Clarification on Entertainment Tax is issued. The Federal Tax Authorities have issued a clarification on the non-recoverability of Input Tax paid on Entertainment Expenses incurred by a person. As per Article 53 of Cabinet Decision 52 on the Federal Decree Law 8 of 2017 on Value Added Tax, it is explicitly stated that Input Tax paid on providing of Entertainment services is not allowed to be adjusted in the VAT Return of a Registrant, subject to the following exceptions:

• Where it is required by Law to be provided to employees.
• It is expressly stated in the contract that such a benefit or service shall be provided to the employee so that they can perform the services required of them. It should be pointed out here that such a service should be proven to be required for the performance of duties as well as is normally provided in the course of employment in the Industry.
• Where the provision of goods or services is a deemed supply.

Significant Need for Clarification Regarding What Constitutes As Entertainment

The clarification issued by the FTA can be summarized as that Entertainment expenditure which is for purposes which are genuinely for the Business can be claimed as an Expense. Also, any expense incurred incidental to the Business also falls under this category. An example of this would be where expenditure incurred on refreshment on a Business Meeting. However, it should be noted the cost of a dinner where a keynote speech is given will not fall under this category.

Entertainment Tax for Non-Employees

The clarification in this scenario makes two distinctions, Government Entities, and Non-Government Entities.

In the former case, any entertainment expenditure incurred by a Government entity it shall be recoverable, whether it is for meetings with other delegations, representatives or ceremonial expenses. There does, however, exist a proviso, which states that VAT on such an expense will only be allowed to be recovered in case such services are provided to personnel not employed by the entity.

In case of Non-Government Entities, the general rule as stated in the clarification is that VAT on entertainment expenses incurred by a person shall not be recoverable where it is provided to a non-employee. This includes Customers, Potential Customers, Officials, and Shareholders or Other Investors.

Entertainment Tax Provided to Employees

VAT incurred on costs sustained by a Company for Goods and Services to be used by an Employee for personal purposes in blocked from being recovered. That being said, there are exceptions to this rule which have been stated in the first paragraph. A particular example which FTA has also included in its clarification is that when a company hires a new employee and provides accommodation to the Employee for a couple of days in a hotel, prior to him finding his own premises, VAT will be recoverable on such costs since it is normal business practice to provide such benefit.

Definition of Entertainment Services

The question does, however, arise as to what constitutes as Entertainment Services and what does not. The most commonly inquired query is that whether food and drink in the normal course of a business meeting are allowed to be recovered or not. The FTA has stated that if simple food and drink is provided, VAT can be recovered on it. It has also issued the following criteria:

• A Venue for food and drink is the same as the meeting.
• The meeting is interrupted by refreshment for only a short period.
• The cost per head does not exceed any internal policy in place for employee subsistence claims.
• The food and beverages are not accompanied by any other entertainment i.e. Live Music etc.

They also state that where food and drink provided are so significant in value that they become an end themselves, then it will constitute as entertainment and not be allowed to be claimed as VAT Input.

Conference and Business Events:

In case of VAT incurred on costs associated with a Conference, FTA has given two straightforward criteria for determination of recoverability:

• If fees for attending such an event is charged, then VAT can be recovered.
• If fees have not been charged, then VAT cannot be recovered.

To remove any ambiguity, FTA has also added that an Entity should only apply for recoverability in case it’s absolutely certain that it can. If it has any ambiguity, Entity should err on the safe side and not claim Input VAT.

Sundry Staff Expenses

Another important point of contention was the treatment of office expenses incurred for the employees at no additional cost. FTA has clarified that normal incidental office expenses which are used by employees and visitors alike do not give rise to non-recoverability. The following general expenses have been clarified by the FTA that are not prohibited from recovery:

• Tea and Coffee available for general use by Employees and Non-Employees
• Decoration items such as flowers at the reception
• Snacks provided free of cost such as Dates, Chocolates etc.

It is also clarified that expenses incurred on any function, gala or event are blocked from recovery unless the attendees are charged a fee.

Where an employee bears any cost for the purpose of Business or for the performance of employee’s duties of employment, VAT paid on the same shall be recoverable the Entity provided that:

• The expense was for the purpose of Business
• The Entity obtains a Tax Invoice.

This includes expenses incurred for accommodation and food.

Know More About: VAT Profit Margin Scheme in The United Arab Emirates

VAT Profit Margin Scheme

What is Profit Margin Scheme?

The Profit Margin Scheme allows (VAT Profit Margin Scheme in The United Arab Emirates) that, in certain cases, Registrant may calculate and charge VAT on the Profit Margin earned rather than the full value.

Are there any Conditions to avail Profit Margin Scheme?

Yes, there is only one condition to charge VAT under this Scheme which is:

The Goods are purchased from a Non-VAT registered supplier OR purchased from a registered supplier who accounted for Tax on the supply by reference to Profit Margin.

