To determine whether the value of supplies has exceeded the mandatory registration threshold limit or the voluntary registration threshold limit, the following needs to be considered.

• The value of taxable supply of Goods and Services: Taxable supplies refers to all the supplies of goods and services made in UAE on which VAT is levied at the standard rate of 5% including zero-rated supplies. This does not include the notified supplies which are exempted from VAT.
• The value of reverse charge Supplies: Reverse charge supplies are those notified supplies on which the recipient or the buyer are required to pay the VAT to the government unlike forwarding charge, where the supplier will collect VAT from the buyer and pay. The value of such supplies needs to be considered in arriving at the turnover threshold for VAT registration.
• Imports: The value of taxable goods and services imported on which the importer is liable to pay tax.

Let us understand how to calculate the VAT Turnover threshold with an example

Rose General Stores is a supermarket in UAE, engaged in supply of groceries and all types of household products. They also import certain home furnishing products from other countries and supply it to the customers in UAE as well as export it to other countries. The following are the different types of supplies made by Rose General Stores.

To determine Rose General Trader’s eligibility for registration in UAE, taxable supplies + exports (zero-rated supplies) + imports + reverse charge supplies should be considered. Exempt supplies will not be considered in arriving at the registration threshold. The registration threshold calculation of Rose General Trader is given below:

The turnover of Rose General Stores for VAT registration is AED 625,000 which has exceeded the mandatory registration threshold of AED 375,000. Thus, Rose General Stores is required to mandatorily register under UAE VAT.

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Mandatory VAT Registration in UAE

All the businesses who have a place of residence in the state of UAE and whose value of supplies in the member states in previous 12 months has exceeded AED 375,000 should mandatorily register under UAE VAT. Also, if the businesses anticipate that the total value of supplies will exceed the mandatory registration threshold of AED 375,000 in the next 30 days, then they too will have to register under UAE VAT.

Those businesses, who do not have a place of residence in the state of UAE, will have to compulsorily register under VAT irrespective of the registration threshold.

Voluntary VAT Registration in UAE

All the businesses having a place of residence in the state of UAE who are not required to mandatorily register under VAT, are given an option to voluntarily apply for registration. This can be done, only if the annual supplies or taxable expenses incurred is not less than voluntary registration threshold. The Voluntary Registration Threshold is AED 187,500 which is 50% of the mandatory registration threshold.

Here, the registrations are not mandatory, it is optional for business to decide whether they would want to register. The inclusion of taxable expenses as criteria to determine the eligibility for voluntary registration provides an opportunity for all the start-up business to register under UAE VAT. This is because, as a start-up, the turnover or value of supplies may be lesser but there is a high possibility that huge amount of taxable expenses would have been incurred in starting the business or during the initial stage of the business. As a result, the inclusion of taxable expenses as a criteria for voluntary registration would enable all the start-up business to register with zero turnover.

VAT Registration Exemption

The businesses whose value of supplies in the member states is below the voluntary registration threshold of AED 187,500 are not allowed to register under UAE VAT. Also, the businesses who are engaged in making only zero-rated supplies may request for VAT registration exemptions.

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What is a VAT Group Registration?

In UAE VAT Registration, two or more persons conducting businesses may apply for Tax Registration as a tax Group. A tax group is a group of two or more persons registered with the FTA as a single taxable person subject to fulfilment of conditions under UAE VAT Law. This group registration is only for the purpose of tax.

Conditions for Applying VAT Group Registration

To be eligible for applying for VAT Group registration, all of the following conditions need to be fulfilled.

Each person shall have a place of establishment or fixed establishment in the State:

This implies that each person should have either of the below-mentioned establishments in UAE :

• Place of Establishment: The place where a business is legally established in UAE pursuant to the decision of its establishment, or a place in which significant management decisions are taken and central management functions are conducted.
• Fixed Establishment: Any fixed place of business, other than the place of establishment, in which the person conducts his business regularly or permanently and where sufficient degree of human and technology resources exist which enables the person to supply or acquire Goods or Services. This includes branches, which are also considered as the fixed establishment.

