Businesses told to comply with anti-money laundering steps

FOUR CATEGORIES OF BUSINESSES MUST COMPLETE FORMALITIES BY MARCH 31

The UAE’s Ministry of Economy has extended the grace period until March 31 for certain business categories to be in full compliance with anti-money laundering and prevention of terrorism financing.

Businesses that fail to do so will face fines range from Dh50,000 to up to Dhl million and can be raised to Dh5 mil-lion based on the provisions of the law and according to the assessment of the Supreme Committee for Combating Money Laundering, and Financing of Terrorism and Illegal Organizations.

 This applies to activities in four categories — brokers and real estate agents, dealers of precious metals and gemstones, auditors, and corporate service providers.

The ministry issued a list of 26 violations. Three actions will invite fines of Dhl million each.

These are for dealing with fake banks in all ways; opening or maintaining bank ac-counts with fake names or numbers without the names of their canters; and failure to take measures related to clients listed on international or domestic sanctions lists, prior to establishing or continuing a business relationship.

Steps to be taken

These businesses must first register with the Financial Intelligence Unit (goAML) and on the Committee for Commodities Subject to Import and Ex-port Control system (Automatic Reporting System for Sanctions Lists).

 Following the registrations, they should adopt other measures related to the two systems in accordance with the provisions of the Decree-law, its implementing regulations and the relevant decisions.

“We call on all concerned companies to establish internal policies, procedures and controls to avoid money laundering risks in accordance with the measure set forth by the executive regulations of the law, which can be found on the official website of the Ministry of Economy,” Said Safeya Al Safi director of the Anti-Money Laundering Department, Ministry of Economy.

The Ministry called on the companies practicing the four categories of activities to enhance their awareness and knowledge on the risks of money laundering and keep pace with the government’s efforts in this regard.

Registration extended

The Ministry clarified that the grace period for registering on the two systems has been extended until March 31, 2021, and that the companies that fail to do so before this date will be subject to penalties, including suspension of the license and closure of the facility.

 In addition, it underlined the significance of completing the post-registration procedures and measures to avoid the fines set by the Cabinet Resolution No. 16 of 2021.

AI Sail said: “The Department is committed to answering the inquiries of all stakeholders and helping the targeted establishments comply with the requirements of the law, via the Ministry’s call center number 800-1222.

Al Safi explained that the issuance of the violations and fines list supports the UAE’s efforts in combating money laundering crimes and financing of terrorism. It enhances the business sec-tor’s and non-financial professions’ compliance levels as de-fined by the provisions of the law and its implementing regulations, thereby contributing to raising the national economy’s ability to achieve healthy and sustainable growth. Furthermore, the measure reflects the UAE’s keenness, under the guidance of its wise leadership, to continuously develop Its economic legislation to enhance its competitiveness as a safe and stable global business destination. Al Safi also affirmed the Ministry of Economy’s commitment to strengthening partnerships with private sector companies and establishments that belong to the designated non-financial business and professions sector.

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Understanding the United Arab Emirates’ tax position

Occupying a strategic location between Asia, Europe and Africa, the United Arab Emirates (UAE) ranks first among the countries most attractive to foreign direct investment in the Middle East (ME) and Africa region. If you are a new reader of the Deloitte Middle East Doing Business guides series, you will find this document a useful companion and supportive guide throughout your journey in the UAE business terrain. 

If you have followed our reports for a while now, you will appreciate the updates, highlighting the most important changes, presented in the familiar format.

