VAT

How we can go wrong in determining VAT Treatment

alnuaimi June 27, 2022

345 Closed

How we can go wrong in determining VAT Treatment

Determining accurate VAT treatment is crucial in every business transaction hence; indispensable care is significant to determine the VAT treatment even if the organization is operating on a small or medium scale.

During my professional career, I came across various scenarios where business owners neglect to take professional advice related to VAT treatment and depend on what similar industry business is following which ends up in an FTA Audit, which obviously concludes with a massive penalty.

Here, I would share a VAT Treatment followed by business entities in the industry.

Introduction

On concurrent reading of Section 2 of Article 45 of the Decree-Law

“International transport of passengers and Goods which starts or ends in the State or passes through its territory, including Transport-related Services. “

And Section 1 of Article 33 of the Executive Regulation

“The supply of international transportation Services for Passengers and Goods and Transport-related Services shall be subject to the zero rates in the following cases:

a. Transporting passengers or Goods from a place in the State to a place outside the State.

b. Transporting passengers or Goods from a place outside the State to a place in the State.

c. Transporting passengers from a place in the State to another place in the State by sea or air or land as part of a supply of international transport of those passengers if either or both the first place of departure, or the final place of destination, is outside the State.

d. Transporting Goods from a place in the State to another place in the State if the Services are supplied as part, or for the purpose, of the supply of Services of transporting Goods either from a place in the State to a place outside the State or from a place outside the State to a place in the State. “

This decree implies that Transportation of goods or passengers from/to the state to/from a place outside the state, for such services of transportation, VAT is applicable at 0%. As well law considered “Transport related services” that will fall under the 0% VAT.

Referring to Sub Section (d) Section 1 of Article 33 of Executive Regulation “The supply of transportation service from/to Port in U.A.E to/from U.A.E mainland is treated as Standard-Rated Supply (5%).”

The falsification followed by interpreting Sub Section (d) Section 33 is that the transportation from port to mainland or vice versa is a part of international transport since the goods arriving from the port or departing from the port are in International transit. Hence, subject to Zero Rate.

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Tax, VAT

UAE Supreme Court orders cancellation of tax penalties

alnuaimi June 16, 2022

272 Closed

UAE Supreme Court orders cancellation of tax penalties for re-submission of returns

Facts

The taxpayer submitted tax returns for the prescribed tax periods as of January 2018, and these returns included supplies related to real estate owned individually to the taxpayer, as well as real estate owned in partnership with another person.

The taxpayer’s partner was not added to the tax registration from the beginning due to the absence of his name as an owner in all real estate.

The taxpayer registered a new account with the partner on the directives of the Federal Tax Authority during an audit and re-filed the tax returns under the new account.

Penalties

The FTA applied late payment penalties to the taxpayer as the new account required re-submission of the returns that had been filed previously by the taxpayer under the original account.

The FTA considered that the new submissions were the correct submissions as the original submissions were not correct in form and procedure because the account did not include the partner.

The FTA applied the late payment penalties to the new submissions tracing back to January 2018.

Supreme Court order

The taxpayer challenged this up to the Federal Supreme Court.

The Supreme Court found that the reopening of the new account did not result in damages to the State funds because the taxpayer had originally submitted and paid all tax returns, including the real estate in the partnership, on the legally prescribed dates.

The procedural deficiency did not manifest a circumstance where the payments had not been made.

In reasoning, the Supreme Court stated:

“Since this argument is in order, it is decided that tax procedures are not an end in themselves, but rather a means to achieve the goal of the lawgiver in collecting the legally due tax. Allegedly, the tax returns made under the wrong procedure that were subsequently corrected were not taken into account. Rather, the FTA’s right to collect the fine decided by the legislator on the wrong procedure only recedes, without this right going beyond that by imposing other fines for a tax collected on the date specified by the law, even under the aforementioned procedure.”

Significance

This judgment reassures the application of justice and equity in tax dispute proceedings before the Federal Courts of the UAE. Taxpayers must seek learned and practiced counsel when faced with a tax dispute.

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Tax, VAT, VAT Filing

Input Tax Recovery under VAT in UAE

alnuaimi June 10, 2022

296 Closed

Input Tax Recovery under VAT in UAE

Input tax is the tax paid by a person on purchases or inward supplies. A major element of VAT in UAE is the provision to recover the tax paid on inputs. This means that a person can reduce the value of input tax eligible for recovery from the tax payable and only pay the balance amount as tax. This ensures that tax is paid only on the value-added at each stage in the supply chain. Hence, the amount of input tax eligible for recovery plays an important role in the cash flow and operating expenses under VAT.