The relevant persons shall be Related Parties:

Here related parties refer to two or more persons who are not separated on the economic, financial or regulatory level, where one can control others either by Law, or through the acquisition of shares or voting rights.

One or more persons conducting business in a partnership shall control the others:

This implies that one or more person who are related, controls the other business. For example, officers or directors of one another’s businesses, partners in each other’s business etc.

VAT Group Registration Illustration

As illustrated above, Mr. Abdul is a Director in Rose Trading Ltd and a Partner in A-One Trading Ltd. Mr. Rizwan, is a Director of A-One Trading Ltd. Also, Mr. Rizwan is a Partner in Rose Trading Ltd. Therefore, Mr. Abdul and Mr. Rizwan will be treated as related parties and will be eligible to apply for VAT Group Registration provided the conditions are fulfilled.

VAT Group Registration Benefits

The following are the benefits of VAT Group Registration for the business

• All the entities within a VAT Group will be treated as ‘ONE’ entity for VAT purpose. This will help the businesses in simplifying accounting for VAT, and also compliance reporting like VAT returns are required to be prepared and reported at the group level instead of entity level.
• Any supplies within the entities of a VAT group, are out of the scope of the VAT. This means, VAT will not be levied on the supplies between the entities of a VAT Group. However, supplies made by the VAT group to an entity outside the VAT group are subject to VAT.

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What are Exempt Supplies in UAE VAT?

By definition, exempt supplies refer to ‘supply of goods or services for consideration while conducting business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law’. In simple words, there are certain exempted goods or services notified in UAE executive regulations, on which VAT is not levied. This means, on supplying these goods or services, VAT is not charged.

On the other hand, businesses supplying these exempted goods or services will not be allowed to claim the input tax paid on your purchases. For example, you have paid VAT at 5% on the purchase of raw materials and assume, finished goods produced using raw material is exempted. Now, you will be not allowed to claim the 5% Input VAT paid on your purchases and it should be treated as a cost of the product.

Exempted goods and services list in UAE

Broadly, VAT exemptions in UAE are given for certain financial services, residential building, and supply of bare land, local passenger and so on. However, to consider supply as exempted from the VAT, the specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled.

The following is the list of exempted goods and services:

• Financial Services

The following financial services are under VAT exemption supplies:

• Financial services which are not conducted in return for an explicit fee, discount, commission, and rebate or any similar return are exempted.
• The issue, allotment, or transfer of ownership of an equity security or debt security are exempted from VAT Rate.
• The provision or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract is under VAT exempted list.

This sounds good! But how do I know whether an activity or service which I am providing is a financial service? Is there any definition of financial services?

Yes, the UAE VAT Executive Regulation has not defined what is financial service is, but it has listed down the instances which amount to financial services.

Financial services are those services which are connected to dealing in money or its equivalent and the provision of credit. Exchange of currency issue, provision of any loan, advance or credit, the operation of any current, deposit or savings account etc. are few instances of financial services.

Kindly note, not all of the financial services discussed above are exempted from VAT. If any of these services are conducted in return for an explicit fee, commission, discount, and rebate or similar return as a consideration in respect of the supply of services, it would amount to a taxable supply.

• Residential Buildings

The supply of residential buildings is under VAT exemption subject to the following condition:

• The lease is more than 6 months or
• The tenant of the property is a holder of an ID card issued by the Emirates Identity Authority

The period of tenancy referred above will be identified with reference to the contractual period of tenancy and it will include any period arising from a right or option to extend the period of the tenancy or renew the tenancy.

Here, residential buildings refer to buildings intended and designed for the human occupation which includes principal place of residence, residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.

Broadly, all residential accommodations which are within the definition of residential building and satisfying the above conditions are exempted from VAT.

Are there any buildings which are not considered as a residential building?