What type of Goods falls under Profit Margin scheme?

The following type of Goods:

1. Second Hand / Used Goods; i.e. tangible movable goods like Cars and Households.
2. Antiques; i.e. Goods which are over 50 years old.
3. Collector’s Items; i.e. Stamps, Coins and currency and other pieces of scientific, historical or archaeological interest.

Why is the Profit Margin Scheme needed? (Illustrative Explanation)

Many businesses trade in second-hand goods. They purchase those goods from a non VAT registered individual and will also sell them to a non VAT registered individual.

Assuming a person is a VAT registered second hand household items dealer who wants to buy an item of the household for AED 5,000 from a non VAT registered private individual and then sell it on for AED 5,250 to another non VAT registered private individual.

There would be no VAT to recover on the purchase and so the cost would be AED 5,250. However on the sale, in the absence of profit margin scheme, the AED 5,250 charged would actually be AED 5,000 + AED 250 (5%) VAT.

The AED 250 VAT charged by the person would have to be paid over to FTA and so although the buyer had paid AED 5,250 for the item (he isn’t VAT registered and so can’t recover the VAT you’ve charged him) you will only have received AED 5,000 and so made no profit.

How does the Profit Margin Scheme help?

Continuing the same illustration as above, if the person qualified for and applied the margin scheme to this transaction than the VAT payable would only be the difference between the amount you bought the item for and the amount you sold it for.

Therefore the person would buy at AED 5,000 and sell at 5,250 but the VAT-able sale declared to FTA would be:

AED 250 would need to be paid over to HMRC leaving you with a profit of AED 237.50

Is there any Specific Record to be kept by Registered Person under this scheme?

Under this Scheme Tax Registered Person is required to keep records of the following:

1. Stock Book
2. Purchase Invoice (If not obtained the Tax registered Person must issue himself).
3. Sales Tax Invoice

Read More VAT Refund Scheme for Business Visitors in UAE

Business Visitor

Beside implementing VAT on different sectors in UAE the Federal Tax Authority (FTA) of United Arab Emirates has implemented a scheme (VAT Refund Scheme) for such Business visitors which has no Place of Establishment or Fixed Establishment in UAE and is not a Taxable Person. For this purpose, FTA has implemented a VAT Refund Scheme for business visitors in UAE that will help them to claim the refund of VAT on expenses incurred by them in VAT implementing State. Further, FTA has also specified some conditions on repayment of tax which includes non-entitlement for claiming tax, days limitation and amount thresholds. FTA has also specified procedures in this regard which will facilitate Business Visitors to claim the refund. The first application can be made after the end of 2018.

Tourist Visitors

UAE Federal Tax Authority has not only facilitated Business visitors but is also considering to implement a refund scheme for Tourist visitors which will help Tourist visitor to claim the refund of VAT on expenses incurred by them in UAE. In this regard, the authority may specify some conditions or may specify a list of goods that shall not be subject to Tax Refunds for Tourist Scheme.

KEY DEFINITIONS:

GCC States

All countries that are full members of The Cooperation Council for the Arab States of the Gulf pursuant to its Charter. The GCC States includes The United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait, and in 2009, Yemen joined the Organization, which is headquartered at Doha, Qatar.

Implementing State

The GCC States that are implementing a Tax law pursuant to an issued legislation.

Taxable Person

Any Person registered or obligated to register for Tax Purposes

Foreign Entity

A “Foreign Entity” is any Person that carries on a Business as defined in this Decision and is registered as an establishment with a competent authority in the jurisdiction in which he is established.

Place of Establishment

The place where a Business is legally established in a country pursuant to its decision of establishment, in which significant management decisions are taken or 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 human and technology resources exist to enable the Person to supply or acquire Goods or Services, including the Person’s branches.

Overseas Tourist

Overseas Tourist means any natural Person who is not resident in any of the Implementing States and who is not a crew member on a flight or aircraft leaving an Implementing State.

FAQS:

What is VAT?

Value Added Tax (VAT) is an indirect tax and is generally referred to as a type of general consumption tax. Usually it is imposed on most of the goods and services that are bought and sold or provided and received respectively.

Will business/tourist visitor pay VAT?

Yes, business/tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale.

What is the rate of VAT?

FTA has set the VAT rate deliberately low i.e 5% so that VAT is a limited burden on all consumers.

Will business/tourist visitor be able to reclaim VAT?

Yes, business/tourist visitors can reclaim VAT. For this purpose, FTA has introduced VAT Refund Scheme for business/tourist visitors. However, FTA has specified some conditions in this regard.

What is VAT Refund Scheme for Business Visitors?

 VAT Refund Scheme is a refund of VAT paid on expenses incurred by Foreign Businesses not having a Permanent Establishment in the UAE or any other implementing state and is not a Taxable Person. This may include Branch Offices, Representative Office, Liasioning office and marketing office etc.