Let us first understand how input tax recovery works.

Process of input tax recovery

Example: In January ’18, Jehan & Co, in Abu Dhabi purchased 10 desktop computers @ AED 1,000 each. On this purchase, Jehan & Co. pays VAT @ 5% of AED 500. In the same month, Jehan & Co. supplies 20 desktop computers @ AED 2,000 to a consumer. VAT @ 5% is collected by Jehan & Co. on the supply, amounting to AED 2,000.

Here, the output tax payable by Jehan & Co. for the month of January ’18 is AED 2,000.

Input tax recoverable for the month of January ’18 is AED 500

Tax payable = Output tax payable – input tax recoverable

Hence, tax payable by Jehan & Co. for the month of January, ’18 is AED 2,000 (Output tax payable) – AED 500 (Input tax recoverable) = AED 1,500.

Here, as you can observe, the tax paid on purchase by Jehan & Co. can be used to reduce their output tax payable. Only the balance tax payable is required to be remitted to the Government.

Conditions for input tax recovery

A registered business can recover the VAT paid on the purchase of goods and services used for business purposes and subject to certain conditions. These conditions to be satisfied are:

Should be used to make Taxable supplies

The supplies on which tax is liable to be paid are called taxable supplies (i.e. supplies made at 5% or zero-rated supplies). Input VAT recovery is allowed to be claimed only on inputs used to make taxable supplies, not exempt supplies.

For example, Jehan & Co. purchase 20 units of Item A @ AED 50, for a value of AED 1,000. Out of the 20 units purchased, 10 units are used to manufacture Item B, which is taxable and 10 units are used to manufacture Item C, which is exempt.

Hence, Jehan & Co. can claim input VAT recovery only for the value of input used to make taxable supplies, i.e. 10 units used to manufacture Item B @ AED 50, which is AED 500.

The recipient receives and keeps the Tax Invoice

The recipient claiming input tax recovery on a supply should ensure that the Tax Invoice pertaining to the supply is received and kept in the records. The Tax Invoice should show the details of the supply related to the input tax recovery being claimed.

The recipient pays the consideration for the supply

The recipient claiming input tax recovery should pay or intend to make the payment of consideration for the supply within 6 months after the agreed date of payment for the supply.

Hence, the provision for input tax recovery is a very important component of VAT in the UAE. Businesses need to ensure that they are able to correctly identify supplies on which input tax can be recovered, ensure that they fulfill the conditions for a claim of input VAT recovery, and claim the input VAT recovery on time. This will help in ensuring optimum cash flow and working capital in the business. All this work can be made easier by the use of VAT software which will help automate each of these tasks with respect to input tax credit and leave you with enough time and resources for you to focus on your business.

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Tax, VAT

VAT on supply of mixed use developments

alnuaimi May 21, 2022

540 Closed

VAT on supply of mixed use developments

In our previous articles, we have learnt about the VAT treatment of supply of residential buildings and commercial buildings. There can be practical scenarios where a building or plot of land is used for different purposes, i.e. a portion is used for residential use and another portion is used for commercial use. These kinds of properties are called mixed use developments. In this article, let us learn about VAT on supply of mixed use developments.

What is a mixed-use development?

A mixed-use development is a building or plot of land which has clear and distinct areas which are put to different uses, which would have a different VAT treatment when supplied.

For example: A building which has retail units on the ground floor, office space on the middle floors and residential units on the top floor is a mixed use development.

VAT on Supply of Mixed Use Developments

When a distinct part of a mixed use development is supplied, the VAT liability on the supply depends on the use that particular part of the building is being put to.

If the portion supplied is being used for commercial purposes, the supply will be taxable at 5% VAT, whereas if the portion is being used for residential purpose, it needs to be checked whether the supply is the first supply or a subsequent supply. If it is the first supply of the property within 3 years from its date of completion, the supply will be zero rated. If the supply is a subsequent supply, the supply will be exempt from VAT.

When a mixed use development is sold in its entirety, the consideration received for the supply needs to be apportioned between the different parts of the building supplied. The value of the consideration relating to the residential part of the building will be treated as exempt from VAT (or zero rated, when the supply is the first supply) and the value of the consideration relating to the commercial part of the building will be liable for VAT @ 5%.

