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Read MoreClarification 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:
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.
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.
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.
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:
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:
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.
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:
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:
This includes expenses incurred for accommodation and food.
Know More About: VAT Profit Margin Scheme in The United Arab Emirates
The Profit Margin Scheme allows that, in certain cases, Registrant may calculate and charge VAT on the Profit Margin earned rather than the full value.
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.
The following type of Goods:
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.
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
Under this Scheme Tax Registered Person is required to keep records of the following:
Read More VAT Refund Scheme for Business Visitors in UAE
Beside implementing VAT on different sectors in UAE the Federal Tax Authority (FTA) of United Arab Emirates has implemented a VAT 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.
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.
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.
The GCC States that are implementing a Tax law pursuant to an issued legislation.
Any Person registered or obligated to register for Tax Purposes
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.
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.
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 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.
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.
Yes, business/tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale.
FTA has set the VAT rate deliberately low i.e 5% so that VAT is a limited burden on all consumers.
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.
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.
The following conditions shall apply to the Tax Refunds for Tourists Scheme:
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
The claim form shall contain such particulars as may be required by the Authority including:
Read More About: VAT ON HEALTH CARE 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.
“Health care services” includes both services and goods related to such health care.
These may include the furnishing of:
Yes, it is applicable to the health care services. But these services are taxable at a rate of Zero percent (0%).
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.
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
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.
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.
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
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.
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.
Every registered person file return.
Small/Medium size entities/business file return on monthly basis.
Large Size Business Entities File return on quarterly basis.
The general provision regarding filling;
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
On Which Expenses VAT Can be Recovered Through Input Credit?
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;
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 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;
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 are chargeable to VAT @ 0%, only if following conditions met;
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
Import is the arrival of goods or receipt of services from abroad into the state from outside.
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.
The importer whose taxable supplies made and import received exceed AED 375,000 for the last 12 months.
Concerned goods and services are referred to those goods and services that are not exempt from the VAT.
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.
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.
A standard rate of 5% shall be imposed.
VAT is in addition to customs duty. The VAT is calculated on the total import value which includes freight, insurance, and customs duties.
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.
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.
As a general rule, these export or imports are not subject to VAT.
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.
The benefit of registration and getting Tax Registration Number (TRN) is
The consequences of not being registered are
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 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:
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:
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:
Electronic services” means Services which are automatically delivered over the internet, or an electronic network, or an electronic marketplace, including:
As you know well-known companies execute their business in the United Arab Emirates for decades. Some of these companies named as follows;
Read more about UAE Tax Invoice Article (59)
Tax Invoice is a written or electronic document in which the occurrence of a Taxable Supply is recorded with details.
(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.
(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.
Where the supply is zero-rated no need for issuing of invoice
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.
If the taxable person issue credit notes electronically then:
The documents shall be treated as it has been issued by the supplier if the following conditions met.
Note: The documents shall have treated as if they had been issued by the supplier if the above conditions met.
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.
Following additions must require:
All countries that are full members of The Cooperation Council for the Arab States of the Gulf pursuant to its Charter.
The GCC States that are implementing a Tax law pursuant to an issued legislation
Read more about Tax Credit Note Article (59)
A Tax Credit Note is a written or electronic document in which the occurrence of any amendment to a Taxable Supply that reduces or cancels it is recorded and the details including it.
(1) The words “Tax Credit Note” 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 Tax Credit Note, 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 Tax Credit Note.
(6) Information sufficient to identify the supply to which the Tax Credit Note relates
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 Tax Credit Note be issued by the Taxable Person, the Authority may determine any of the following, subject to any conditions that the Authority may consider necessary
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.
If the taxable person issue credit notes electronically then:
The documents shall be treated as it has been issued by the supplier if the following conditions met.
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 Tax credit note in relation to that supply he made, the principal shall not issue a Tax credit note.
Read more about Administrative Penalties for Violations of Tax Laws in the UAE
A comprehensive list of all administrative penalties for violations of tax laws in the UAE is given.
S.NO | SUBJECT WORD | VIOLATION OF LAW | 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. |
| Registrant |
2 | Record submission in Arabic | Failure to submit the required records in Arabic when requested by the Authority |
| Registrant |
3 | Registration | Failure to submit a registration application within the timeframe specified by the tax law. |
| The person liable to be registered |
4 | Deregistration | Failure to submit a deregistration application within the timeframe specified by the tax law. |
| Registrant |
5 | Amendment to tax records | Failure to inform the Authority of an amendment to tax records that need to be submitted |
| 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. |
| 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. |
| 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. |
| 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. |
| Registrant |
10 | Submission of incorrect tax return | The submission of incorrect tax returns by the Registrant.
| Two penalties are applied: 1- Fixed penalty
2– Percentage-based penalty
| 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
2– Percentage-based penalty
| 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
2– Percentage-based penalty | Taxpayer/person |
13 | Failure to facilitate tax audit | Failure of a person or business to facilitate the work of the tax auditor |
| 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 |
| 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. |
| Registrant |
S.NO | SUBJECT WORD | VIOLATION OF LAW | PENALTIES (IN AED) | WILL BORNE BY |
1 | Prices inclusive of Tax | Failure by the Taxable Person/business to display prices Inclusive of Tax. |
| Taxable Person |
2 | Tax based on margin | Failure by the Taxable Person/business to notify the Authority of applying Tax based on the margin. |
| 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
| Taxable Person |
4 | Tax invoices | Failure by the taxable person/business to issue a tax invoice or alternative document when making any supply |
| 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 |
| Taxable Person |
S.NO | SUBJECT WORD | VIOLATION OF LAW | PENALTIES (IN AED) | WILL BORNE BY |
1 | Prices Inclusive of Tax | Failure by the Taxable Person/business to display prices Inclusive of Tax. |
| 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
| 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 |
| Taxable Person |
Read more about VAT Registration Questions Answers
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