FTA issues guidelines for foreign businesses’ VAT refund in UAE
The foreign business must not have a place of establishment or fixed establishment in the UAE
The Federal Tax Authority (FTA) has outlined four conditions that would allow foreign businesses to recover value-addded tax (VAT) incurred in the UAE.
To be eligible for the VAT refund, the first condition is that foreign businesses must not have a place of establishment or fixed establishment in the UAE or in any of the VAT-implementing GCC states.
Secondly, such foreign businesses must not be a taxable person in the UAE. Thirdly, they must also be registered as an establishment with a competent authority in the jurisdiction in which they are established; and finally, they must be from a country that implements VAT and that equally provides VAT refunds to UAE businesses in similar circumstances.
The authority clarified that the period of each refund claim shall be a calendar year, noting that for claims in respect of the 2018 calendar year, refund applications can be made as of April 1, 2019. However, for subsequent calendar years, the opening date for accepting refund applications will be March 1 of the following year; this means that for the period from January 1 to December 31, 2019, applications will be accepted as of March 1, 2020.
The FTA went on to stress that the minimum claim amount of each VAT refund application submitted by business visitors is Dh2,000, which may consist of a single purchase or multiple purchases. The Authority urged potential applicants to hold on to the original tax invoices on the purchases for which they would like to reclaim VAT, as they will be required to be submitted along with the refund applications.
The state may still submit a VAT refund application to reclaim VAT incurred in the UAE under this scheme, the FTA assured, outlining only three situations where VAT cannot be reclaimed.
The first situation is if the foreign business in question makes supplies in the UAE, unless the recipient is obliged to account for VAT under the reverse charge mechanism. Secondly, a VAT refund cannot be processed if the input tax in respect of any goods or services is “blocked” from recovery and, therefore, not recoverable by a taxable person in the UAE. The third situation where a refund is not possible is if the foreign business is a non-resident tour operator.
Khalid Ali Al Bustani, director-general, FTA, noted that this procedure reflects positively on many sectors, including tourism, trade, exhibitions, conferences, etc.
He further explained that reciprocity is a key condition for the procedure, whereby the Authority will refund the VAT to businesses resident in countries that refund VAT for UAE businesses visiting their territories.
VAT not recoverable on staff parties in the UAE, clarifies regulator
Tax registered businesses in the UAE cannot recover value added tax (VAT) incurred on expenses associated with activities to entertain personnel, such as staff parties that are free to attend, the Federal Tax Authority (FTA) has clarified.
According to the federal law, VAT incurred on goods or services purchased to be given away to staff free of charge, in order to reward them for long service, should be blocked from recovery of the tax, the FTA said.
Examples of these gifts include: long service awards, retirement gifts, Eid gifts, or gifts for other festivals or special occasions, gifts given on the occasion of a wedding or birth of a child, employee of the month gifts, or a dinner to reward service.
In a recent press statement, the FTA clarified that entertainment services consist of “hospitality of any kind” including the provision of: accommodation; food and drinks which are not provided in a normal course of a meeting; and access to shows or events or trips provided for the purposes of pleasure or entertainment.
However, a ‘designated government entity’ is eligible to recover the input tax incurred on costs to provide entertainment services to anyone not employed by the entity.
The exception is applicable: during meetings with delegations from other countries where lunch or dinner is provided; during meetings with representatives from other government entities to discuss official business, where refreshments are provided; and during ceremonies held to mark significant political events, eg the signing of an international agreement, where entertainment is provided to the audience.
For VAT registrants who are not ‘designated government entities’, input tax cannot be recovered if it is incurred for entertainment services provided to non-employees including customers, potential customers, officials, or shareholders, or other owners or investors.
The FTA also clarified that if goods or services are purchased for use by employees for their personal benefit, including the provision of entertainment services, then the VAT incurred on the cost is not recoverable unless an exception applies.
This means that all companies, including ‘designated government entities’, which provide entertainment services to employees are prevented from recovering any VAT included on such costs.
The only circumstances in which a taxable person is entitled to recover VAT on such costs are: where it is a legal obligation to provide those services or goods to those employees; it is a contractual obligation or documented policy to provide those services or goods to those employees so that they may perform their role and it can be proven to be normal business practice; and where the provision of goods or services is a deemed supply under the provisions of the decree-law.