For example: Noor Properties, a registered dealer in Dubai, supplies a building to an unregistered dealer, Shaan Spaces, for a consideration of AED 5,00,000. The ground floor of the building is used for commercial purposes, consisting of 2 shops. The first floor of the building is being used for residential purposes, consisting of 2 houses. The property is being supplied for the first time, 6 years after its completion date.

Here, the consideration of AED 5,00,000 received by Noor Properties is for a mixed use development, portions of which are being used for commercial and residential purposes. Hence, Noor Properties has to arrive at the proportion of the consideration being used for commercial and residential purposes. Noor Properties arrives at the proportion of the consideration used for residential purpose, which is AED 2,00,000 and the proportion of the consideration used for commercial purpose, which is AED 3,00,000.

On the proportion of the consideration used for commercial use, i.e. AED 3,00,000, Noor Properties has to pay VAT @ 5%, which is AED 15,000.

The proportion of the consideration used for residential use is AED 2,00,000. Though it is the first supply of the property, it is after 6 years of its completion. Hence, this portion of the consideration will be exempt from tax.

Hence, VAT on supply of mixed use developments depends upon the use that the portion being supplied is being put to. Based on whether the portion is for commercial use or residential use, VAT on the supply will be applicable.

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VAT

UAE VAT on additional Gross Floor Area

alnuaimi April 12, 2022

594 Closed

UAE VAT on additional Gross Floor Area

VAT on additional GFA

Over the past years, the UAE has witnessed exponential growth in the development of real estate projects, and it is known for its flamboyant infrastructure. The master developers are creating new communities having residential, commercial, and leisure establishments. In addition, the plot of land is also sold to other builders for similar development purposes. This brings us to an important question on the taxability of Gross Floor Area (‘GFA’).

What is GFA

Prior to the development of any community, the master developer is required to get approval from the Dubai Authority. The developer is required to submit a plan of the project bifurcated into plots having numbers, land usage, area, GFA, number of buildings, number of dwelling units, and maximum building height. Basis the development, GFA is allotted to each plot as well as overall GFA for the project is assigned. Basis such approval, guidelines for the overall support infrastructure i.e. number of parks, open areas, roads, etc. is also assigned for each project.

The master developers sell individual plots along with the permitted GFAi.e.the permissible construction limit on the plot. Interestingly, the value of land is typically determined based on permissible GFA on the plot. These details form part of the Sales & Purchase Agreement (‘SPA’) which is registered with the Lands Department.

Requirement of additional GFA

In many instances, the buyer (post-execution of the SPA) approaches the developer requesting for allotment of additional GFA. The additional GFA is for consideration. For e.g.as per the SPA, the permissible limit was to construct 15 floors accommodating X number of people and now the owner wishes to construct 20 floors accommodating Y number of people. The arbitrage for GFA is requested by the owner from the developer.

In such cases, the master developers approach the respective authority for modification of the Master Plan approved. Based on the revised permitted GFA, the master developer allots additional GFA to the buyer basis, and construction is started by the owner.

There may be multiple reasons for a request for additional GFA such as a change in construction plan, etc. In many cases, the plot would have been resold and additional GFA is being requested by the new owner. This brings us to the possible taxability of the additional consideration received by the Master Developer in lieu of additional GFA sold:

Scenario I –Can the original SPA be amended?
Scenario II – Is allotment of additional GFA a separate supply?

Scenario I – Can the original SPA be amended?

At the time of execution of SPA, certain conditions such as terms of payment, plot details, and GFA would have been mentioned in the contract which is also registered with the Dubai Lands Department (‘DLD’). A view may be adopted that allotment of additional SPA is by way of amending the original SPA. Therefore, any additional consideration should take the color of the original supply which was the sale of bare land. Thus the additional consideration received should also be VAT exempt. However, this is not a straight-forward simple solution as it may trigger the following issues:

A sale of real estate is an indivisible supply, it should get triggered under Article 25 of the UAE VAT Law. The date of supply would have been triggered on the signing of the SPA and the same would have been reported by the Master Developer in its VAT return. The amendment would have to be separately reported.
Is it permissible to amend the SPA post facto. Thus the Legal Team is required to be approached.
It may impact the DLD fee which is computed on the sale value of the SPA and required to be paid by the buyer.

Scenario II – Is allotment of additional GFA a separate supply?