This Taxation and investment guide is a first stop for investors wishing to gain a working perspective on the operating conditions and investment climate. The areas covered in this guide are listed below:  

• About the United Arab Emirates
• Legal and regulatory framework
  • Entering the market
  • Mainland and Free Zone establishments
  • High-level entity set-up comparison in mainland vs. Free Zones
  • Offshore establishments and formation procedures and registration
• Taxation in the United Arab Emirates
  • Taxation of oil and gas companies
  • Taxation of branches of foreign banks
  • Withholding taxes
  • Capital gains and tax incentives
  • Transfer Pricing and country-by-country reporting
  • Stamp duty
  • Real estate transfer fees and municipal charges
  • Economic substance rules
  • Value Added Tax
  • Excise Tax
  • Customs duty
  • Personal Taxation
• Immigration and labor landscape
  • Work authorization
  • Exit requirements/de-registrations
  • Processing challenges for work permits
  • Inter-emirate assignments and employer compliance
  • Emiratization
  • Business visitors
  • Virtual work program and labor laws
• United Arab Emirates double tax treaty network

Source :  Deloitte

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VAT on local transportation that forms or does not form part of the international transportation leg

In a typical international logistics transaction, a consignor (person who wishes to get the goods transported) enters into a contract with a transporter for moving the goods from one country to another and delivering them at the consignee’s place in the country of destination.

Such services are typically broken into three legs – First, is the movement of goods within the country of the consignor that includes picking goods from consignor’s place (either warehouse or factory), transport them to the local port, loading them to the ship and undertaking all customs formalities at the port. Second, is the actual transportation of the goods in the vehicle (i.e., ship or a vessel) until the destination port. Third, is the movement of goods from the destination port to the consignee’s place and that includes unloading of goods, storage at the port, customs formalities and finally transporting them to the consignee’s place of business.

Under the UAE VAT law, international transportation of goods which either starts or ends in UAE including any transport related service (defined separately) is subject to VAT at 0%. This is on the basis that services typically relate to international movement of goods and therefore, should not be subject to a tax.

The challenge that some of the transportation companies are currently facing is in relation to the third leg of the transaction where goods are transported from the port to the consignee’s place of business (both in UAE). Or alternatively, where the consignor is in UAE, transportation services to move goods from his place of business and delivered to the port (both in UAE). The challenge is arising for those transporters who are hired only to execute the local leg of the entire transaction chain and are not providing the complete end-to-end services to the consignor. Which means that these transporters are only contracted for local transportation of goods in UAE and are not concerned at all with the other two legs of the transaction.   

The general trend in the industry and the position taken by them seems to indicate that such services were being considered as a part of the ‘international transportation services for goods’ and consequently subject to zero rate VAT. This is on the basis that this leg of the transaction involving local transportation was considered to be covered under Article 33 of the UAE VAT Executive Regulations and was treated as ‘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’.

The FTA, in some of the private rulings, seem to suggest otherwise and it appears that such independent transactions of transporting goods in UAE (though forming part of the international transportation of goods services) would get covered under Article 33 only when such services are provided by a single entity. The FTA seems to be taking a view that unless the transactions are inextricably linked (by way of being provided by the same entity), they should be subject to VAT at 5%.

A significant no. of transporters could immensely get impacted by this clarification and it is important that either they themselves get it clarified from FTA for their respective businesses, or else the industry as a whole represent to the FTA on why this leg of the transaction should be covered under Article 33 and thereby zero rated for VAT.

Source : gccfintax.com

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A peculiar situation was noticed when a Person (an individual) was highlighted a portion of the Director’s fee he received in 2018 for the board meetings that he attended in 2017, was not accounted for VAT.

The question was whether such services should be subject to VAT or is the amount received an ‘Out of scope’ transaction since the services were rendered in 2017 (i.e. before the introduction of VAT).

It is important to note that the fee that was paid to the Director was not fixed when he provided the services in 2017, but the amount was finalized in the AGM held in 2018 and paid thereafter.  This means that the Director provided his services in 2017 but the amount of fee to be billed to the Company was only determined in 2018 and therefore, he could neither issue an invoice nor receive any advance.

This is a peculiar situation because such instances require an analysis of the ‘transitional’ provisions under Article 80 (3) of the UAE VAT law that covers situations where the contract to provide a service is entered into before 1st Jan 2018, but the service is completed post 1st January 2018.

It is also important to look at the Public Clarification on ‘place of supply for independent directors’ that clarified that when the director’s fee is not determined at the time of provision of services but later in the AGM, the time of supply shall be the time when such amount is fixed in the AGM.  It was clarified that the service of providing directorship services shall be deemed to be completed when the fee amount was determined in the AGM.