The authority also outlined certain circumstances where a taxable person will fund or reimburse an employee for certain costs incurred for business purposes.
These include cases where an employee is on a domestic business trip and requires overnight accommodation – in which case the VAT incurred on hotel costs would be recoverable; as well as input tax incurred on subsistence costs – food and drinks purchased by the employee for their own consumption during the trip.
But if the employee incurs costs which are related to entertaining a current or potential customer/supplier, then any associated input tax incurred will be non-recoverable.
The FTA issued the latest public clarification regarding ‘Non-Recoverable Input Tax – Entertainment Services’ on its website to raise awareness among tax payers about the technicalities of the system, a statement said.
FTA director general Khalid Ali Al Bustani said: “These clarifications are formulated after a thorough study of the tax laws, executive regulations, and the guides published on the Federal Tax Authority’s website.”
The UAE introduced the 5 per cent VAT on most goods and services from January 1 this year.
FTA to hold tax clinics to promote compliance
The Federal Tax Authority (FTA) has announced a new campaign to communicate directly with businesses.
The campaign kicks off on Sunday, August 12, 2018, in Ras Al Khaimah, before moving on to Fujairah and then the rest of the emirates for a duration of three months, where representatives from the Authority will be present at the Clinic to answer taxpayer queries regarding registration with the FTA and other tax obligations.
A team of experts from the FTA’s registration and taxpayer services will go on an extensive tour, the first stage of which will take place from August 12 to 14 in Ras Al Khaimah, moving on to Fujairah from August 26 to 28, then Um Al Quwain from September 2 to 4, and Ajman on September 9 to 11, 2018.
The campaign will be returning to Ras Al Khaimah on September 16 and 18, moving on to Sharjah on September 23 and 25, then Fujairah again on September 30 to October 2, Um Al Quwain from October 7 to 9, Ajman from October 14 to 16, back to Fujairah on October 21 to 23, before concluding with a third and final stop in Ras Al Khaimah on October 28-30.
Khalid Ali Al Bustani, director-general, FTA, said the experts conducting the Tax Clinic will address all tax concerns raised by representatives of taxable businesses, answer their queries and address the challenges that face them. They will provide guidance with regards to registering for VAT, preparing and submitting tax returns, paying due taxes and avoiding the most common mistakes or technical difficulties associated with these responsibilities.
The experts will also distribute educational and awareness publications issued by the Authority to explain systems and procedures and answer frequently asked questions.
VAT drives 20,000 UAE firms into digital accounting
Since the launch of value-added tax (VAT), more than 20,000 small businesses in the UAE have shifted from manual to digital accounting following the mandate issued by UAE government to submit tax returns online, said a top official.
Digital accounting has become imperative for countries worldwide. It not only facilitates operational and cost efficiencies, but also ensures better security, speed and reduced errors. Making VAT digital makes way for a modern and fast service which help businesses get their compliance right, reduces the tax gap, as well as plummets the cost, uncertainty and worry that businesses face while filing returns,” said Vikas Panchal, business head at Tally Solutions in the Middle East.
The UAE recently implemented value-added tax (VAT) beginning January 1, 2018. Tally Solutions – a leading international accounting and compliance software provider help businesses comply with the new law by creating awareness on the importance of maintaining proper accounting records as well as facilitating the ease of filing returns through its automated software Tally.ERP 9 Release 6.4. Trusted by more than 1.2 million businesses globally, Tally Solutions already includes a list of 50,000 satisfied clients across GCC, a company statement said.
“Ever since VAT was introduced in the UAE, companies have moved from pen and paper and scaled up their computing processes to be able to match up to UAE’s digital processes. Digitalisation has helped businesses to manage timely and accurate record-keeping, whilst preventing errors associated with manual processes. While digital accounting facilitates regulation it also allows businesses to access tax information in a single place, file returns online from any place and deliver improvements in business process,” added Panchal.
While automated accounting will have a significant impact on the way authorities collect, administer and enforce tax, it also helps resolve issues faster, making the tax system more sophisticated than ever before.