(1) GCC VAT Implementation (2) UAE VAT Implementation
2) GCC FRAMEWORK
(1) GCC Common VAT Agreement (2) UAE VAT LAW (3) UAE VAT ER (3) UAE Tax Procedure
3) UNDERSTANDING OF VAT
(1) What is Tax (2) What is VAT (3) How does VAT Work?
(1) VAT Registration (2) VAT Amendment (3) VAT De-Registration
5) VAT RETURN
(1) What is VAT Return (2) VAT Return Format (3) How to file a VAT Return?
6) VAT PAYMENT
(1) VAT Payment (2) Paying via e-Dirham or credit card (3) Paying via Bank Transfer (GIBAN).
7) VAT TAX INVOICE
(1) Tax Invoice (2) Specified Tax Invoice
8) VAT CREDIT NOTE
9) VAT REFUND
(1) Regular Refund (2) Tourist Refund (3) Business Refund (4) VAT Refund for Exhibitions and Conferences (5) VAT-Refund Building-New-Residences
10) REVERSE CHARGE MECHANISM
11) VAT PENALTIES
12) DESIGNATED ZONES
13) IMPORT & EXPORT
14) VAT SUPPLIES
15) VAT IMPACT & ANALYSIS
16) VAT KNWOLEDGE & LATEST UPDATES
GCC VAT Implementation:- The GCC economies and budgets always remained heavily dependent on oil revenue. VAT will allow the GCC economies to increase diversification from their present excessive reliance on oil. The bilateral move towards fiscal reform would help generate additional government income and further strengthen the economy for generations to come.
UAE VAT Implementation:- UAE is one of the Member State of GCC(UAE, KSA, Kuwait, Bahrain, Oman & Katar). All GCC countries have agreed to implement the VAT w.e.f. 1st January-2019 as per GCC Framework of Law. The UAE & KSA has been taken initiate by successfully implementing VAT from 1st January-2018. The new source of revenue for the Government in view of the lower oil prices and depleting oil reserves. VAT will help the government to ensure high quality public services. It will help to country to collect more revenue and better growth & development. UAE will continue to be a livable and lovable place.
GCC Common VAT Agreement:- This agreement aims to establish a common legal framework for the introduction of a general tax on consumption in GCC known as Value Added Tax(VAT) levied on the import and supply of Goods and Services at each stage of production and distribution.
The member states of Gulf Cooperation Council (GCC), includes all the six states, namely:
1. The United Arab Emirates,
2. The Kingdom of Bahrain,
3. The Kingdom of Saudi Arabia,
4. The Sultanate of Oman,
5. The State of Qatar, and
6. The State of Kuwait
UAE VAT LAW:- The Cabinet has issued Decision No. (8) 2017 of UAE Federal Degree Law on Value Added Tax.
UAE VAT Executive Regulation:- The Cabinet has issued Cabinet Decision No.(52) of 2017 on the Executive Regulation of Degree Law No. (8) of 2017 on Value Added Tax.
UAE VAT Tax Procedure:- The Cabinet issued Decision No. (36) of 2017 on the Executive Regulation of Federal Tax Law No.(7) of 2017. The Law specifies number of provisions including book keeping accounting record and commercial books related to tax purposes, as well as record –keeping mechanism and saving.
UNDERSTANDING OF VAT
What is Tax:- Before understanding about VAT. It is important to understand about Tax. Firstly we should understand about Tax and types of Tax etc. Taxes are imposed by Government within Constitutional power of the Country. Imposition of tax is necessary for States to collect money for its development activities, sovereign functions and meeting other sovereign objectives. The types of tax systems prevalent across the world are “Direct Taxes” and “Indirect Tax”. Let’s understand more about Tax.
Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for things such public hospitals, schools and universities, defence and other important aspects of daily life.
There are two types of taxes:-
• Direct Tax: - A direct tax is collected by government from the person on whom it is imposed (e.g., income tax, corporate tax).
• Indirect Tax:- An indirect tax is collected for government by an intermediary (e.g. a retail store) from the person that ultimately pays the tax (e.g., VAT, Sales Tax, GST).
What is VAT:- Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 160+ countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
HOW DOES VAT WORK? For understanding how does VAT works is important because it will help you understand how VAT should be calculate; how much VAT is be collected from Buyer, how much VAT is to be paid.
Different business in the supply chain collects and account for VAT at each point of supply in the transaction chain. Ultimately, the total cost of VAT charged is borne by end of customer.