What is the minimum limit of Claim and Period for Claiming Refund?

• The minimum claim amount of Tax that may be submitted under VAT Refunds for Foreign Businesses Scheme shall be AED 2,000.
• The period of the claim shall be 12 calendar months.

What is the Procedure for Claiming Refund?

• Download the Form from the designated section on the FTA website (https://www.tax.gov.ae/index.aspx).

• Please fill in the form field by field. The particulars which may be required in fields are mentioned in “Annexure- A”.

• Fill out the PDF form first before printing out for signature and/or official stamp. Handwriting is not accepted.

• The claim shall be accompanied by such documents or other evidence as may be required by the Authority. However, the following is necessary:

1. Send a soft copy (signed version in PDF format) to specialrefunds@tax.gov.ae
2. Accepted file types are PDF, JPG, PNG, and JPEG.
3. The total file size limit is 5 MB.
4. You will obtain an immediate email notification upon successful submission of the Refund Form.

Who is not entitled to claim Refund?

• A foreign entity is not entitled to make a claim under the VAT Refunds for Foreign Businesses Scheme in the following cases:
• If it makes supplies which have a place of supply in the State, unless the Recipient of Goods or Recipient of Services is obliged to account for the Tax If the Taxable Person Imports Concerned Goods or Concerned Services for the purposes of his Business, then he shall be treated as making a Taxable Supply to himself and shall be responsible for all applicable Tax obligations and be accounting for Due Tax in respect of these supplies.
• If the Input Tax relates to Goods or Services for which the Tax is not recoverable in accordance with Article (53) of this Decision which deals with Non-Recoverable Input Tax.
• If the foreign entity is from a country that does not in similar circumstances provide refunds of value-added tax to entities that belong to the State.
• A foreign tour operator is not entitled to make a claim under the VAT Refunds for Foreign Businesses Scheme in connection with undertaking activities as a tour operator.

What are the Conditions applicable to Tax Refunds for Tourists Scheme?

The following conditions shall apply to the Tax Refunds for Tourists Scheme:

1. The Goods which are subject to the Tax Refunds for Tourists Scheme must be supplied to an overseas tourist who is in UAE during the purchase of the Goods from the supplier.
2. At the Date of Supply, the overseas tourist intends to depart from UAE within 90 days from that date, accompanied by the Goods.
3. The relevant Goods are exported by the overseas tourist to a place outside the UAE within 3 months from the Date of Supply.

ILLUSTRATIVE EXAMPLE:

VAT paid by business/tourist visitor on incurring expenses and its refund thereof:

                                                                                                                        Amount (AED)

Value of goods Purchased or Services received (exclusive of VAT)                     1,000

VAT @ 5%                                                                                                                           50

Value of goods Purchased or Services received (inclusive of VAT)                     1,050

VAT Submitted to revenue authority                                                                            50

Refund available with the business/tourist Visitor                                             50

 

 “Annexure – A”

The claim form shall contain such particulars as may be required by the Authority including:

1. Name and address of the foreign entity.
2. Nature of activities of the foreign entity.
3. Details of the registration of the foreign entity with the competent authority in the country where it is established.
4. Description of reasons for incurring expenses in the State.
5. Description of activities undertaken in the State.
6. Details of expenses incurred in the State during the period of the claim.

Read More About: VAT ON HEALTH CARE SERVICES IN UAE

VAT on Provision of Healthcare Services in Uae

VAT was implemented in UAE on 1 January 2018 in pursuance with the UNIFIED VAT AGREEMENT (UVAT), signed by all six GCC countries.

VAT is levied on the supply of goods and services. This tax is levied on END CONSUMER and is NOT A TAX ON BUSINESS. However, the  businesses act as a collection agent on behalf of Federal Tax Authority (FTA). The suppliers of taxable goods and services charge the VAT on their supply and pay the same to the government. Details of the charge, collection and payment process are given in the coming paragraphs.

What Are Health Care Services?

“Health care services” includes both services and goods related to such health care.

These may include the furnishing of:

• medicine,
• medical treatment,
• surgical treatment,
• nursing service,
• hospital service,
• dental services,
• operational metrical service,
• complementary health services or
• any or all of the enumerated services or
• any other necessary services of like character, whether or not contingent upon sickness

Whether VAT Law is Applicable on Health Care Services?

Yes, it is applicable to the health care services. But these services are taxable at a rate of Zero percent (0%).

How VAT Works Throughout The Supply Chain?

VAT is charged at each step of the supply chain. End consumers generally bear the VAT cost while the registered businesses shall collect VAT on behalf of the tax authority. The VAT charged by a supplier shall be adjustable input tax against the tax payable on sales i.e. output tax.

for example;

A hospital purchases bandages from the factory, the factory shall charge VAT at the time of sale to the hospital and when the same bandage is used by the hospital for a treatment (a taxable service) then the hospital will charge the VAT from a patient who is end consumer.