The above is subject to the condition that the Director had neither issued any invoice nor had received any advance. If either of these events occur, the time of supply shall trigger upon happening of these events.

Thus, in this given case itsa possibility that the Director who rendered his services in 2017 could be liable to VAT on his board fee, both determined and paid in 2018. This is on the basis that the time of supply clarified by FTA read with Article 80(3) of the UAE VAT law could potentially make this transaction subject to VAT.

Source:GCCFintax

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WHAT IS VAT DE-REGISTRATION?

Tax De-registration is the provision for a registered taxable person to cancel his/her VAT registration with the Federal Tax Authority (FTA). It means de-activation of the registration and the VAT number of the taxable person. Tax de-registration can be applied for by a person registered under VAT or done by the FTA on finding that a person meets the conditions for de-registration.

ELIGIBILITY FOR VAT DE-REGISTRATION

VAT deregistration in UAE is as important as registration for a VAT. There could be various reasons for canceling the registration for VAT in UAE.

De-registration reasons should comply with the conditions defined by the Law related to VAT. If the reasons are not valid and the conditions are not fulfilled, the FTA might reject the application for de-registration.

As per the current UAE VAT regulations that are set by the country’s tax authority, Federal Tax Authority in UAE, a business has to follow the conditions listed below in order to be eligible for VAT de-registration.

1-MANDATORY VAT DE-REGISTRATION:

A Registrant shall apply to the Authority for Mandatory Tax Deregistration in any of the following cases (as per Article 21 of the Decree-Law read with Article 14 of its Executive Regulation)

•  If the business or a person stops making taxable supplies and does not expect to make any taxable supplies over the next 12-month  period then they must apply for VAT  Deregistration.

•  If the value of the Taxable Supplies made over a period of 12 consecutive months is less than AED 187,500/- If the business or a person is still making taxable supplies but the value in the preceding 12 calendar months is less than the Voluntary Registration Threshold (AED 187,500) and said Registrant  does not expect that the total value of taxable supplies and imports subject to reverse charge provisions or the expenses which are subject to tax that will be incurred, will not exceed AED 187,500/- during the coming 30-day period then they must apply for VAT Deregistration.

TIME FRAME FOR VAT DE-REGISTRATION

The registrant should apply for deregistration within 20 business days of the occurrence of the conditions mentioned above. 

PENALTIES AGAINST NON DE-REGISTRATION 

As per the guidelines issued by the Federal Tax Authority (FTA)  on registration, amendments & Deregistration, if the date of submission of the de-registration form is more than 20 business days from the date the Taxable Person is required to de-register then, a late de-registration penalty of AED 10,000/-  will be levied by the Federal Tax Authority.

VAT registrant in the UAE shall mandatorily verify as to whether they will fall in the categories specified in UAE VAT Law to avoid any non-compliance penalties.

2- VAT VOLUNTARILY DEREGISTRATION

A registered entity for VAT in UAE can deregister voluntarily if it meets any of the following:

•  If the business or a person is still making taxable supplies but the value in the previous 12 months was less than the Mandatory Registration Threshold (AED 375,000) AND
• 12 months have passed since the date of registration if you were registered voluntarily then you may apply for VAT Deregistration.

Note that a person who has voluntarily registered under VAT cannot apply for de-registration in the 12 months following the date of registration. 

TIME FRAME FOR VAT DE-REGISTRATION

There’s no specific deadline that has to be met to apply for deregistration for VAT (voluntarily) with the Federal Tax Authority.