To understand this, firstly it is important to understand the following 2 terms:
Input VAT:- Tax paid by a person or due from him when Goods or Services are supplied to him, or when conducting an import
Output VAT:- Tax Charged on a Taxable Supply and any supply considered as Taxable Supply
Output VAT of Seller is Input VAT of Purchase/Buyer. For settlement of tax. Output VAT is adjusted by the value of Input VAT paid to the vendor.
The above examples there are three sales;
1. 1st Sale of ‘Raw Material’ from vendor (Seller) to Manufacturer of Bags (Purchaser)
2. 2nd Sale of ‘Bags’ by Manufacturer of Bags(Seller) to Wholesaler/Retailer(Purchaser)
3. 3rd Sale of ‘Bags’ by Wholesaler/Retailer (Seller) to End customer (Purchaser).
For the first sale, the seller will charge AED 100 as Sales Price and AED 5 as VAT. Buyer can take Input VAT credit of AED 5.
For the second sale, the seller will collect AED 200 as Sales Price and AED 10(5%) Output VAT) from Buyer. Buyer will pay AED 210 to Seller. Seller will deposit AED 5 (Output) VAT of AED 10 minus(-) input VAT of AED 5) with government.
For the 3rd sale, seller will collect AED 260 to seller. Seller will deposit AED 3 (Output VAT of AED 13 minus Input VAT of AED 10) with Govermment.
Therefore Government will collect AED 5+5+3=> AED 13. Therefore VAT system by providing credit of Input VAT charged by the vendor, prevents cascading of taxes i.e. tax on tax. This helps controls the price of the goods or service and hence controls inflation.
The above examples there are 3 sales;
1) 1. 1st Sale: Sale of “Raw Material’ from vendor (Seller X & Y) to Manufacturer (Buyer)
2. 2nd Sale of by Manufacturer (Seller) to Wholesaler/Retailer (Buyer)
3. 3rd Sale of by Wholesaler (Seller) to Retailer (Buyer).
Hence Government will collect AED 11+4+1=> AED 16. This is nothing but 5% of AED 320 (Final Sales price). Thus final consumer will need to pay AED 320+ VAT AED 16=> AED 336.
VAT Registration:- United Arab Emirates has been an implemented of VAT(Value Added Tax) from 1st January-2018. This is very important for certain business to get registered for VAT registration. If you don’t know how to register for VAT in UAE, It is the right place for you, who can help you migrating to VAT.
Company or Individual business person should complete an online VAT Registration form which is available through FTA(Federal Tax Authority) online portal. After completing registration FTA will issue a Tax Registration Number(TRN) which will be provided to applicant.
Businesses that are having annual turnover above a certain specified limit in previous 12 months have to get VAT registration. The threshold for registration will be mandatory for AED 375,000/- above and Voluntary limit as AED 187,500/- in previous 12 months.
Calculating the Tax Registration Threshold:-
The total value of supplies made for the current month and preceding 12 months shall be considered for calculating the annual supplies and also, the expected value of supplies for next 30 days will be considered to determine if annual supplies will exceed the threshold.
Who & why should take registration in UAE VAT ?
Every taxable person who is a resident in the UAE and whose value of annual supplies in the UAE exceeds is expected to exceed the mandatory registration will have to register for VAT in UAE.
1. Mandatory registration:- If threshold limit increase above AED 375,000/-
2. Voluntary registration:- If threshold limit increase above AED 187,500/-
3. Non-residence:- No threshold will be considered for a non-resident taxable person (taxable person without having fixed establishment) to determine his registration. These persons will be requiring taking registration from day one.
4. Tax group registration for companies:- Two or more persons conducting Business may apply for Tax registration as a Tax Group if all of the following conditions are met:-
a. Each shall have a place of Establishment or Fixed Establishment in the State. b. The relevant persons shall be Related Parties. c. One or more persons conducting business in a partnership shall control the others.
VAT Amendment:- The VAT registered dealer has made any mistake in registration application or want make changes in TRN certificate. They can easily make change by visiting FTA portal.
What is a VAT Return:- Information and data specified for Tax purposes and submitted by a Taxable Person in accordance with a form prepared by the Authority.
In other words: - VAT is a pass through tax which means you have to collect and pay. Return is your declaration to the government for the amount net payable or paid. Exercise due care in terms of declaring your taxable turnover liable to VAT and reporting. Your books of accounts should be prepared properly with output and input VAT accounting.
Who must be filed it ?