What Is Meant By Zero Rated Supply Of Health Care Services? 

Supply at the rate of zero percent means when the registered supplier of taxable goods and services will charge VAT at zero percent; for example;

Services Charges:   AED =100,000/- only
VAT @ 0%                AED=0/- only
Total                         AED =100,000/- only

Why Are Health Care Services Called Taxable If The Tax Is Not To Be Charged (0%)? Why Shouldn’t These Services Be Exempt?

There is different treatment of tax for the exempt supplies and the supplies at the rate of zero percent. The exempt supplies have no implication of tax law whatsoever, however, the supplies at zero percent can receive the benefits of input taxes.

What Is The Benefit Of Zero Rated Supplies?

Every business receives some inputs and supplies some outputs. Therefore, it will have to pay tax on its purchases and then collect tax on its sales. In case of taxable supplies, the business will be required to pay the difference between the tax collected on sales and tax paid on purchases; for example

Purchases (Inputs)                  AED 100,000
Input Tax                                  AED   5,000
Sales (Outputs)                       AED 150,000
Output Tax                              AED    7,500

Payment to Federal Tax Authority

Output Tax                              AED 7,500
Less: Input Tax                       AED 5,000
Tax payable                            AED 2,500

When the business TAXABLE AT THE RATE OF ZERO PERCENT, there will be no tax on the supplies and all the tax paid on purchases will be REFUNDABLE for the business.

But when the business is EXEMPT, there will be no application of VAT law and all the taxes paid on the purchases will become part of the cost and there will be no adjustment and NO REFUND.

When Is It Considered That Supply Of Services Has Been Made?

A basic rule is that when services are completed but where the transaction is continuous over a period of several month or year i.e. different date of providing service, issuing invoice or receipt of payment then earlier of the following

• Payment is received
• Tax invoices are issued

Example:

Stay Healthy Hospital give treatment to Abu Al Hassan for his disease. Abu al Hassan treatment completed on 25 July 2017 but issues invoice on 15 August 2017. In this case, the date of supply will be 25th July as per basic tax point and vat will be due on the same date.

But where payment is received earlier i.e. 10 August 2017 then it will be considered as tax point and tax is due on the same date.

What is VAT Return?

VAT Return is a statement in a prescribed format file electronically on the Federal Tax Authority (FTA) portal. And it contained detail of all kinds of sales purchases made by the registered taxpayer.

When And by Whom VAT Return is Filled?

Every registered person file return.
Small/Medium size entities/business file return on monthly basis.
Large Size Business Entities File return on quarterly basis.

What are Other Requirements Regarding Filling?

The general provision regarding filling;

• If the last day of filing is the public holiday then the next business day will be considered as the last date.
• Correction in previous return can be made if an error has occurred in it
• Return must contain all kinds of supplies sold and purchases made
• State-wise break up of supply must be maintained
• The late filling may invite penalties

Whether There Is Specific Kind Of Record That Should Be Maintained By Service Provider After Implication Of VAT?

Yes, there are some additional records to be maintained but more or less it is same as to accounting Records.

Following should be maintained with accuracy whether it is in electronic format or manually

• Sales invoices
• Purchase invoices
• Debit & Credit Notes
• Import & export Records
• Zero Rated/ Exempt supplies record
• Record of goods delivered for free or for personal use
• Accounting Books

On Which Expenses VAT Can be Recovered Through Input Credit?

• Computer Software
• Postage & Courier
• Utility Bills
• Health Insurance
• Equipment Maintenance
• Building Insurance
• Statutory expenses
• Disposal of Fixed Assets
• Marketing Costs
• Printing and Stationery
• Internet Advertising
• Traffic Fines
• Website expenses

Read more about VAT Implications on Residential Buildings

Q: Will VAT be Charged on The Renting of Building?

A: The rent of residential building will be exempt from VAT.

Q: How VAT Will Effect on Multi-Purpose Building (Residential-Commercial Building)?

A: Supply of residential part of multi-purpose building shall be charged either zero-rated or exempt depending on whether it is first supply or subsequent supply.

Q: Which Buildings Are Residential Buildings (Rbs)?

A: It mainly includes buildings that can be occupied by any person as the main place of residence. Following is the list of such buildings;

• A full building available for human residence e.g., a full house, a quarter
• A part building available for human residence e.g., a flat in 5th floor is for residential purpose whereas rest of part is for commercial purpose
• Residential accommodation for students where they can reside e.g., hostels
• Residential accommodation for armed forces & police personnel where they can reside
• Orphanage houses
• Nursing homes
• Rest homes
• Buildings whose small portion is used as an office or workspace by occupants, only if such buildings have garages, gardens or any similar features.

On the contrary; movable/temporary buildings, hotels, motels, B&Bs, hospitals, serviced apartments-where accommodation service is not only offered service, offices, warehouses, shops, unlawful buildings or any kind of building that has commercial substance, are not RBs.

