Recently the Federal Tax Authority issued some guidelines on tax treatment and tax procedure for better understanding of the UAE VAT law. This blog will explain the recent amendments, clarifications and guidance on tax treatment issued by FTA which might have an impact on your business.
The recent updates are related to the following:
Article 69 of Federal Decree-Law No. (8) of 2017 (“VAT Decree-Law”) requires that where a supply was made in a currency other than UAE Dirham that the amount stated on the issued tax invoice should be converted into the UAE Dirham according to the exchange rate approved by the UAE Central Bank at the date of supply.
The UAE Central Bank began publishing exchange rates on 17 May 2018. Businesses are required to use UAE Central Bank rate on any tax invoice issued in a currency other than the UAE Dirham from this date onwards.
Any tax invoices issued in a foreign currency prior to 17 May 2018 should have been converted to UAE Dirham using a reliable source for exchange rates such as Oanda, Thomson Reuters, UAE Bank Rates etc.
There will be no need to rework tax invoices issued prior to 17 May 2018, provided they used exchange rate from any of the reliable source consistently.
Only those goods which have previously been subject to VAT before the supply may be subject to the profit margin scheme. As a result, stock on hand of used goods which were acquired prior to the effective date of Federal Decree-Law No. (8) on Value Added Tax (“VAT law”), or which have not previously been subject to VAT for other reasons, are not eligible to be sold under the profit margin scheme.
VAT is, therefore, due on the full selling price of such goods.
A Voluntary Disclosure is a form provided by the Federal Tax Authority if the Taxpayer notifies an error or omission in a Tax Return, Tax Assessment or Tax Refund application.
Voluntary Disclosure form need not be used if the underpaid tax amount is AED 10,000/- or less. It can be corrected through the Tax Return for the tax period in which the error has been discovered.
If the unpaid tax liability is more than AED 10,000/- it can be rectified using voluntary disclosure form 211.
Some of the labour accommodation will be treated as a supply of residential property, and some of the labour accommodation will be treated as a supply of serviced accommodation.
If the labour accommodation is considered as supply of residential property it will be treated as zero percent or exempted. If additional services are given to labour accommodation it will be treated as serviced accommodation and will be taxable at 5%.
However, the following basic services shall not be considered as part of serviced accommodation:
The general rule is that directors provide a service for VAT purposes to their company. As such, if the fees for services (in addition to any other supplies that might be made by the person) exceed the VAT mandatory registration threshold, namely AED 375,000, then directors are liable to register for VAT and charge VAT on the director fees. Specifically, services provided by a director should be taxable if:
A director may also choose to voluntarily register for VAT where the value of taxable supplies (including director fees) exceed the voluntary registration threshold of AED 187,500.
Entertainment Services: VAT incurred on any costs which are used for a genuine business purpose, or which are incidental to a business purpose e.g. food and drink provided during a business meeting, shall be recoverable (subject to normal VAT recovery rules).
The food and drinks will become entertainment in nature if the purpose of attending the event is for food and drinks and hence, input tax paid on such expenses cannot be recovered.
Input tax can be claimed on hospitality expenses only if it includes the basic amenities provided to the employees. If hospitality is given for the purpose of attending events or entertainment purpose for Customers, Shareholders, Potential Customers, Officials, etc., such costs will be considered to be entertainment in nature and the VAT incurred shall not be recoverable.
If payment is not a consideration for the supply, then there is no VAT due on the payment. If you have to charge VAT, there must be a supply of goods or services. If any payment does not relate to the supply of goods or services, then the payment is not subject to VAT.
Below, a few situations are mentioned where payment may or may not be treated as consideration for the supply of goods or services.
A Designated Zone is an area specified by a Cabinet Decision as being a “Designated Zone”. Free Zones listed by the Cabinet Decision as being a Designated Zone can be found under the Legislation tab on the FTA website . Although an area might be identified as a Designated Zone, it is not automatically treated as being outside the UAE for VAT purposes. There are several main criteria which must be met in order for a Designated Zone to be treated as outside the UAE for VAT purposes.
These are as follows:
This means that where a Designated Zone has areas that meet the above requirements, and areas that do not meet the requirements, it will be treated as being outside the UAE only to the extent that the requirements are met.
Earlier twenty Free zones were categorized as Designated Zones but now it has been soared up to twenty-three Designated Zones by the Federal Tax Authority in UAE. According to the Federal Tax Authority, the newly added Designated zones are as mentioned below and has come into effect from June 18, 2018.
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