Each eligible and registered person is required to file VAT returns at stated intervals (e.g., monthly or quarterly).
What is nature of VAT return ?
VAT laws require that the return should be completed electronically.
What is purpose of VAT return?
The purpose of the return is to itemize the VAT activities with a view to calculating the amount of VAT due as payment, refund or credit; it is mandatory to file returns as government has to generate revenues for country’s betterment.
When are registered business required to file VAT returns ?
Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be:
1. Quarterly for businesses with an annual turnover below AED150m
2. Monthly for businesses with an annual turnover of AED150m or more.
The Tax returns shall be filed online using eServices.
VAT Payment:- From 1st of January-2018 VAT has been implemented in UAE. And till date dealers has filed 2 quarters VAT returns and preparing for 3rd quarter deadline. But still most of dealers are not aware that how to file return and how calculate VAT on sale and how to pay VAT at FTA website and how to pay it to government. It is very important to calculate and pay correct VAT to authority.
Let’s understand how to calculate tax or what the method to calculate VAT payment is. There is very simple formula to calculate it.
Formula => Output VAT (Calculate on Sale)- Input VAT( Calculate on Purchase).
Let’s understand UAE VAT payment process step by step:-
• Kindly visit FTA website https://eservices.tax.gov.ae
• Kindly log in with your registered user id and password
• Click on “My Payments” option.
• Enter the amount that you need to pay, and click “Make Payment”.
• You will then be directed to ‘Payment Information’ screen to proceed with the payment.
• Click on button to be directed to e-Dirham gateway.
• You may pay using the e-Dirham payment gateway which supports payments through an e-Dirham card or a credit card (Visa and MasterCard only). A payment using an e-Dirham card will typically incur a charge of AED 3, while a payment using a credit card will typically incur a charge between 2% - 3% of the total payment amount.
• 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. After confirming the transaction, once the payment is processed successfully, you will be redirected to the FTA website.
• You can view your Transaction History and Payments under the “VAT Transaction History” box placed within ‘My Payments’ tab as shown below. These include your transactions and payments for your periodic VAT Returns as well as any penalties that could be applicable in relation to your VAT Returns, if applicable (e.g. late filings or payments for your VAT Returns or other).
Note:- A payment using an e-Dirham card will typically incur a charge of AED 3, while a payment using a credit card will typically incur a charge between 2% - 3% of the total payment amount.
Paying via Fund Transfer:-
• A GIBAN is a unique IBAN number that is given to every taxable person.
• A taxable person can make a fund transfer from certain UAE financial institutions using the GIBAN provided by the FTA.
• This payment method can be used for settling any outstanding VAT and Excise Tax amounts payable including tax and penalties.
• This option should not be used for other payments such as Miscellaneous Payments
To pay the amount due using GIBAN, follow the below steps:- • Login to e-Services and obtain your GIBAN from the dashboard. You will have different GIBANs for VAT and Excise Tax.
• If using online banking to make the transfer of funds, log in to your bank account and add FTA as a beneficiary using the GIBAN number and FTA details. Note that you can also use the GIBAN with other banking channels too (for example visiting your local branch).
• Go to the fund transfer/ domestic transfer section of your online banking portal (this name may differ based on your bank account page).
• Enter the amount you wish to pay and proceed with the payment.
• GIBAN will be validated and the transaction will be processed accordingly.
• Once you complete the payment, login to e-Services and go to ‘My Payments’ tab to check that the transaction has been reflected under the ‘Transaction History’ box. Please note that this can take up to 24 hours to be reflected on your account.
VAT TAX INVOICE
What is a tax Invoice means- A written or electronic document in which the occurrence of a Taxable Supply is recorded with details pertaining to it.
In other words a tax invoice is a legal document that a seller submits to a customer in which the tax is included or a document from a registered supplier to a registered dealer. Tax invoice is a primary evidence for recipient to claim input tax credit of goods and service.
These tax invoices also form the basis for furnishing VAT returns as well as the documentary evidence to support input VAT deduction claim. These can be written or electronic form. Its depend on registrant.
There are two kinds of invoices for VAT in the UAE.