Q: Are Owners of Rbs(VAT Implications on Residential Buildings) Required to be Registered in VAT?

A: If owners of RBs have no other business activity then they are not required to be registered in VAT.

Example: a citizen of UAE, who is the owner of his residential building, is not carrying any business then he is not required to be registered in VAT  in UAE.

On the contrary; an owner of RBs have also other business activity, like running a retail business, is required to be registered in VAT.

Q: Will the Supply of Rbs Be Chargeable to VAT?

A: No, the supply of RBs will remain exempt from VAT, only if either of the following conditions met;

• Tenant must be a holder of an ID card issued by Federal, or
• Period of tenancy exceeds from 6 months

Q: How Shall “Period of Tenancy” be Determined?

A: It shall be determined from the contract of tenancy. Further, an extension of a period of tenancy or extension in renewing tenancy agreement shall not be covered in “period of tenancy”.

Q: Will Early Termination of Lease Effect “Period of Tenancy”?

A: No, if any party exercise his right of early termination then it shall not effect on “period of the tenancy.

Q: Will Supply of Converted Rbs be Chargeable to VAT?

A: Yes, a supply of converted RBs (VAT Implications on Residential Buildings) are chargeable to VAT @ 0%, only if following conditions met;

• It is the first supply of converted building,
• is being supplied within first 3 years of its completion of the conversion, and
• was not used as a residential building, wholly or partly, within 5 years prior to the conversion work commencing

Example: Mr. A, an original owner, constructed a building for renting it to different professionals for offices. Construction of such building completed on 1st February 2018. He couldn’t receive a positive response from business personnel by the end of 31st December 2018 and most of the rooms in building remained vacant. On 1st January 2019, Mr. A decided to convert this commercial building to residential building. Documentation of such conversion completed on 30th April 2019. By 30th April 2019, neither part of building utilized for residential purposes. Now, on 31st May 2019, he got an offer from his friend Mr. B to sell A’s building for AED 500,000 where Mr. A agreed thereto.

Thus, VAT shall be charged @ 0% on AED 500,000 as all above-stated conditions are met.

Q: Will VAT Be Chargeable on Subsequent Supplies?

A: Subsequent supplies of RBs is exempt from VAT irrespective of holding period, even if supply is within 3 years of completion of the conversion, in converted RB case.

Example: Mr. C purchased Residential Building from Mr. B on 30th June 2020 and further sold to Mr. D after 6 months i.e. 31st December 2020 for AED 700,000. It shall be exempt from VAT, irrespective of holding period.

Read more about VAT For Real Estate in UAE

Questioner about the Implications of VAT on Imports

1. What does import mean?

Import is the arrival of goods or receipt of services from abroad into the state from (Implications of VAT on Imports) outside.

2. Who is an importer?

An importer is a person whose is enlisted as the importer of the goods for customs clearance purposes. With respect to services, it is the recipient of these services.

3. Who is liable to be registered?

The importer whose taxable supplies made and import received exceed AED 375,000 for the last 12 months.

4. What do concerned goods and concerned services mean?

Concerned goods and services are referred to those goods and services that are not exempt from the VAT.

5. What is the input and output tax regarding import?

Tax paid by a Person or due from him when conducting an import is called input tax.

Tax charged by a Person on a taxable supply is called output tax.

6. On what import goods VAT is payable?

VAT shall be imposed on all import of goods except as specified in the Executive Regulation of the Decree-Law as exempted and zero-rated goods.

7. What is the rate of VAT on Import?

A standard rate of 5% shall be imposed.

8. Does custom duty is exempt if  VAT is paid?

VAT is in addition to customs duty. The VAT is calculated on the total import value which includes freight, insurance, and customs duties.

9. What if goods are exported for completion of manufacturing then reimported?

In such case, the value of supply reimported will be the value of the Services rendered. However, these goods are to be transferred temporarily from the domestic market into a zone designated by authority or outside the State for completing the manufacturing or repair in order to re-import them into the state.

10. What is a reverse charge mechanism?

The liability to pay VAT (VAT Implication) is on the supplier, however, if the supplier is unregistered and outside the state than this liability falls upon registered importer.

11. Is VAT (Implications of VAT on Imports) applicable on import or export to GCC countries?

As a general rule, these export or imports are not subject to VAT.

12. What will be the place of import, if goods are transferred to other GCC countries after import in one?

The place of import for Goods shall be the State of the First Point of Entry if goods are transported to other GCC state after import in one.

13. What is the benefit of registered Importers for VAT ?

The benefit of registration and getting Tax Registration Number (TRN) is

1. If goods are imported into UAE then VAT can be paid via Tax return.
2. If goods are imported in the state and then exported to another country then VAT to be paid at the time of Tax Return.
3. Import of goods into the designated zone or transferred in between from one to another designated zone has no VAT applicability.
4. What if an Importer is not registered?

