenty business days starting from the date of when the taxable entity was made aware of the mistake. If there’s an error that resulted in the tax payable amount being less by less than AED 10,000, the taxable entity is obligated in submitting a tax return to correct the mistake from the previous ta return for a specific tax period or file a voluntary disclosure.

Source : Farahat

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Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax

Based on:

– Cabinet Decision No. (59) of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax (effective 1 January 2018); and

– Cabinet Decision No. (35) of 2018 on Amending the List of Designated Zones Annexed to the Cabinet Decision No. (59) of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax (effective 18 June 2018*).

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Tourist VAT Refund Scheme – Guide for UAE Retailers

VAT refund scheme in UAE makes it possible for eligible tourists to receive a portion of VAT as a refund for products bought at registered stores. VAT amount can be claimed from an electronic system, at designated spaces, without any human interference. Once tourists submit the required documents, the digital system decides whether the taxes are eligible for refund and if yes, reimburses the tourist visa cash or credit card.

WHICH TOURISTS ARE ELIGIBLE FOR SCHEME?

Tourists Should meet the following criteria to become eligible for a VAT refund.

• Tourist must be above the age of 18 years and not resident in the UAE.
• Crew members on flights leaving the UAE are not eligible to claim.
• GCC Nationals are eligible. Please note that there may be restrictions on UAE nationals who are resident abroad for the purposes of studying.

All taxable goods are eligible for tax refunds except for:

• Goods that have been consumed, fully or partly, in the UAE or any Implementing State;
• Motor vehicles, boats and aircrafts;
• Goods that are not accompanied by the Overseas Tourist at the time of leaving the Emirates.

Validity 

• The minimum purchase amount is AED 250.
• Once a Tax-Free Tag is issued, the tourist has 90 days from the date of issuing to export the goods. If not done, the Tax-Free Tags will expire, and the refund will not be made.

Refund Amount and Fees

Tourists will receive 85% of the tax paid, minus a fee of 4.80 AED per tax free tag validated. Maximum limit for cash refund is AED 7,000 per tourist.

PROCEDURE FOR RETAILERS TO JOIN THE SCHEME

1. Need to submit request to join the scheme online and be subject to a credit check
2. Issue a sales receipt at the point of sale and affix a Tax-Free tag
3. Adjust the VAT applicable under tourist refund scheme while submitting the VAT return

1-Four Conditions for Retailers Registration under Scheme

The following are the conditions identified for registering under the tourist refund scheme.

1. The retailer must be registered with the Authority for VAT and have a tax registration number (TRN)
2. The supplier’s sales of goods must not be excluded from the refund scheme, as determined by the Authority
3. The retailer must submit a request to participate in the Scheme as determined by the FTA
4. The retailer must meet the financial credit requirements specified by the system operator and be committed to submitting Tax Returns and paying due taxes regularly

How the system works:

Step1: A tourist makes a purchase eligible for a “Tax Refund”
Step2: The retail store captures tourist information using the system
Step3: The retail store enters the transaction purchase price
Step 4: The retail store generates a QR code tax free tag and attach on the back of the sales receipt.
Step 5: The retail store scans the QR code to link the transaction with the tourist’s passport details
Step 6: Tourist will present  sales receipt at any Tax Refund Kiosks in airport, seaport or border crossing. (Please note that the tourist may be subjected to a further validation check and may need to produce the goods for inspection.)

2-Who can issue Tax Free tags?

• Any retailer registered for VAT with FTA, and who is regular in filing the return and paying due tax to authority
• Seller of goods eligible to receive tax refunds as determined by the FTA

Issuing a Tax-Free Tag

Planet will offer 3 ways to issue a Tax-Free Tag to eligible tourists:

• Through an app downloaded to a mobile phone
• Through a web application on a computer browser
• Integration with selected POS software and payment providers

All issuing solutions must collect the following data when a tag is issued:

• Tourist details (ID number & country of residence as a minimum)
• Transaction details (Receipt no. & full sales amount including VAT)
• Tax Free Tag ID (Stickers with tag IDs are provided in the starter pack)

3-VAT Return Filing – Tax Refund for Tourists Scheme

Tax Refund for Tourists scheme is applicable only for businesses who are registered and enrolled under the official tourists refund scheme.