1. A Tax Invoice
2. A simplified Tax Invoice
A Tax invoice is to be issued by all registrant for taxable supplies to other registrant, where the consideration for the supplies exceeds AED 10,000, Therefore only 2 condition must be meet for issuing tax invoice, which are below:-
1. The recipient should be registered and
2. The consideration for the supplies should exceed AED 10,000
A Tax Invoice shall contain all of the following particulars:
a. The words “Tax Invoice” clearly displayed on the invoice.
b. The name, address, and Tax Registration Number of the Registrant making the supply.
c. The name, address, and Tax Registration Number of the Recipient where he is a Registrant.
d. A sequential Tax Invoice number or a unique number which enables identification of the Tax Invoice and the order of the Tax Invoice in any sequence of invoices.
e. The date of issuing the Tax Invoice.
f. The date of supply if different from the date the Tax Invoice was issued.
g. A description of the Goods or Services supplied.
h. For each Goods or Services, the unit price, the quantity or volume supplied the rate of Tax and the amount payable expressed in AED. i. The amount of any discount offered.
j. The gross amount payable expressed in AED.
k. The Tax amount payable expressed in AED together with the rate of exchange applied where the currency is converted from a currency other than the UAE dirham.
l. Where the invoice relates to a supply under which the Recipient of Goods or Recipient of Services is required to account for Tax, a statement that the Recipient is required to account for Tax, and a reference to the relevant provision of the Decree-Law.
A Tax Invoice is an important document for every business. Without tax invoice business cannot recover your input VAT in returns. There is needed to be preparing backup of each and every tax invoice in your data machine. All registered businesses in UAE, except retail business, would be dealing with supplies for which Tax Invoice is to be issued. All mandatory details as mentioned above and as prescribed in UAE VAT Executive Regulation needs to be follow. It is very important that all business must met all condition and requirement of relates Tax Invoice. Otherwise unnecessary you will have to face burden of Administrative penalties.
Simplified Tax Invoice
What is a simplified Tax Invoice in UAE VAT?
A simplified Tax Invoice is to be issued by a registrant for taxable supplies of goods or services in either of the following 2 conditions as prescribed in Executive Regulation of UAE VAT:-
1. The recipient is not registered under UAE VAT
2. The recipient is registered under VAT and consideration for the supply does not exceeds AED 10,000
It is very important document small & mid-size entities or for retail businesses. However simplified tax invoice is need to issue by all registered dealers in UAE, which supply to consumers or to registered business where the value of the supply does not exceeds AED 10,000. A simplified Tax Invoice shall contain all of the following particulars
a. The words “Tax Invoice” clearly displayed on the invoice.
b. The name, address, and Tax Registration Number of the Registrant making the supply.
c. The date of issuing the Tax Invoice.
d. A description of the Goods or Services supplied.
e. The total Consideration and the Tax amount charged
A simplified tax invoice does contain recipient details, it is very easy to generate and issue. The Federal Tax Authority (FTA) has also issued many guidelines and sample formats regarding simplified tax invoice. Therefore its need to issue in all goods and services taxable supplies. Simplified tax invoice are important documentary proof of taxable supplies having taken place.
These invoices will also serve as the basis for return filing by suppliers and for claim input tax credit by the register recipients. All contain which is prescribed above and Executive Regulation is mandatory. If a single contain is not covered at the time issuing invoice, it can be lead administrative penalties.
Other important point relates to Tax Invoice:-
1. Tax invoice must be issued within 14 days
2. Tax invoice amount must be rounding ( It is less than one fils of a UAE Dirham)
3. If the currency other than UAE Dirham, then for the purpose of the tax invoice, the amount stated in the tax invoice shall be converted into the UAE Dirham.
4. If supply is wholly zero rated and sufficient record is available to establish the particulars of supply, then a taxable person not required to issue a Tax Invoice.
VAT CREDIT NOTE
What does Tax Credit Note means:- A written or electronic document in which the occurrence of any amendment to a Taxable Supply that reduces or cancels it is recorded and the details pertaining to it.
In other words a credit note is a document sent by seller to the buyer notifying the customer that he or she has been credited a certain amount due to an error in the original tax invoice or other reasons.
There are following cases may be happen:-
1. Suppliers are returned or found to be deficient by the recipient
2. Decrease in value of supply
3. Decrease in value of tax
As per article 60 of Executive Regulation the tax credit note shall contain following:-
a. The words “Tax Credit Note” clearly displayed on the invoice.
b. The name, address, and Tax Registration Number of the Registrant making the supply.
c. The name, address, and Tax Registration Number of the Recipient where he is a Registrant.
d. The date of issuing the Tax Credit Note.
e. The value of the supply shown on the Tax Invoice, the correct amount of the value of the supply, the difference between those two amounts, and the Tax charged that relates to that difference in AED.
f. A brief explanation of the circumstances giving rise to the issuing of the Tax Credit Note.
g. Information sufficient to identify the supply to which the Tax Credit Note relates.