The consequences of not being registered are

1. The person has to pay VAT at the time of import.
2. VAT is to be paid at the time of import on goods that are imported then exported to other countries.

We appreciate and thank you for going through the information furnished above and welcome you to connect with us for further details.

Read more about VAT on Telecommunication and Electronic Services

Is it an article (23) of Decision No. (52) are under taxable supplies and how can we charge VAT (Telecommunication and Electronic Services) on these services ?

The answer is YES! All the above-categorized services consider as taxable services and service provider charge VAT by the standard rate of 5% on given invoice to the service recipient.

How to manage the rendering of telecommunication and electronic services outside UAE?

The export of telecommunications services shall be subject to the zero rate in the following situations:

1. Telecommunication services commence by telecommunication supplier inside the state of UAE to a nonresident of UAE who is the supplier of Telecommunication services.
2. Telecommunication services commence by telecommunication supplier inside the state of UAE to the nonresident of UAE who is not the supplier of Telecommunication services.

What’s the impact of VAT if unregistered person (outside UAE) Invoice to the registered person (inside UAE)?

In that case, VAT implemented on the rendering of telecommunication and electronic services outside state depend on the place where a supply is initiated shall be identified according to the following:

1. The place of the Person who commences the supply.
2. If (a) point does not apply, the Person who pays in return for the services.
3. If (a) and (b) point do not apply, the Person who contracts for the purposes of the supply.

Am I file VAT return?

Yes! Telecommunication and electronic services related industries also file return on monthly or quarterly basis on given format and pay VAT with the return.

How telecommunication and electronic services get registered to be the part of VAT?

The process of Registration under VAT is decided by Cabinet in Article (6), (7), (8) of decision no. (52) Named as Executive regulation of the federal Decree-Law no (8) on value-added tax. In the Process of registration telecomm and electronic services registered under Mandatory registration or voluntary registration.

When telecommunication and electronic services get mandatory registration?

The Mandatory Registration Threshold shall be AED 375,000 by applying through the application under article (6) within thirty days of being required to register.

When telecommunication and electronic services get Voluntary registration?

The Voluntary Registration Threshold shall be AED 187,500 by applying through the application under article (6) within thirty days of being required to register.

Which type of services considers telecommunication and electronic services?

The Cabinet decision defines the “telecommunication and electronic services” meaning and industrial products as follows;

Telecommunication services” means delivering, broadcasting, converting or receiving any of the services specified below by using communications equipment or devices that transmit, broadcast, convert, or receive such service by electrical, magnetic, electromagnetic, electrochemical or electromechanical means or other means of communication, including:

1. Wired and wireless communications.
2. Voice, music and other audio material.
3. Viewable images.
4. Signals used for transmission with the exception of public broadcasts.
5. Signals used to operate and control any machinery or equipment;
6. Services of an equivalent type which have a similar purpose and function.

Electronic services” means Services which are automatically delivered over the internet, or an electronic network, or an electronic marketplace, including:

1. Supply of domain names, web-hosting and remote maintenance of programs and equipment;
2. The supply and updating of software;
3. The supply of images, text, and information provided electronically such as photos, screensavers, electronic books and other digitized documents and files; d. The supply of music, films, and games on demand;
4. The supply of online magazines;
5. The supply of advertising space on a website and any rights associated with such advertising;
6. The supply of political, cultural, artistic, sporting, scientific, and educational or entertainment broadcasts, including broadcasts of events;
7. live streaming via the internet;
8. The supply of distance learning;
9. Services of an equivalent type which have a similar purpose and function.

As you know well-known companies execute their business in the United Arab Emirates for decades. Some of these companies named as follows;

• Alpha Data provides services for system integration since 1981.
• Burhani provides services of I/T Consulting since 2003.
• Du provide services of Emirates integration Telecommunication Company since 2005.

Read more about UAE Tax Invoice Article (59)

What Is Tax Invoice?

Tax Invoice (UAE Tax Invoice ) is a written or electronic document in which the occurrence of a Taxable Supply is recorded with details.

Components of Tax Invoice:

(1) The name, address, and Tax Registration Number of the Registrant making the supply and the Recipient where he is a Registrant
(2) A sequential Tax Invoice number,
(3) The date of issuing the Tax Invoice and date of supply,
(4) A description of the Goods or Services supplied, the unit price, the quantity
(5) Tax rate and the amount payable, any discount offered
(6) An amount payable in AED, apply convert rate where necessary.

Note: A taxable person must follow components of tax invoice when he issues.

Components of Simplified Tax Invoice:

(1) The name, address, and Tax Registration Number of the Registrant making the supply.
(2) The date of issuing
(3) A description of the Goods or Services supplied.
(4) The Tax amount charged.