DE-REGISTRATION FOR VAT GROUPS

The eligibility for the VAT deregistration of VAT groups is the same as the criteria for the individual taxable entities. However, certain other criteria also apply to the VAT groups for applying for deregistration:

1. The VAT deregistration will be approved if the group no longer meets the conditions to be considered as a VAT group
2. The group could be granted deregistration if the constituent member companies are no longer financially associated with the group
3. Deregistration will be approved if the FTA anticipates the tax status of the group may lead to tax evasion

The companies that are closing down should upload their liquidation letter from authorities

PROCESS OF VAT DEREGISTRATION IN THE UAE 

A registered entity should follow the below-mentioned procedures to cancel VAT registration in UAE: –

• Check they meet the criteria for the cancellation
• Log into their VAT Account on FTA Portal
• Fill in the vat deregistration form UAE online with the details along with the reason for the cancellation
• Submit the form electronically
• Receive SMS confirmation on the registered number for submission.

Subsequent to the submission of Application, the FTA will: –

• FTA will review the application and if they confirm the VAT De-registration the status of VAT De-Registration will be changed to ‘Pre-Approved’.
• After that the businesses have to submit final VAT Return Filing, after the last VAT Return filing the businesses must clear all the outstanding liabilities in order to complete the VAT Deregistration process.
• An email and an SMS notification of the status of the application and requesting you to complete the payment of the outstanding liabilities will be sent by FTA.
• If the VAT deregistration application is approved, only then the Federal Tax Authority will cancel the VAT registration of the registrant and will deregister with effect from the last day of the Tax Period during which the Registrant has met the conditions for deregistration or from such other date as may be determined by the Federal Tax Authority.

A Registrant shall not be deregistered unless he has paid all Tax and Administrative Penalties outstanding and filed all due Tax Returns under the Decree-Law and the Federal Law No. (7) of 2017 on Tax Procedures

Source : xpertsleague.com

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Businesses engaged in making a mixture of taxable and supplies exempt from value added tax (VAT) must apportion the input tax which they incur for making such mixed supplies. Apportionment calculations must be undertaken by the taxable person on a period-by-period basis with an annual “wash-up” calculation to be performed in the period following the end of the tax year.

Taxable persons filing monthly returns with a 31 December 2020 tax year-end must undertake the annual wash-up calculation and make any required adjustments to input VAT recovered in the January 2021 VAT return to avoid potential penalties for late or underpaid VAT. Businesses operating in the following sectors generally are required to undertake apportionment calculations:

• Real estate, residential supplies
• Banks and financial institutions
• Local transport service providers
• Insurance companies

The requirement to undertake apportionment calculation is not limited to these sectors and can apply to any entity that makes both VAT-exempt and taxable supplies.

Apportionment

The UAE tax authority issued an updated guide (December 2019) covering special apportionments methods and annual adjustments. Based on this guide and the legislation, the tax authority requires the following:

• Comparative calculation for a full 12-month period (wash-up calculation):
  • With the monthly/quarterly apportionment done using the standard method, and
  • With the actual use calculation using one of the approved special methods listed in the guide
• Special apportionment methods include output-based method, transaction count method, floor-space method and sectoral method. The tax authority stipulates that only certain methods will be available to businesses from certain industries (not all methods will be available to all industries and businesses).
• A taxpayer must apply to the tax authority to use a special method of apportionment, and there is a formal process to obtain permission (a taxpayer cannot simply elect to start using a particular method at its own discretion). Typically, once approved, the taxpayer will be required to use this method for at least two years.
• It is not compulsory for a VAT registered business to apply for a special apportionment method; however, the tax authority expects when there is a difference of more than AED 250,000 in any tax year between the recoverable input tax as calculated in accordance with the standard apportionment method (outlined in the legislation) and the input tax which would have been recoverable if the calculation was made on the basis of the actual use of goods or services (applying a special method), the taxpayer is to request permission to use a special method.
• When the tax authority has granted permission to use a special input tax apportionment method, the taxpayer cannot apply to change the approved method for at least two years following the approval. However, the taxpayer will be required to notify the tax authority when the result produced over the full year by the input tax apportionment method approved by the tax authority differs more than 10% from the result the method generated at the time of application, in order for the tax authority to consider whether the approved method is still suitable for the business.

News Courtesy : KPMG

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Local emirates will need to offer 25-50 per cent subsidy for staff accommodation costs and utility companies waive off transfer fees for the UAE’s hotel industry to see off the pandemic.