Note:-As per Executive Regulation Article (60) clause-2, if sufficient records are available to establish the particulars of any supply or class of supplies and that it would be impractical to require that a Tax Credit Note is issued by taxable person. There are certain conditions, which is prescribed in Executive Regulation, which needs to follow.
A Tax Credit Note is very important document for behalf of businesses. Its need to secure document in bookkeeping record as prescribed time period in Law. A Tax Credit Note can be impact on reduction in tax payable by the supplier on supply and reduction in input vat recoverable by the recipient on the supply.
A Tax Credit Note can be issue by electronic way by dealer, but it must be capable to store a copy of the electronic tax credit note in bookkeeping records as prescribed in law. And electronic tax credit note should have authenticity of origin and integrity of content.
As per Executive Regulation Article (60) clause-4 a recipient can also be issue a Tax Credit Note, if recipient of goods and recipient of services agrees to raise a Tax Credit Note on behalf of a Registrant supplier in respect of Goods or Services. There are certain conditions as prescribed in Executive Regulation which needs to be followed.
VAT Refund:- A Taxable Persons are able to request a VAT refund at any point when there is a credit or when the input VAT is greater than output VAT.
Taxable Persons are able to request a VAT refund at any point when there is a credit or when the input VAT is greater than output VAT. Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud. There is also an option for Tourist to the UAE will be able to claim back the VAT on purchases they make whilst visiting the country as per executive regulation.
Let’s understand UAE VAT Refund process step by step:-
• Kindly visit FTA website portal https://eservices.tax.gov.ae
• Kindly log in with your registered user id and password.
• Initiate the form: go to the 'VAT Tab' and then go to ‘VAT Refunds’ tab. Click on VAT Request' to access the form.
• In order to begin completing your VAT Refund, go to the "VAT" tab on the navigation bar and then go to 'VAT311–VAT Refunds' tab. From this screen, click on "VAT311-VAT Refund" to initiate the VAT Refund form.” option.
• Complete your Refund Form, fill in the form field by field i.e. About the applicant, About the refund, Banking details of the applicant, Contact details of the Applicant, Declaration & authorized signatory. Note that some of the fields are pre-populated using the information contained in your account User Profile. Please ensure that the information is correct before completing the form.
• Submit the Claim: using the ‘Submit’ button.
• Amount that you will get refund will be reflecting there.
• Once you have completed the Refund Form, please send the soft copy (signed version in PDF format) to the following email address along with the supporting documents. email@example.com Accepted file types are PDF, JPG, PNG and JPEG. The total file size limit is 5 MB. You will obtain an immediate email notification upon successful submission of the Refund Form.
• Verify your balance post the approval: Once you receive a confirmation email of the refund, you may check your balance through the ‘My Payment’ tab under the Transaction History section.
Note:- The Refund Form will be processed within 20 business days of submission. You will receive an email notification from the FTA on the result of your application. Once your claim is approved, the amount will be returned within 5 business days
TOURIST REFUND SCHEME
Tourist Refund Scheme
The FTA has approved much awaited visitor refund scheme. It is great news who likes to visit in UAE and like to make shopping and other things. Now they can feel happier that they will be eligible to get paid VAT amount refund before leaving the country.
What is Tourist Refund Scheme?
This is a scheme for foreign visitor/tourist in UAE countries, when they will make any purchase from VAT registered dealers. At the time of leaving country within 90 days or Sale point. They will be eligible to get refund of paid VAT amount by doing prescribed formalities at exiting point of country or sale point.
Example:- If you have made purchase in UAE any country from registered dealer. At the time of purchase you shall have to inform the seller that you are a non-residence. Then he will ask your passport copy and he will not charge VAT.
Why FTA has implemented Tourist Scheme?
As we all know that UAE is one of the world’s major tourist countries, its earns around 80-90% of its income from this industry. To make continue more populist in world and to increase visitors in country they have decided to make flexible scheme which can be attract more visitors in upcoming time.
Who will be eligible to get refund?
As per Article -68 of Executive Regulation has provided for Tourist Scheme to refund VAT payment, subject to the fulfillment of following conditions:
a) The Goods which are subject to the Tax Refunds for Tourists Scheme must be supplied to an overseas tourist who is in the State during the purchase of the Goods from the Supplier.
b) At the Date of Supply, the overseas tourist intends to depart from the State within 90 days from that date, accompanied by the Goods.
c) The relevant Goods are exported by the overseas tourist to a place outside the Implementing States within 3 months from the Date of Supply, subject to such conditions and verifications as may be imposed by the Authority.