Exemption from Tax Invoice:

Where the supply is zero-rated no need for issuing of invoice

Circumstances in Which Simplified Invoice is Issued:

• if Recipient of goods or services is not a Registrant.
• if Recipient is a Registrant and the amount of supply is less then AED 10,000

Where The Invoice Is Not Issued:

In case of Taxable Person makes more than one supply of Goods or Services to the same person and those supplies are included in the summary tax invoice issued to the recipient in the same calendar month.

Electronic Tax Invoice:  

If the taxable person issue credit notes electronically then:

• The Taxable Person must able to storing a copy of the electronic Tax Invoice to follow the records keeping requirement, and integrity of the content of the electronic credit note should be guaranteed.

Conditions Where Recipient Raise Invoice On Supplier Behalf:

The documents shall be treated as it has been issued by the supplier if the following conditions met.

• The Recipient is a Registrant.
• The supplier and the Recipient agree in writing that the supplier shall not issue a Tax Invoice in respect of supply.
• Tax Invoice contains all components and the word Tax invoice is clearly displayed.

Note: The documents shall have treated as if they had been issued by the supplier if the above conditions met.

What If An Agent Made A Supply?

Where an agent who is a Registrant makes a supply of Goods or Services on behalf of the principal of that agent, that agent may issue a Tax Invoice in relation to that supply he made, and the principal shall not issue a Tax Invoice.

Where The Supply Made In Implementing State:

Following additions must require:

• The tax registration number of the Recipient of Goods or services issued to him by authority of the Implementing State.
• A statement identifying the supply as between the State and an Implementing State.
• Any other information specified by the Authority.

 GCC States:

All countries that are full members of The Cooperation Council for the Arab States of the Gulf pursuant to its Charter.

 What is the Implementing States?

The GCC States that are implementing a Tax law (UAE Tax Invoice) pursuant to an issued legislation

Read more about Tax Credit Note Article (59)

 

 

What is Tax Credit Note?

A Tax Credit Note (CN) is 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 including it.

Particulars of Tax Credit Note:

(1) The words “CN” clearly displayed on the invoice.
(2) The name, address, and Tax Registration Number of the Registrant making the supply and the Recipient where he is a Registrant.
(3) The date of issuing the CN, the correct amount relating to supply,
(4) The difference between those two amounts and the Tax charged that relates to that difference in AED.
(5) Explanation of the circumstances giving rise to the issuing of the CN.
(6) Information sufficient to identify the supply to which the CN relates

Relief from Issuing Tax Credit Notes:

Where, on application by a Taxable Person, the Authority consider that sufficient records available to establish the particulars of any supply or class of supplies, and that it would be impractical to require that a CN be issued by the Taxable Person, the Authority may determine any of the following, subject to any conditions that the Authority may consider necessary

• Anyone or more of the particulars shall not be contained on a Tax Credit Note.
• A Tax Credit Note is not required to be issued

Note: if the approval has been given by authorities, approval may withdraw at any time if they feel the above condition has been not met.

Electronic Tax Credit Note:

If the taxable person issue credit notes electronically then:

• The Taxable Person must able to storing a copy of the electronic Tax Invoice to follow the records keeping requirement, and integrity of the content of the electronic credit note should be guaranteed

If The Recipient Issue Credit Notes On Behalf Of Supplier:

The documents shall be treated as it has been issued by the supplier if the following conditions met.

• The Recipient is a Registrant
• The supplier and the Recipient agree in writing that the supplier shall not issue a CN in respect of the supply of goods or services.
• Tax credit notes contain all particulars and the word CN is clearly displayed.

If The Agent Made A Supply On Behalf Of Principal:

If an agent who is a Registrant makes a supply of Goods or Services on behalf of the principal of that agent, that agent may issue a CN in relation to that supply he made, the principal shall not issue a CN.

 

Read more about Administrative Penalties for Violations of Tax Laws in the UAE

LIST OF PENALTIES UNDER UAE TAX LAWS

A Comprehensive list of all Administrative Penalties for Violation of Tax Laws in the UAE is given .

