FTA to issue tax residency and commercial activities certificates
The authority will begin receiving applications for the issuance of Tax Residency and Commercial Activities Certificates via its e-services portal as of November 14, 2020.
The FTA explained that there are two categories of tax certificates which are issued to companies and individuals. The first category is for the ‘Tax Residency Certificate’, a certificate issued by the FTA upon request to enable applicants to benefit from Double Tax Avoidance Agreements (DTAA) signed between UAE and other countries.
The second is the Commercial Activities Certificate which is a certificate issued by the FTA to enable applicants to refund VAT paid in advance outside the UAE, whether or not DTAAs are applicable.
The authority emphasized that the new service provides advantages and ease for the issuance of certificates to those registered with the tax system, as all their data is available in the FTA database so they can apply for Tax Certificates through direct and quick digital procedures.
Khalid Ali Al Bustani, director-general of the FTA, confirmed that this step is part of an ongoing cooperation between the FTA and the Ministry of Finance as a strategic partner to the authority, noting that a joint working group from both entities have made the necessary arrangements to ensure a smooth transfer for the digital issuance of Tax Residency and Commercial Activities Certificates from the ministry to the authority.
“Both Tax Residency and Commercial Activities Certifi-cates allow investors in the UAE, including companies and individuals, to benefit from double taxation avoidance agreements to which the State is a party, with the aim of preventing duplication, in addition to recovering VAT imposed on Emirati businesses in various countries in the event they were registered with the Authority,” Khalid Al Bustani said.
The authority clarified that eligible individuals can easily issue Tax Residency and Commercial Activities Certificates through a simple registration process via the Federal Tax Authority’s official website. The process is completed by submitting the required supporting documents and paying the fees specified in the UAE Cabinet Decision No. 65 for 2020. These specified fees were set as a requirement to apply for the Tax Residency Certificate, as an application is reviewed for any normal or legal person that is not registered with the authority and providing a print copy of the digital Tax Residence Certificate.
The Cabinet Decision also set the fees required to apply for a Commercial Activi-ties Certificate for businesses registered with the Authority, and to review the ap-plication and issue a digital Commercial Activities Certificate and to provide a print copy for the certificate that was issued.
FTA clarifies VAT application for e-commerce
The UAE’s e-commerce has been growing exponentially over the last few years.
The UAE’s Federal Tax Authority (FTA) on Wednesday further clarified that though five per cent value-added tax (VAT) will be applicable to general e-commerce purchases however there are a number of special rules that apply specifically to e-commerce transactions.
It said the tax will also be applicable on digital services including supply of domain names, web hosting and remote maintenance programmes and equipment, software, images, text and information provided electronically such as pictures, screen savers, electronic books, documents and other digitised files such as music, movies and games on demand and online magazines.
Other services identified under the banner of “electronic services supplies” include the supply of advertising space on a website and the rights associated with that advertisement, and political, cultural, artistic, sports, scientific, educational or entertainment broadcasts, including broadcasts of events, live streaming via the internet, the supply of distance learning services, and services of any equivalent type that have a similar purpose and mission.
The growth of e-commerce sector picked up even further in the wake of coronavirus pandemic with UAE residents on average spending over Dh6,000 a year.
“In light of the increasing importance of the e-commerce sector, clear mechanisms for procedures have been identified. Value-added tax, as it relates to the supply of goods and services through electronic means, contributes to supporting the activities of this vital sector, which depends on a locally developed digital and technological infrastructure,” said Khalid Ali Al Bustani, director-general of FTA.
It added that taxable persons should charge VAT to customers when supplying taxable goods or services at the standards rate of 5 per cent or at a rate of zero per cent where law permits. If the supplies are exempt from tax, these supplies are not treated as a taxable supplies and therefore no VAT needs to be charged on these supplies.
Anurag Chaturvedi, CEO of Chartered House, said many international service providers, who do not have place of establishment in the UAE, are still unaware of the registration requirement for VAT in the UAE when they provide services to the UAE consumers.
As per the Article (18) of Decree Law, a non-resident shall register for tax and makes supplies of goods or services, there is no threshold limit applicable to the non-residents. “This means if a consumer in the UAE buys a service/product from an online platform (social media, e-commerce, education, games, arts, fashion, music or any other services), the non-resident shall register for the VAT within the stipulated time and comply with local tax legislation,” added Chaturvedi.
As per the UAE legislation, the place of supply of electronic services shall be UAE if the use and enjoyment of the supply is within the country. Pursuant to Article (31) of the Decree law, provision of electronic services are subject to tax.
“If Netflix is being used by an end-user in the UAE, the service is subject to tax in the UAE. Many international service providers, who do not have place of establishment in the UAE, are still unaware of the registration requirement for VAT in the UAE when they provide services to the UAE consumers,” added Charuvedi.
Combating coronavirus: UAE businesses seek VAT waiver for a year to stimulate demand
VAT relief will stimulate demand for consumer goods in the country.