What is the refund system for Tourists?
The FTA is preparing a fully electronic procedure and it has also release a flag step by step refund process. As per information visitor shall be eligible to get refund at the point of purchase and exiting point of country( Air, sea and land port) please click on below given link for more information:- https://www.tax.gov.ae/pdf/vat-tourist-refund.pdf When it is going to implement?
As per Cabinet Decision No. (41) of-2018-on Tax Refund for Tourist Scheme will be effective from 1st November-2018.
What will be economic effect?
The announcement of this VAT refund scheme is good news for visitors and economy purpose. Who always make planning to come UAE now like to visit more after implement this scheme. Hence, FTA has taken a very good and future tourist attractive decision.
The UAE VAT refund processor internationally is a best practice system because none of any country has both refund process i.e. Sale Point and Country Exiting Point. If we will talk about Japan, at the time of purchase you will have to inform the seller that you are a non-resident and he will ask for passport and other documents then he will not charge VAT.
In Malaysia tourist could claim a refund GST paid on goods purchased from approved outlets. (As currently Malaysia has abolished GST and going to implement SST ).
And same in Australia and the time exiting from country visitor can get there GST paid refund.
But in UAE it’s seems like a they are going to implement most advance system which is not available in other countries.
REFUND FOR BUSINESS VISITORS IN UAE
Who can claim a refund ?
Only foreign businesses that carry on business and meet the following conditions are eligible to apply for a refund.
As per Article 67(1)(2) of Executive Regulation Foreign Entities are eligible to claim/apply VAT refund in following conditions:-
1. They have no place of establishment or fixed establishment in the UAE or an implementing state as prescribed Article-67(1) of ER.
2. They are not a Taxable Person in UAE.
3. They are registered as an establishment with a competent authority in the jurisdiction in which is established.
4. They are from a country that provides refunds of VAT to UAE entities in similar circumstances.
As per Article 67(3) of Execution Regulation Foreign Entities are not eligible to claim/apply VAT refund in following conditions:
1. If Foreign Businesses makes supplies in the UAE (unless the recipient is obliged to account for VAT under reverse charges mechanism).
2. Any goods or services the input tax thereon is subject to a statutory ‘block’ and so would not be recoverable by a taxable person;
3. The Foreign Businesses is from a country that does not in similar circumstances provide VAT refunds to UAE entities.
4. The Foreign Business is a non-resident tour operator.
• Further businesses resident in any GCC state there is not considered to be an implemented state according the VAT Law and ER, they may submit a the VAT refund application to claim back VAT incurred in the UAE.
• Foreign Government Entities cannot use this form to claim back VAT incurred in the UAE.
Note:- The period of each refund claim shall be 12 calendar months, hence the first application can only be made after the end of 2018.
The minimum amount of each Tax claim that may be submitted under this VAT Refunds for Foreign Businesses Scheme shall be AED 2,000.
Following steps needs to take for claim:-
1. Download the Form from the designated section on the FTA website.
2. Complete the Form;-1. Please fill in the form field by field 2. You must fill out the PDF form first before printing out for signature and/or official stamp Handwriting is not accepted.
3. Submit the form along with the supporting documents(Proof of incorporation, Copies of tax invoices & Bank account validation letter/certificate):-
(a) Send the soft copy (signed version in PDF format) to firstname.lastname@example.org
(b) Accepted file types are PDF, JPG, PNG and JPEG.
(c) The total file size limit is 5 MB.
(d) You will obtain an immediate email notification upon successful submission of the Refund Form.
The Refund Form will be processed within 20 business days of submission. You will receive an email notification from the FTA on the result of your application. Once your claim is approved, it may take 5 business days before you receive the payment. If your bank is international and does not have a correspondent bank in the UAE, the payment may take more than 5 business days and you will have to bear the burden of any transfer fees charged by your bank.
REVERSE CHARGE MECHANISM
Reverse Charge Mechanism:-
What is reverse charge mechanism: - Reverse charge mechanism has been prescribed by VAT Decree Law (Article-48) and also by VAT ER Article-48
A tax has to be paid by the supplier making taxable supplies of goods or services. In some cases of import of goods, the liability has been cast on the recipient of goods or service, commonly called as Reverse Charge Mechanism. The person liable to pay tax is required to get itself registered under the Law to fulfill all its obligations.