1. VIOLATIONS RELATED TO TAX PROCEDURES

S.NO	SUBJECT WORD	VIOLATION OF TAX LAWS	PENALTIES (IN AED)	WILL BORNE BY
1	Record Keeping	Failure to keep the required records specified by the tax procedures law and the tax law.	10,000 for the first time 50,000 for each repeat violation	Registrant
2	Record submission in Arabic	Failure to submit the required records in Arabic when requested by the Authority	20,000	Registrant
3	Registration	Failure to submit a registration application within the timeframe specified by the tax law.	20,000	The person liable to be registered
4	Deregistration	Failure to submit a deregistration application within the timeframe specified by the tax law.	10,000	Registrant
5	Amendment to tax records	Failure to inform the Authority of an amendment to tax records that need to be submitted	5,000 for the first time. 15,000 in case of repetition.	Registrant
6	Appointment of legal representative	Failure to notify the authority that a legal representative has been appointed for the business within the specified timeframe.	20,000	Legal representative
7	Failure to file the tax return by legal representative	Failure of the legal representative to file a tax return within the specified timeframe.	1,000 for the first time. 2,000 in case of repetition within 24 months.	legal representative
8	Failure to File tax return by Registrant	Failure of the Registrant to submit a tax return within the timeframe specified by the tax law.	1,000 for the first time. 2,000 in case of repetition within 24 months	Registrant
9	Payment of tax	Failure to pay the tax stated in the tax return/tax assessment form within the timeframe specified by the tax law.	The taxable person will incur a late payment penalty as follows 2% of the unpaid tax is due immediately. 4% is due on the seventh day following the deadline for payment. 1% daily penalty will be charged on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300% of payable tax.	Registrant
10	Submission of incorrect tax return	The submission of incorrect tax returns by the Registrant.	Two penalties are applied: 1- Fixed penalty 3,000 for the first time 5,000 in case of repetition 2– Percentage-based penalty A percentage-based penalty shall be applied to the amount unpaid to the Authority due to the error and resulting to tax benefits as follows. (50%) if the Registrant does not make a voluntary disclosure or he made the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first. (30%) if the Registrant makes a voluntary disclosure after being notified of the tax audit and before the Authority starts the tax audit. (5%) if the Registrant makes a voluntary disclosure before being notified of the tax audit by the Authority.	Registrant
11	Disclosure of errors in a tax return, tax assessment, or refund application	Voluntary disclosure by a business of errors in a VAT tax return, tax assessment, or refund application	Two penalties are applied 1- Fixed penalty 3,000 for the first time 5,000 in case of repetition 2– Percentage-based penalty A percentage-based penalty shall be applied to the amount unpaid to the Authority due to the error as follows. (50%) if the person/taxpayer does not make the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first. (30%) if the person/taxpayer makes the voluntary disclosure after being notified of the tax audit but before the Authority starts of the tax audit. (5%) if the person/taxpayer makes a voluntary disclosure before being notified of the tax audit by the Authority.	Taxpayer/person
12	Voluntarily disclose of errors before tax audit	Failure of a business to voluntarily disclose errors in a tax return, tax assessment, or refund application before a tax audit.	Two penalties are applied 1- Fixed penalty 3,000 for the first time 5,000 in case of repetition 2– Percentage-based penalty 50% of the amount unpaid to the Authority due to the error.	Taxpayer/person
13	Failure to facilitate tax audit	Failure of a person or business to facilitate the work of the tax auditor	20,000	Taxpayer/person
14	The failure to calculate Tax on behalf of another Person	Failure of the Registrant to calculate tax on behalf of another person as required under the tax law	2% of the unpaid tax is due immediately once the payment is late. 4% of the amount of tax which is still unpaid is due on the seventh day following the deadline for payment 1% daily penalty will be charged on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300%.	Registrant
15	Failure to account for tax on import of goods	Failure to account for tax due on the import of goods as required under the tax law.	50% of unpaid or undeclared tax	Registrant

2. VIOLATIONS RELATED TO VAT

S.NO	SUBJECT WORD	VIOLATION OF TAX LAWS	PENALTIES (IN AED)	WILL BORNE BY
1	Prices inclusive of Tax	Failure by the Taxable Person/business to display prices Inclusive of Tax.	15,000	Taxable Person
2	Tax based on margin	Failure by the Taxable Person/business to notify the Authority of applying Tax based on the margin.	2,500	Taxable Person
3	Designated Zones	Failure by the Taxable Person to provide the Authority with price lists for the Excise Goods produced, imported or sold thereby	The penalty shall be the higher 50,000 or 50% of the tax, if any, unpaid on the goods as the result of the violation	Taxable Person
4	Tax invoices	Failure by the taxable person/business to issue a tax invoice or alternative document when making any supply	5,000 for each missing tax credit note or alternative document	Taxable Person
5	Electronic tax invoices	Failure by the taxable person/business to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes	5,000 for each incorrect document	Taxable Person

3. VIOLATIONS RELATED TO EXCISE TAX

S.NO	SUBJECT WORD	VIOLATION OF TAX LAWS	PENALTIES (IN AED)	WILL BORNE BY
1	Prices Inclusive of Tax	Failure by the Taxable Person/business to display prices Inclusive of Tax.	15,000	Taxable Person
2	Designated Zones	Failure to comply with the conditions and procedures related to transfer the Excise Goods from one Designated Zone to another Designated Zone, and the mechanism of processing and storing of such Excise Goods.	The penalty shall be the higher 50,000 or 50% of the tax, if any, unpaid on the goods as the result of the violation	Taxable Person
3	Provision of price list for excise goods.	Failure by the Taxable Person to provide the Authority with price lists for the Excise Goods produced, imported or sold thereby	5,000 for the first time. 20,000 in case of repetition	Taxable Person

Read more about VAT Registration Questions Answers

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