Alternatively, allotment of additional GFA may be considered as a new supply altogether and not be linked with the sale of the original plot of land. This is on the basis that the existing transaction was complete on registering the original SPA with the DLD. Any subsequent request is a fresh allotment which is to be considered as a ‘right is being provided/ permission is being granted by the Master Developer to the current owner of the plot. The UAE VAT Law considers granting, assignment, cessation, or surrender of a right as a supply of services, and thereby the additional consideration should be subject to VAT at 5%.

VAT on Real Estate has been the most complex around the world. With complexities increasing, it is imperative for businesses to involve the respective teams to determine the nature of supply and adopt correct taxability.

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News Courtesy: gccfintax.com

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News, VAT

How do you deal with VAT on expenses like mobile phones?

alnuaimi April 9, 2022

303 Closed

How do you deal with VAT on expenses like mobile phones, airtime, and data packages made available to employees?

WHY IS THE TOPIC RELEVANT?

The amount of VAT spent on expenses like mobile phones and data packages made available to employees is a recurring and one of the important expenses for most businesses in the UAE. Also, due to COVID 19, there has been an increase in work-from-home arrangements increasing the scope of such expenses. There existed uncertainty regarding availing of Input Tax Credit on them.

WHY DID THE UNCERTAINTY EXIST?

There is potential private use of such Phones, Airtime, and Packages by the employees. And it resulted in ambiguity if the businesses are entitled to recover the Input Tax Credit or not.

BACKGROUND AND REFERENCE TO LAW

Article 53(1)(c) of the Executive Regulation prohibits the recovery of Input Tax incurred on goods or services purchased to be used by an employee for their personal benefit without any charge to the employee, unless there is a legal or contractual obligation on the employer to provide such service for the employee to perform their role, or it is a deemed supply.

However, Article 53(1)(c) of the Executive Regulation does not apply where a taxable person can prove that the goods or services are used solely for business purposes.

THE PUBLIC CLARIFICATION

The Federal Tax Authority (FTA) published a VAT Public Clarification (VATP028) to guide the application of the VAT legislation concerning the recovery of input tax incurred on phones, airtime, and packages acquired for business use.

According to the Public Clarification, where an employer acquires phones or telecommunication services for use by its employees solely for business purposes and has a strict policy to restrict their use for business purposes, the right to use the devices and telecommunication services would not constitute a personal benefit for the employee, provided its value was determined based on actual historical business usage.

The Public Clarification further clarifies that a business is entitled to recover input VAT on such expenses if these costs are incurred to make taxable supplies and all the following conditions are met:

The business is registered for VAT and acquired Phones, Airtime, or Packages services in its own name;
The business has a documented policy in place which clearly states that the Phones, Airtime, and Packages may only be used for business purposes and the consequences of any personal use;
The business regularly monitors the use of Airtime and Packages and retains justification for the variances;
The business takes action against employees using Phones, Airtime, and Packages for personal use in accordance with the documented policy; and
The business retains valid tax invoices in respect of the Phones, Airtime, and Packages acquired.

The Public Clarification puts its emphasis on the fact that only documented policies that were already in place at the time the Phones, Airtime, and Packages were made available to the employee will be considered.

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Tax, VAT

Systems for VAT refund scheme for tourists are ready

alnuaimi April 6, 2022

441 Closed

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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News, Tax, VAT

UAE Corporate – Other taxes

alnuaimi March 31, 2022

355 Closed

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.

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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VAT

All You Need To Know About VAT Registration In The UAE

alnuaimi March 8, 2022

430 Closed

All you need to know about VAT registration in the UAE

Failing to apply for VAT registration on timely basis, will lead to penalties of Dh10,000.

Can every person (natural or legal person) in UAE, apply for VAT registration? The answer to this question is no. VAT registration of a person depends upon the taxable supplies or taxable expenses for a certain period. Based on the taxable supplies or taxable expenses, persons are liable to or can opt for VAT registration. Once they will be registered for VAT, they are liable to charge VAT on all their taxable supplies. Only taxable persons (the person registered or obligated to register for VAT) can claim input tax based on the normal input tax recovery rules.

Every person who has a place of residence in UAE or implementing state [there is no implanting state as of today, as implementing state conditions have not been fulfilled] can be categorized into the following three sections based on his taxable supplies or taxable expenses, and provisions for VAT registration for each category are different.