There will also need to be an immediate waiver of all employment permit and visa charges, as well as of municipality and VAT payments as part of a multi-pronged effort to revive an industry pulverized by COVID-19 disruption and yet to make a sustained recovery.

And hotels must also be released from hosting “non-stranded guests who refuse to pay for their stay.

These form some of the recommendations a think-tank set up by Mashreq Bank has come up with. It had earlier issued one for the local retail sector.

Joel Van Dusen, Head of Corporate and Investment Banking Group at Mashreq Bank, said in a statement: “The regional hospitality sector already faces multiple headwinds, and the pandemic has only further impacted the industry with factors such as the global economic environment, struggling tourist numbers and oversupply.

“Despite this, there are numerous opportunities which can be leveraged to make the industry a more sustainable proposition. This report presents insights and recommendations that act as a stimulus for the industry to come together and rethink the existing model.

“Only by creating a permanent shift in the way business is done will the hospitality industry be able to create strong momentum during the medium term.”

News Courtesy : Gulf News

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Adhering to UAE’s Economic Substance Regulations (ESR) is now a ‘must do’ reality facing business owners in the region, amid the challenging financial circumstances brought on by the COVID-19 pandemic.

New regulations, which were implemented in the UAE for fiscal years commencing January 1, 2019 and onwards, were announced by the government the last year and encompasses several industries in the country.

These regulations are now being tackled with renewed urgency by UAE corporates, to make sure they comply with the ESR (Economic Substance Regulations) before the deadline of January 31, after being extended from an earlier deadline of December 31. The Ministry of Finance (MoF) has worked over time to release an array of notices, statutory forms and guidance notes to ensure adequate details are at the disposal of licensees to prepare.

What are economic substance regulations?

The Economic Substance Regulations, or ESR, was issued by the UAE and is aimed at curtailing harmful tax practices and closely tracks the global standard set by the OECD (Organization for Economic Co-operation and Development).

As the UAE is a member of the OECD framework, in response to an assessment of the UAE’s tax framework by the European Union (EU) Code of Conduct Group on Business Taxation, the UAE introduced a resolution on Economic Substance on April 30, 2019.

Why imposes such regulations?

The UAE is not a tax-free jurisdiction. In 2018, the UAE introduced VAT to the country, as well as an excise tax applicable to certain goods.

Corporation tax is levied on foreign banks and oil companies operating in the country, and the UAE Ministry of Economy has been clear for some time that it is studying the effect of the introduction of a more general federal corporate income tax.

With fiscal transparency and regulation being a global priority, international financial organizations such as the OECD champion better global co-ordination on tax regulation, including measures to tackle tax evasion, so that businesses cannot make profits from differences in tax legislation around the world.

Rules track similar moves made worldwide

The UAE is one of the several tax-free or low tax countries that have put similar regulations into practice last year – some of them being the Bahamas, Cayman Islands, British Virgin Islands, Mauritius, Seychelles, Jersey, Guernsey, the Isle of Man, and Bermuda.

As the UAE eyes prospects as an international incorporation destination, analysts say the country will be targeting to keep its most promising regard as one of the easiest countries in the world to do business in.

Companies active in these sectors are considered ‘relevant entities’ and must comply with economic substance regulations.

It applies to all companies established in the UAE (except those entities in which a minimum 51 per cent direct or indirect investment is from government authorities) and which have income from a relevant sector in any accounting period commencing on or after January 1, 2019.

However, allowances will be less stringent for those managing holding companies (such as those that only derive equity-based interest income) and additional requirements apply to anything related to high-risk intellectual property.

What are the economic substance tests that firms should get done?

All the firms falling under the above-mentioned list of activities, getting income in the relevant sector in the specified accounting period will be required to demonstrate adequate “substance” in the UAE

These are the pre-requisite tests that will allow the government to determine if firms comply with the norms.

News Courtesy : Gulf News

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Tax Audit is one of the compliance checks to verify a person’s VAT liability is correct by way of examining various records which are maintained by the taxpayer. A tax audit may be carried out at the taxable person’s business premises known as ‘field tax audit’ or in the offices of the FTA. Generally, prior notification of an audit will be given to the taxpayer.