Yes, all the non-residential accommodations are not considered as residential buildings. The following are the instances of buildings which are not considered as residential buildings:

• Any place that is not a building fixed to the ground and can be moved without being damaged
• Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like
• A serviced apartment in which services in addition to the supply of accommodation are provided
• Any building constructed or converted without lawful authority In all the above cases, VAT @ 5% will be applicable.

In all the above cases, VAT @ 5% will be applicable.

• Bare Land

Here, ‘bare land’ means a land that is not covered by complete buildings or partially completed buildings or civil engineering works.

• Local Passenger Transport Services

The supply of local passenger transport services by way of transport by land, water or air from a place in the State to another place in the State will be exempted. The means of transport such as motor vehicle including taxi, bus, railway train, tram, monorail, ferry boat, abra or other similar vessel or similar means of transport, designed or adapted for the transport of passengers are exempted from VAT.

Even helicopter or aero plane designed or adapted for the transport of passengers and approved for transport of passengers in accordance with the Civil Aviation Act is exempted.

However, local passenger transport services in the context of a pleasure trip and local passenger transport service by aircraft which constitutes “international carriage’ as mentioned in UAE executive regulation will not be exempted and VAT @ 5% will be levied.

Related Articles:

• VAT Rate in UAE
• Zero-Rated Supplies in UAE VAT
• Difference between zero rate, exempt and out of scope supplies in UAE VAT

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In this article, let us understand the steps to be followed by a non-registrant to pay VAT in the FTA portal.

How to make VAT Payment in FTA portal

• Step 1: Log in to FTA e-Services portal
• Step 2: Click on the VAT tab as shown below:

• Step 3: Click ‘VAT 301- Import declaration form for VAT payment’

• Step 4: Fill in the Customs Authority, Customs Declaration Number and Declaration Date. Click Next.
• Step 5: The screen ‘About Declaration’ will open. The details of the customs declaration submitted earlier (Import date, destination, etc) will be automatically retrieved. Click Next.
• Step 6: The screen ‘Declaration details will open and the declaration details [for example, HS (Harmonized System) code, import value, customs duty, CIF (Cost, insurance and freight) value, etc] will be automatically retrieved. Click Next.
• Step 7: As the scenario of import requires payment of VAT, click ”Pay VAT button which will direct you to the e-Dirham gateway.

• Step 8: Once you are redirected to the e-Dirham gateway, you will be able to make the payment through an e-Dirham or non-e-Dirham card.
  

• Step 9: Once the payment is processed successfully, a confirmation message will appear on the screen and you will receive an email confirmation that the payment has been successfully completed. After this, the customs clearance process can be completed.
  

Hence, the process for payment of VAT on import has been made easy in the FTA portal. Non-registered importers can follow the above steps to pay VAT on import in the relevant scenarios.

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The Federal Tax Authority (FTA) has recently issued a public clarification on taxability of Dubai Owners’ Associations and Management Entities. In the clarification, FTA clarifies the significant impact of Law No. 6 of 2019 Concerning Ownership of Jointly Owned Real Property (“Law No. 6”) on the taxability of Owners’ Associations and Management Entities in the Emirate of Dubai.    

Law No. 6 was published on 4th September 2019 and became effective 60 days thereafter; that is, on 3rd November 2019. This Law applies to all Master Projects and Jointly Owned real estate property in Dubai. As per Article 49 of Law No. 6, all rights and obligations of Owners’ Associations which arose before the effective date of that Law had to be transferred to the Management Entities. Thus, Management Entity will supersede the Owners’ Associations in the business of managing the Jointly Owned Real Property.

Impact of Law No. 6 on the taxability of Owners’ Association

Dubai Owners’ Associations were required to apply for VAT de-registration before 4th of December 2019 (within 20 business days) as all the rights and obligations of Owners’ Associations were transferred to Management Entities, and thus, the Owners’ Associations are considered to be no longer making any taxable supplies.