Private and family owned businesses in the UAE have requested the government to waive off value-added tax (VAT) for six months to one year in order to help stimulate demand in the economy.
A letter sent by family-owned business groups to Dubai Supreme Fiscal Committee have suggested establishing a private-public sector committee, reducing VAT from five per cent to two per cent, eliminating licensing fee, accelerating payment to suppliers and contractors, freezing of 2.5 per cent market fee, 50 per cent reduction in customs fees and water and electricity in order to help them overcome Covid-19 impact.
Rizwan Sajan, chairman and founder of Danube Group, said demand is slow across all the sectors due to job losses and salary cuts, therefore, VAT relief will stimulate demand for consumer goods in the country.
“This, in turn, will help businesses and the overall economy. Importantly, many countries around the world have also offered tax sops to businesses and consumers. Since VAT is the only consumer tax applied here, and waiving off this tax can stimulate demand. We request government to consider it on a priority basis. We are quite confident that this step will expedite the recovery of the UAE economy as country reopens. Moreover, we also requested waiver on utility and telecom charges,” said Sajan.
On Monday, May 11, the UAE’s Ministry of Finance announced that it will not increase VAT after Saudi Arabia tripled it to 15 per cent.
Rajiv Raipancholia, CEO of Orient Exchange, said remittances have dropped by 30 to 40 per cent and there are job losses and reduced salaries due to Coronavirus impact.
“A waiver of VAT till year-end would support the end-consumer in terms of reduced expenses to make ends meet. At the same time, landlords need to give a rent free period of two to four months to retailers otherwise the brick-and-mortar model will face huge challenges of continuity,” said Raipancholia.
Suresh Kumar, Chairman of the Indian Business and Professional Council (IBPC), said it is good if the businesses start to do well as a result of these measures because the amount of VAT collection after 6 months will more than offset loss of revenues for the government when business activity picks up.
“It is certainly worthwhile as businesses are operating on thin margins and with social distance in place at workplace, the cost will go up. So any such relief that businesses will get is good. I think six months of VAT waiver is a good period. It will give businesses an opportunity to restart their operations in fulls swing,” he said.
He suggested that sector-specific should be taken that will have better and strong impact on those sectors. “We have been regularly communicating and authorities are also actively participating,” he added.
UAE rules out any change in VAT rate after Saudi hikes it to 15%
In a surprise move on Monday, Saudi Arabia increased VAT threefold to 15 per cent.
The UAE’s Ministry of Finance (MoF) ruled out any plan to hike value-added tax (VAT) following Saudi Arabia’s announcement of a three-fold increase in VAT on Monday.
VAT was introduced in the UAE on January 1, 2018 at five per cent on several goods and services.
Younis Haji Al Khoori, Undersecretary of MoF, said the focus is to work with all government entities to assess the priorities for the post-Covid-19 stage. Furthermore, the ministry will reorient the financial resources to prepare for the future and continued growth to ensure the security and safety of the communities.
In a surprise move, Riyadh increased VAT rate from five per cent to 15 per cent and also suspended the cost of living allowance to increase revenues with effect from June 1, 2020.
Sources and industry executive privy to the matter said that contrary to the Saudi move, the UAE was mulling dropping VAT temporarily until the situation surrounding Covid-19 is stabilised and the economy returns back on track.
Also, many European and Asian countries are turning to emergency tax breaks to support their economies against the Covid-19 threat. India, China, Finland, South Africa, Bulgaria, the US and the EU have announced some form of relief for their businesses and consumers in taxes to cope with the virus.
“We at the MoF are studying our financial systems to ensure their readiness to manage the next stage and support all vital sectors. We are devising several programmes and projects to enhance our ability to continue the development process and to put people as our top priority. This is essential to build a secure future and achieve the well-being and stability of our society. The UAE has always been keen to take precautionary measures and launch financial initiatives, which protect the national economy and support various business sectors in the country,” said Al Khoori.
The #UAE has taken exceptional measures to contain the effects of the global #coronavirus #pandemic that has affected even the largest economies, to protect its economy & reduce the economic repercussions of the crisis on the business sector & on various sectors of society.
Analysts told Khaleej Times that increasing VAT would hurt the UAE’s non-oil sectors and also dampen consumer confidence at a time when the governments around the world are trying to stimulate demand to boost economies.
Khatija Haque, head of Mena Research at Emirates NBD, said hiking VAT in the UAE would be counterproductive as the emirate’s budget commitments are not as large as Saudi Arabia’s.
“While we do expect the UAE’s budget deficit to register a significant deficit of around 10 per cent of GDP in 2020, this follows two years of budget surpluses. Raising VAT in the UAE at a time when consumers are already struggling with layoffs and paycuts and businesses have seen demand contract severely would be counterproductive. It would not raise non-oil revenue significantly and further weigh on already weak aggregate demand,” she said.