In this article, let us understand Why Tax Audit in UAE? and the process involved in the Tax Audit.

Why Tax Audit?

VAT is a self-assessment tax, meaning the taxpayer himself assess the amount of tax payable and recoverable input tax based on the supplies done during the period and reports it to the FTA through VAT returns. In order to assess the self-assessed declaration is correct or not, the tax audit procedure is used by the FTA.

During the audit, if there are some discrepancies resulting into underpayment of the VAT or over claiming the input VAT deduction, the FTA will issue a notice in the form of assessment asking the taxpayer to pay the VAT along with penalties.

What is the timeline for Tax Audit?

All the VAT registered businesses will not be audited and also there is no fixed frequency in which the tax audit will be conducted. From time to time, the FTA will be select the businesses who are required to be audited. The decision to audit the businesses completely is at FTA’s discretion. The following are some of the factors which are considered in selecting the business for tax audit.

• How large or complex the business
• Past compliance history of the business
• The tendency of late submission of returns
• Instances of incorrect return filing and so on.

For example, a large business selling a high volume of goods and having a poor compliance record is more likely to be subject to a tax audit than a small business with a strong compliance record, as the risk to the tax revenue is greater.

Tax Audit Procedure

The FTA will usually inform the taxable person in the question of tax audit 5 business days in advance. However, in certain exceptional cases like suspected tax evasion, or if there is a reason to believe that notifying would hinder the conduct of the audit, no notice of tax audit will be given.

Tax Audit will be conducted at the taxable person’s place of businesses or in some cases at FTA’s office. If the audit takes place at the taxable person’s place of business, it will usually be during the FTA’s normal business hours.

The businesses which are subject to an audit (including their tax agent, or legal representative), must facilitate and provide the required assistance to the tax auditor to carry out the audit in a smoother manner. The following are some of the actions that the taxpayer should ensure on receiving the tax audit notice.

• Relevant premises are accessible;
• Tax records such as books of accounts, Tax invoices etc. are accessible for examination
• Relevant staff are present (for example the person responsible for compiling the tax return
• Original copies of documents or invoices

In the event of failure to provide the required records or assistance in conducting the tax audit, applicable penalties may be levied on the taxpayer.

On completion of the audit, the FTA will communicate the results of the audit to the taxable person. If the conclusion of the audit leads to the determination of any of the following cases, then tax assessment will be issued.

• Failing to apply for registration within the timeframe specified by the VAT Law.
• Failing to submit a Tax return within the timeframe specified by the VAT Law.
• Failing to settle the payable tax stated as such on the Vax return that was submitted within the time limit specified by the Tax Law.
• Submitting an incorrect VAT return.
• The Registrant failing to account for Tax on behalf of another person when he is obligated to do so under the Tax Law
• The shortfall in VAT payable as a result of a tax evasion

Also, there could also be administrative penalties levied on the taxpayers if the findings lead to those instances specified in the law

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The Profit Margin Scheme is a scheme whereby a Taxable Person has an option to calculate Tax on the profit margin earned on the supply of goods, instead of the sale value. VAT under profit margin scheme can be calculated only when the conditions prescribed in UAE VAT law are fulfilled.

To know more on the profit margin scheme conditions and the VAT calculation, please read our article Profit Margin Scheme under VAT in UAE and How to calculate VAT under Profit Margin Scheme.

In this article, we will understand the goods eligible under the profit margin scheme and the treatment of goods purchased prior to the introduction of the VAT.

Goods under the Profit Margin Scheme

Only notified goods can be supplied under the profit margin scheme. The following are the goods which are eligible under the profit margin scheme.

• Second-hand goods, meaning tangible moveable property that is suitable for further use as it is or after repair.
• Antiques i.e. goods that are over 50 years old.
• Collectors’ items i.e. stamps, coins, currency and other pieces of scientific, historical or archaeological interest.