 Obligations for Management Entities under the VAT Law

Management Entities are regarded as making supplies to the owners of Jointly Owned Real Property and required to fulfill VAT obligations in this regard, including VAT registration, the issuing of valid tax invoices and VAT reporting to avoid penalties such as:

1. Failure to Register under VAT law – AED 20,000
2. Failure to file correct Return – AED 3,000 for the first time, AED 5,000 in case of repetition
3. Failure to issue tax invoice/credit notes – AED 5,000 per document
4. The failure to settle the Payable 2% immediately, 4 % on 7th day & 1% on daily basis after one month up to 300%

It is important to note that Law No. 6 is only applicable for Dubai and Owners Association’s in other emirates are still required to be registered for VAT purposes.

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In our article ‘Tax Agent under UAE VAT’, we have learnt about tax agents. Tax agents are qualified and licensed persons who assist taxable persons in their compliance activities under VAT. Tax agents are registered with the FTA and taxable persons can appoint them to assist in fulfilling their tax obligations.

A tax agency is a firm of tax agents who register as an organisation to assist taxpayers in their compliance activities. A tax agency will consist of multiple tax agents. Note that all such tax agent firms have to register as tax agency with the FTA in order to be licensed to assist taxpayers in compliance. This is in addition to the individual tax agent license that the members of the firm may hold. In order to register as tax agency, the firm should have at least 1 tax agent linked to it.

Let us understand how to register as a tax agency under UAE VAT.

What is a Tax Agency?

A tax agency is a legal entity which is licensed to operate as a tax agency and has taken a tax agency registration with the FTA.

What are the conditions for registering as a Tax Agency?

The conditions to be fulfilled for tax agency registration are:

• Hold a business or trade license that allows the applicant to operate as a tax agency (usually issued by the Department of Economic Development), and
• Have professional indemnity insurance in respect of the tax agency business

What is the process for applying for registration as a tax agency?

Hence, every firm of tax agent should register as a tax agency with the FTA in order to be able to assist taxable persons in compliance activities under VAT. A unique identification number (TAN) will be granted to every registered tax agency under VAT. This guide on how to become a tax agency in UAE will be useful to such persons.

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Under VAT, certain violations of the provisions of the VAT Law can invite an administrative penalty. Administrative penalties are additional amounts payable by a person for breaching the provisions of the VAT Law. Let us understand the actions which invite administrative penalties under VAT in UAE and the amount of VAT penalty in each of these cases:

VAT compliant invoicing

VAT compliance begins with VAT invoicing. Every single invoice that you generate or transaction you record must be done in a VAT compliant way. With Tally.ERP 9, you don’t have to worry whether you have raised an invoice correctly or not.

All you have to do in Tally.ERP 9 is to enter TRN (UAE) or TIN (KSA) and the period. As soon as you start recording transactions in Tally.ERP 9, the VAT ready software maps all the data with VAT rules. Let us look at some examples to understand this better.

• Tally.ERP 9 applies VAT in invoices wherever applicable.
• Verifies whether the TRN/TIN are correct or not and raises alerts when they need to be corrected.
• Warns if manual alteration is done on already calculated values.
• Gives you the flexibility to add expenses or discounts with VAT implication.
• Shows how VAT calculation has been done for all the transactions.
• Invoices are matched in registers, profit & loss account, balance sheet and other reports.

Actions inviting Administrative Penalty under VAT

1. Failure by a Taxable Person to display prices inclusive of Tax

Every Taxable Person in UAE should display the price of taxable goods or services as inclusive of VAT, except in the following cases:

• The supply is for export
• The customer is a registrant
• Import of goods or services

If a Taxable Person omits to display the prices of goods or services as inclusive of tax, it will lead to an administrative penalty of AED 15,000.

2. Failure by a Taxable Person to notify the FTA regarding charge of Tax based on the margin

A Taxable Person should calculate Tax on the profit margin on supply of second-hand goods, antiques and collectors’ items such as stamps, coins, etc. Here, the profit margin is the difference between the purchase price and selling price of the goods.