• Upon the sale of goods, the Retailer issues a sales receipt with the tax refund tag affixed to the back to tourists and account for output VAT accordingly.
• The Overseas Tourist requests their VAT refunds directly from the Operator and Operator shall seek reimbursement of the VAT amount refunded to the Tourist directly from the Retailer who sold the goods.
• Retailers shall reimburse the VAT amount to the Operator, and adjust  the amount as a reduction of output VAT that arises in the tax period in which the refund was paid, under Box 2 of the VAT return.
• Box-2 refers to the amount of the tax refunds made available to visitors under the “tax refunds for tourists’ scheme”. Mention the tax amount that has been refunded to the tourists under the column ‘VAT Amount.’ 
• Within this box, the number reported should always be negative. This sum would reduce the overall liability of output tax.
• Businesses who are not registered and enrolled under official tourist refund scheme, the box 2 will not be applicable. In such case, mention nil values (0) which are auto-populated.

Source :  xpertsleague.com

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New Residence VAT Refund Scheme for UAE Nationals

The New Residence VAT Refund Scheme is a Special Refund Scheme available in UAE VAT Law. This scheme is applicable only to UAE Nationals who construct a Residential Building for his/her or for his/her family.

This is applicable when the person owns or acquires land in UAE on which he builds or commissions the construction of his own residence. Under this scheme, such a person will be entitled to claim a refund of the tax paid on the expenses of constructing the residence.

 Conditions to be Eligible:

1. Refund request should be submitted by a Natural Person
2. He/she must be UAE National
3. Tax Refund is in respect to the Expenditure incurred for constructing Residential Building
4. Residential Building should be used by his/her or his/her family members for Residence

Eligible Expense for a Refund:

The VAT incurred for the following categories of expenses while constructing a new residence by a UAE National are eligible for VAT Refund under the scheme:

Below Content Source: FTA USER Guide

• Services of builders
• Services of architects
• Services of engineers
• Supervisory services
• Other similar services necessary for the successful construction of the residence
• Building materials that make up the fabric of the property (e.g. bricks, cement, tiles, timber)
• Central air conditioning and split units
• Doors
• Decorating materials (e.g. paint)
• Dust extractors and filters
• Fencing permanently erected around the boundary of the dwelling
• Fire alarms and smoke detectors
• Flooring (excluding carpets)
• Guttering
• Other heating systems
• Kitchen sinks, work surfaces and fitted cupboards
• Lifts and hoists
• Plumbing materials
• PowerPoints
• Sanitary units
• Shower units
• Window frames and glazing
• Wiring when embedded inside the structure of the building

Expenses which are Not Eligible -Examples:

• Furniture which is not affixed to the building such as sofas, tables, chairs, bedroom furniture, curtains, blinds, carpets
• Electrical and gas appliances, including cookers
• Landscaping, such as trees, grass and plants
• Free-standing and integrated appliances such as fridges, freezers, dishwashers, microwaves, washing machines, dryers, coffee machines;
• Audio equipment (including remote controls), built-in speakers, intelligent lighting systems, satellite boxes, Free view boxes, CCTV, telephones
• Electrical components for garage doors and gates (including remote controls)
• Garden furniture and ornaments and sheds

Retention payments:

In certain circumstances, a UAE National may be required to make retention payments to its contractors following the expiration of the 6-month period from the date of completion of the new residence.

In this regard, the FTA clarifies that where the UAE National intends to make such payments, the UAE National should indicate so during the submission of the initial request for the refund.

Additionally, care should be taken about the timeline for the recovery of retention payments. The VAT incurred on such payment can be recovered within 6 months from the date of making the payment subject to the provision of proof thereof, for example, a receipt.

 Time Limit:

VAT Refund claim under this scheme is required to be lodged within 6 months from the date of completion of the newly built residence. A newly built residence is considered as completed on:

• the date the residence becomes occupied (or)
• the date when it is certified as completed by a competent authority in UAE; whichever is earlier

Change of Use:

When a person who has claimed refund of VAT under this scheme, later uses the property for commercial use, he/she will be required to repay the tax that was refunded earlier.