The above-mentioned goods can be supplied under the profit margin scheme only when they were subject to VAT before the supply. In simple words, these goods should have suffered VAT before supplying it under the Profit margin scheme.

Now, you might be wondering what if these notified goods were purchased before 1st January, 2018 when VAT was not implemented?

Let us understand this in detail.

Treatment of goods purchased prior to the introduction of VAT under the Profit margin scheme

As discussed above, the goods which are eligible to be sold under the profit margin scheme are those which have previously been subject to VAT. As a result, the notified goods which are eligible to be supplied under profit margin scheme but since they were purchased during a period in which they would not have been subject to VAT, are not eligible for the profit margin scheme.

In simple words, the notified goods which are purchased prior to 1st January, 2018 are not eligible to be supplied under the profit margin scheme. On supply of such goods, VAT is due on the full selling price.

In the following table, we have considered two scenarios to understand the eligibility of supplies under the profit margin scheme

Evidence that goods were subject to tax previously

As discussed above, a supplier should know in advance that the goods were previously been subject to VAT in order to apply the profit margin scheme. The following are some of the instances which will evidence that goods were subject to VAT previously.

• Information relating to the date the good was first manufactured, sold or brought in to use. For example, in the case of a car, the date the car was first registered would indicate its sale would have been subject to VAT if it was registered on a date after 1 January 2018
• Evidence that the supplier paid VAT on their original purchase. For example, you may ask the supplier for a copy of the tax invoice relating to their purchase of the goods.

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Under VAT in UAE, all businesses which have a place of residence in UAE, and whose value of supplies in the GCC member States in the previous 12 months exceeds AED 375,000, should mandatorily register under UAE VAT. Further, businesses in UAE which do not have a place of residence in UAE will have to compulsorily register under VAT, irrespective of their turnover.

For registered businesses which deal with other registered businesses, it is of great importance to issue a valid document evidencing that a supply has taken place. On the other hand, this document is of even greater importance to recipients who are registered under VAT, as it will serve as the basis for their input tax recovery on this transaction. To understand more about the eligibility and conditions to recover input tax on a supply, you can refer our blog ‘Input tax recovery’.

The document to be issued by all suppliers registered under VAT to registered recipients is called ‘Tax Invoice’. A Tax Invoice is the document which evidences that a supply has taken place and serves as the basis for a recipient to recover input tax on a supply. Hence, a Tax Invoice is of great importance under VAT in UAE. The VAT Law has also laid down the details that are mandatorily required in a Tax Invoice.

Let us understand how a registered supplier can issue a Tax Invoice under VAT. For example: Ahmad & Co., a registered apparel supplier in Dubai, supplies 1,000 T-Shirts @ AED 100 to a registered customer, Jumeira Apparels, in Sharjah. VAT @ 5%, amounting to AED 5,000 is charged. The Tax Invoice to be issued by Ahmad & Co. is shown below:

Businesses registered under VAT in UAE should take note of these details that are mandatorily required in a Tax Invoice. It is of utmost importance that none of the required details in a Tax Invoice are omitted. Registered businesses can explore the option of using a software that will automate the capturing of these details and generate Tax invoices accordingly. This will assist such businesses to save the time and effort required to record and generate Tax Invoices manually. Let us now answer some FAQs which businesses have, with respect to Tax Invoices.

FAQ 1: Is there a standard format for a Tax Invoice as per the VAT Law?

Answer: The VAT Law has not prescribed any standard format for a Tax Invoice. However, it has laid down the details that are mandatorily required in a Tax Invoice. These details must be given in every Tax Invoice issued by a registered supplier.

FAQ 2: Is a Tax Invoice a valid document for Input Tax Recovery?

Answer: Yes, a Tax Invoice is a valid document for Input Tax Recovery. However, a registered recipient should ensure that his/her Tax Registration Number is mentioned on the Tax Invoice issued by the supplier. Note that recovery of input tax is subject to certain conditions and eligibility. You can read more about the conditions and eligibility for input tax recovery in our articles ‘Input Tax Recovery’ and ‘Supplies not eligible for input tax recovery’.

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