It is a mechanism under which the recipient of goods or services is required to pay VAT instead of the supplier when the supplier is not a taxable person in the member state where the supply has been made.
Eg;- When goods are imported into UAE from India, the importer of goods will pay VAT under reverse charge mechanism, if the same goods were taxable in the UAE and importer would account for Input VAT.
What is the exception to reverse charge mechanism Article 48 clause 1 when the transaction is between UAE and another Implementing state under UAE VAT Law?
Where goods are imported into UAE and it is intended that these goods will be transferred by the importer into another Implementing State, the place of supply of import is still UAE But the importer must pay import VAT in UAE and cannot recover this VAT from FTA in UAE, but would have to recover it from another Implementing State, to which such Goods are transferred, subject to it meeting the specified requirements of claiming input credit or refund as per the VAT Law of the other Implementing State
Explanation: When goods are imported to UAE from the UK and then further exported to KSA (implementing state), then, UAE Company being the importer will pay VAT on imports but will not be eligible to claim as an Input credit on the same from FTA in UAE, but would have to recover it from KSA, subject to it meeting the specified requirements of claiming input credit or refund as per the VAT Law of KSA.
VAT Penalties:- The Cabinet has issued Resolution No.(40) of 2017 on Administrative Penalties for Violation of Tax Law in the UAE. There are very heavy penalties mentioned in Resolution, which can be a big loss of business in case of any non-compliance, any discrepancy or any mistake.
What is Designated Zone Means:- Any area specified by a Cabinet Decision issued at the suggestion of the Minister, as a Designated Zone for the purpose of this Degree Law.
Or As per Law and Cabinet decisions, a designated free zone is a specific fenced geographic area that has a security measures and custom controls in place to monitor entry and exit of individuals and movements of goods to and from the era.
The Cabinet Decision No. (59) of 2017 on Designated Zones for the purpose of the Federal Degree Law No.(8) of 2017 of Value Added Tax, provides the list of Designated Zones, which meet the conditions stipulated in the Cabinet Decision No. (52) of 2017 on the Executive Regulation of the Federal Decree-Law No (8) of 2017 on Value Added Tax, shall be considered as Designated Zones for the purposes of implementing the Federal Decree-Law No. (8) of 2017 on Value Added Tax.
First FTA announced only 20 Designated Zones but later FTA has added three new designated zones in UAE. Therefore now 23 designated zones in UAE as below:-
Designated Zones (Abu Dhabi) 1. Free Trade Zone of Khalifa Port
2. Abu Dhabi Airport Free Zone
3. Khalifa Industrial Zone
4. Al Ain International Airport Free Zone(New)
5. Al Butain international Airport Free Zone(New)
Designated Zones (Dubai) 1. Jebel Ali Free Zone (North-South)
2. Dubai Cars and Automotive Zone (DUCAMZ)
3. Dubai Textile City
4. Free Zone Area in Al Quoz
5. Free Zone Area in Al Qusais
6. Dubai Aviation City
7. Dubai Airport Free Zone
8. International Humanitarian City-Jebel Ali(New)
Designated Zones (Sharjah)
1. Hamriyah Free Zone 2. Sharjah Airport International Free Zone
Designated Zones (Ajman)
1. Ajman Free Zone
Designated Zones (Umm Al Quwain)
1. Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port 2. Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road
Designated Zones (Ras Al Khaimah)
1. RAK Free Trade Zone 2. RAK Maritime City Free Zone 3. RAK Airport Free Zone
Designated Zones (Fujairah)
1. Fujairah Free Zone 2. FOIZ (Fujairah Oil Industry Zone)
VAT Treatment in Designated Zones:-
IMPORT & EXPORT
IMPORT UNDER UAE VAT
Import:- The arrival of Goods from abroad into the State or receiving Services from outside the State.
In other words, if goods and services purchased from abroad, VAT is applicable. Most of the goods and services consumed in the UAE are imported.
Importer:- With respect to importing Goods, it is the person whose name is listed as the importer of the Goods on the date of Import for Customs clearance purposes. With respect to Services, it is the Recipient of these Services.
As per article-48(1) of Decree Law:- if taxable person imports concerned goods or concerned services for his business, he shall be treated as making taxable supply to himself and responsible for all applicable tax obligations and accounting for due tax in respect of such supplies.
What is reverse charge mechanism and how it work?