An omission to notify the FTA regarding the charge of tax based on margin will lead to an administrative VAT penalty of AED 2,500.

3. Failure to comply with the conditions and procedures related to keeping goods in a Designated Zone or moving them to another Designated Zone

A Designated Zone is a VAT free zone which is considered to be outside the state of UAE for the purpose of VAT. As a result, on any transfer of goods between Designated Zones, VAT will not be levied. To know more about the conditions and procedures related to keeping goods in a Designated Zone or moving them to another Designated Zone, you can read our article VAT on Free Zones in UAE .

If a taxable person does not comply with the conditions and procedures related to Designated Zones, an administrative penalty of AED 50,000 or 50% of the tax chargeable as a result of the violation, whichever is higher, will be applicable.

4. Failure by a Taxable Person to issue a Tax Invoice or an alternative document when making any supply

Tax Invoice is the essential document to be issued by a registrant when a taxable supply of goods or services is made. To know more about Tax Invoice under VAT in UAE, you can read our article Tax Invoice.

A failure by a Taxable person to issue a tax invoice or alternative document for taxable supplies will invite an administrative penalty of AED 5,000 for each Tax Invoice or alternative document not issued.

5. Failure by a Taxable Person to issue a Tax Credit Note or an alternative document

A Tax Credit Note is a written or electronic document in which the occurrence of any amendment to a taxable supply that reduces or cancels the same is recorded.

A failure by a Taxable Person to issue a Tax Credit Note or alternative document, where applicable, will lead to an administrative penalty of AED 5,000 for each Tax Credit Note or alternative document not issued.

6. Failure by a Taxable Person to comply with the conditions and procedures regarding issue of electronic Tax Invoices and electronic Tax Credit Notes

A Taxable Person can issue a Tax Invoice or Tax Credit Note electronically, provided:

• a. The Taxable Person must be capable of securely storing a copy of the electronic Tax Invoice as per the record keeping requirements
• b. The authenticity of origin and integrity of the content of the electronic Tax Invoice or Tax Credit Note is guaranteed

If a Taxable Person does not comply with these conditions for issue of electronic Tax Invoices or Tax Credit Notes, it will invite an administrative penalty of AED 5,000 for each electronic Tax Invoice or Tax Credit Note for which the conditions are not met.

Hence, tax payers should take note of the high administrative penalty when certain provisions of the VAT Law are violated and ensure that these are noted and avoided.

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In line with the Cabinet Decision No. 65 of 2020 on Fees for Services provided by the Federal Tax Authority issued in October 2020. The Federal Tax Authority (FTA), and in coordination with the Ministry of Finance (MOF) will start receiving applications for the issuance of tax certificates via its website as of 14th November 2020. There are two categories of tax certificates

which will be issued to Legal and Natural Persons:

• Tax Residency Certificate: a certificate issued by the FTA upon    request to enable applicants to benefit from Double Tax Avoidance Agreements (DTAA) on income signed by the UAE.

• Commercial Activities Certificate: a certificate issued by the FTA to enable applicants to refund VAT paid outside the UAE, whether or not DTAAs are applicable.

The new service provides advantages and ease for the issuance of certificates to those registered in the tax system, as all their data is available in the FTA database, so they can apply for Tax Certificates through direct and quick digital procedures.

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The UAE has reiterated that it doesn’t t have any plans at the moment to raise its 5 per cent value added tax (VAT) after Saudi Arabia tripled the levy and Oman said it plans to start imposing it from April.

The second-biggest Arab economy is continuing to modernize its tax policies for economic growth, the state-run news agency reported, citing Saeed Rashid Al Yateem, assistant under-secretary of resources and budget sector at the Ministry of Finance. The UAE implemented 5 per cent VAT at the start of 2018.

VAT revenue in the first eight months of the year was Dhi1.6 billion ($3.2 billion) and excise tax collection at Dh1.9 billion, according to WAM.

News Courtesy : Gulf News

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