While applying for refund one has to declare type of fund being used for the construction either personal or Housing Program Fund or both. Funder certificate needs to be provided if the construction is backed by Housing Program Fund.

Besides this bank account confirmation letter/certificate should be submitted for the confirmation and transfer of fund into the account.

The new residence VAT refund scheme is an assistive scheme for UAE nationals who newly construct their residence in UAE. They can reduce the expenditure incurred on account of VAT paid on the expenses of constructing the new residence. It is also a measure by the UAE Government to assist UAE nationals to construct residences. UAE nationals can note the conditions of this scheme and use it for their benefit.

How to apply / Application Process:

• Applicant has to submit the “New residence VAT refund request” to FTA on its E-service portal by creating a new taxable person account/special refund.
• Information regarding the applicant and the property has to be submitted along with the refund request.
• After the refund request has been submitted, FTA will review and will send an email asking any further information required.
• Once the FTA has reviewed and approved the eligibility of your refund application, it will be forwarded to verification body (third party) for further checks.
• During this verification additional documents may be requested by the verification body to check the application such as contracts, invoices, proof of payments etc.
• Verification body will review and submit the report to FTA about the application within 10days from receipt of documents.
• FTA will take further 10 days to make a decision after receiving report from Verification body
• Following this, if approved by FTA the refund will be transferred to the applicant within 5 business days.

Documents Required to be submitted for VAT refund claim by a UAE national on building new residence

Initially while applying for the refund, the applicant is expected to submit the below documents along with the refund request. 

• Copy of Emirates ID and family book
• Copy of declaration from the funding body or institution, if the construction was funded by any such body or institution
• Copy of the construction plan 
• Copy of the completion certificate and building permit of the property
• Proof to identify the applicant as the owner of the plot of land in which the building was constructed
• Document stamped by bank to identify the bank account details
• Document to evidence the date the building is occupied as applicable

It is to be noted that the authority may ask for additional documents or clarification on later stage during their verification of the refund applic

Source : xpertsleague.com

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Dubai Customs released guidance (Notice no. 1/2021 (14 January 2021)) concerning the submission of customs declarations and required documents.

The guidance reinstates the process initiated by Notice 1/2018, requiring the submission of customs declarations. Notice 1/2018 was suspended, as part of the government’s response to the coronavirus (COVID-19) pandemic by Notice 2/2020 which paused the requirements to submit customs declarations.

Notice no. 1/2021 revokes the suspension allowed under Notice 2/2020 and reinstates the customs declaration requirements beginning 31 January 2021. As of that date, businesses will have to submit customs declarations and other required documents to Dubai Customs within 14 days of processing of the customs declaration on the Mirsal2 portal. Once the 14-day period lapses, a daily late charge will be applied.

Special rules apply for customs declarations completed between 29 March 2020 and 31 January 2021.

News Courtesy :  KPMG

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Since the implementation of VAT in UAE, the VAT301 form has been available on e-services portal to manually process the VAT payment on Customs Declarations using the Tax Registration Number (TRN).

Recently, Federal Tax authority (FTA) has communicated with the taxpayers that the VAT301 form will be discontinued shortly for users who have a valid TRN and were using this form earlier for settlements via their VAT returns.

For the VAT registrants who already have a valid TRN, in order to continue being able to import goods via customs, they will need to ensure that their custom code is linked to their TRN.

If a registrant does not have a customs code, it will require registering with the Customs Department and linking their new customs code with their TRN.

Alternatively, one will only be able to import goods via a clearing company that is registered with the FTA or only use form VAT301 to utilize the payment option.

Below entities can still request to open form VAT 301 for VAT settlements based on customs declaration through FTA online services:

• Designated entities exempted by FTA.

• Free zone Companies that exports through land to GCC Countries from designated zones for the VAT purpose.
• FTA approved shipping and clearance agencies to clear shipments of on behalf of registered and non-registered importers with FTA.

To submit application to open VAT301 form, there is a form “VAT 301 settlement access form” which is available on FTA website.

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