In reverse charge mechanism, receiver of goods and services is liable to pay VAT on government on supplies received by him. In a normal supply mechanism, a supplier of goods and services is liable to pay VAT to government on supplies made by him.
Normal Supply Transaction:-
Reverse charge mechanism:-
Scenario:-1 in normal supply transaction supplier liable to pay VAT to FTA.
Scenario:-2: And in reverse charge mechanism receiver liable to pays VAT to FTA.
In UAE import goods and services are taxable, when a VAT registered person in UAE imports the goods and services; the importer has to pay VAT on imports on reverse charge basis. This is in addition to custom duty levied on import. The scenarios of import can be divided as below:-
1. Import by a register person under VAT
2. Import by a unregister person under VAT
3. Goods Trans-shipped via UAE to other GCC countries
4. Goods imported to UAE and exported to other countries
Registration for VAT purposes will mean that an importer can defer payment of VAT, so payment shall be due on submission of the return (28th day following the tax period in which the import happened).
From 1st January-2018, import of goods that are subject to VAT into the UAE will be affected as follows:-
If you are registered dealer for VAT:
If you are a person not registered for VAT:
Export under UAE VAT:- The departure of goods from the territory of the State, including Direct and Indirect Exports.
In other words:- Goods departing State or provision of services to a person whose Place of establishment (POE) or fixed establishment (FE) is outside State.
VAT Supplies:- (1) Exempt Supplies (2) Zero Rate (3) Standard Rate (4) Out of Scope Supply (5) Deemed Supply
VAT IMPACT & ANALYSIS
VAT Impact & Analysis:- The FTA has implemented VAT from 1st January-2018 and our Tax Experts has made clarification of study impact and analysis industries wise of VAT in UAE, which can help to understand businesses easily.
VAT KNOWLEDGE & LATEST UPDATES
After implementation of VAT. The FTA is continue helping and giving clarification, releasing document/flyers time to time, which is helping industrial to understand VAT easily.
(i) Guides issued by FTA :- The FTA has issued following guides to clarification and easily understanding to business i.e.
1. VAT user guide (Registration-Amendment- Deregistration)
2. Tax Group user guide(Registration-Amendment- Deregistration)
3. VAT Importer use guide(Registered and Non-Registered)
4. VAT Refund use guide
5. VAT refund for Business Visitors Only user guide
6. VAT Return user Guide
7. VAT payment for Commercial Property buyers guide
8. Real-State Guide VATGRE-1
9. Taxable Person Guide-VAT
10. Payment User Guide
11. Director’s Services
12. Clarification User Guide
13. VAT refund for building new residences by UAE Nationals
14. Tax Group Guide-VAT
15. VAT Refund for Exhibition and conference user guide
16. Declaration by registered recipient of Gold and Diamonds
17. Designated Zone VAT Guide VATGDZ1
18. Tax Agent & Tax Agency Guide
19. CRN-TRN Linking Guide
20. Voluntary-Disclosure Guide
(ii) VAT flyers issued by FTA:-
1. Implementing VAT Info
3. Registering VAT
4. VAT Calculator
5. Know your rights as a consumer
6. Transitional Info
7. TRN verification
8. 4-Steps to file VAT return
11. VAT retailers
12. Know your right Education
13. Know your rights health
14. Know your rights residential
16. Online Shopping
17. Profit Margin Scheme
18. Real State
19. Tourist VAT refund
20. VAT Education
21. VAT for Gold and Diamond
22. VAT percentage-discounted
23. VAT refund for new residence
24. VAT tourist refund
25. VAT Treatment of properties
26. Zero rated & Exempt Supplies
(iii) VAT Public Clarification issued by FTA topic wise:-
1. Compensation Type Payments
2. Labour Accommodation: residential versus serviced property
3. Profit Margin Scheme-Eligible Goods
4. Use of-exchange rates
5. VAT Entertainment services-Non-recoverable input tax
6. VAT Tax Invoices
(iv) Important Forms and other guidelines issued by FTA:-
1. VAT Return Forms-201
2. Voluntary Disclosure-
3. VAT payment forms
4. VAT Refund for business Visitors
5. VAT refund for building new residence by UAE Nationals
6. VAT refund for Exhibition and conference user guide
7. Declaration by registered recipient of Gold and Diamonds
1. VAT registration
2. Tax invoices and Credit Notes
3. VAT returns and payments
4. Excise Tax
(vi) VAT Clinic/awareness Programme launched by FTA:- Recently the FTA has launched VAT Clinic awareness. It is very good step taken by FTA.