Persons whose taxable supplies are more than Dh375,000 in the past 12 months or next 30 days are compulsory liable to register for VAT [Compulsory VAT Registration].
Persons whose taxable supplies or taxable expenses are more than Dh187,500 in the past 12 months or next 30 days can opt for VAT registration [Voluntary VAT registration].
Persons whose taxable supplies or taxable expenses are equal to or less than dirhm 187,500 in the past 12 months or next 30 days cannot opt for VAT registration [Cannot opt for VAT registration]

Compulsory VAT registration

Every natural or legal person who is dealing in taxable supplies is liable to apply tests to assess its obligation to register for VAT, and the compulsory registration tests can be broken down into a historic test and a future test.

Historic test means to assess the taxable supplies of the last 12 months at the end of every calendar month. If by the end of any month, taxable supplies of a person of the previous 12 months exceed Dh375,000, then the person is liable to apply for VAT registration within 30 days from the end of the month. Where a person does not apply for VAT registration despite being required to, Federal Tax Authority (‘FTA’) shall register the person with effect from the first day of the month following the month in which the person is required to register or any earlier date.

Future test means to assess the taxable supplies of next 30 days only, and this test is required to be applied on daily basis. If a person has sufficient evidence that his taxable supplies will be more than Dh375,000 in the next 30 days, he is liable to apply for VAT registration within 30 days from the date he had evidence that his taxable supplies will be more than the above-mentioned threshold. Where a person is obligated to apply for VAT registration but did not apply for VAT registration, FTA shall register him from the date, the person was required to register or any earlier date with the mutual consent of the person.

A person who is not a resident of UAE or an implementing state, and making taxable supplies in UAE where no other person is liable to pay VAT on his behalf, it’s compulsory for such person to get himself registered for VAT.

Failing to apply for VAT registration on a timely basis, will lead to penalties of Dh10,000. The FTA may except a taxable person from mandatory VAT Registration upon his request if his supplies are only subject to the zero rates.

Voluntary VAT registration

VAT registered person can claim input tax and TRN [Tax Registration Number] reflects that he is not a very small player in the market. So, to claim input tax and to maintain its status, persons are usually seeking voluntary VAT registration when they are not meeting the threshold of compulsory VAT registration. The threshold for the voluntary VAT registration is Dh187,500 in the last 12 months or in the next 30 days based on the historic and future test respectively but the important thing is, while applying the voluntary test, a person can consider it taxable expenses as well. So, we can say that if in the last 12 months his taxable supplies or taxable expenses are more than Dh187,500, he can apply for voluntary registration under the Historic test; or by applying future test he can apply for VAT registration if his taxable supplies or taxable expenses in next 30 days are more than Dh187,500.

For the purpose of voluntary registration, the phrase “Taxable Expenses” means expenses that are subject to the standard rate, and which are incurred in UAE by a person who has a place of residence in the UAE. A Person may not register voluntarily unless he satisfies the FTA that he is carrying on a business in UAE.

Cannot opt for registration

A person whose taxable supplies or taxable expenses in the past 12 months or in the next 30 days are less than Dh187,500, cannot apply for VAT registration.

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News Courtesy:khaleejtimes.com

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Breaking down real estate concepts for first-time buyers

News, Tax, VAT

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

alnuaimi January 31, 2022

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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

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News, Tax, VAT

What is the nature of supply?

alnuaimi January 12, 2022

524 Closed

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

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News, Tax, VAT

Dubai: VAT-free shopping deal announced

alnuaimi December 28, 2021

384 Closed

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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Category: VAT

How we can go wrong in determining VAT Treatment

Introduction

UAE Supreme Court orders cancellation of tax penalties for re-submission of returns

Facts

Penalties

Supreme Court order

Significance

Input Tax Recovery under VAT in UAE

Process of input tax recovery

Conditions for input tax recovery

Should be used to make Taxable supplies

The recipient receives and keeps the Tax Invoice

The recipient pays the consideration for the supply

VAT on supply of mixed use developments

What is a mixed-use development?

VAT on Supply of Mixed Use Developments

VAT on additional GFA

What is GFA

Requirement of additional GFA

Scenario I – Can the original SPA be amended?

Scenario II – Is allotment of additional GFA a separate supply?

WHY IS THE TOPIC RELEVANT?

WHY DID THE UNCERTAINTY EXIST?

BACKGROUND AND REFERENCE TO LAW

THE PUBLIC CLARIFICATION

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

Value-added tax (VAT)

Customs duties

Excise taxes

Municipal or property tax

Stamp taxes

Payroll taxes

Social security contributions

Hotel tax and tourism levies

All you need to know about VAT registration in the UAE

Failing to apply for VAT registration on timely basis, will lead to penalties of Dh10,000.

Across the board tax

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