VAT Newsletter
January 2019
Welcome to our first edition of VAT Alert in 2019. Read the latest on FTA Public Clarifications, VAT Guides, General Updates, and GCC Updates.
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Public clarifications
VAT Guides
General Updates
GCC Updates
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VAT Alert
Clarification issued by FTA
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Public Clarification on the Bank Interest and Dividends
• Passive interest income which has been earned from bank deposits does not form a consideration for supply and is therefore characterized as ‘Out of scope’. • Similarly, dividend income earned through holding shares in a company does not form a consideration for supply and is therefore also characterized as ‘Out of scope’. • Income or revenues which are characterized as being ‘Out of Scope’, are not included in the VAT return.
https://www.tax.gov.ae/pdf/VATP010 Interest and Dividends.pdf
The Federal Tax Authority (‘FTA’) has released VAT Public Clarification - VATP010 on Bank Interest and Dividends which provides further clarity on the VAT implications of interest income which has been generated from dividend income and bank deposits. The document explains the following:
Please follow the link to access the Public Clarification from the FTA Website
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Public Clarifications
It is important to note that although dividend income is generally ‘Out of scope’, any fees charged as ‘management fees’ would be taxable.
Public Clarification on Donations, Grants and Sponsorships
• Donations offered without any implied benefit are not a consideration for a supply and therefore ‘Out of scope’. Donations in this sense must be ‘unconditional and unrestricted’. The clarification also mentions principles to determine whether a donation would qualify as taxable or not. • Sponsorships generally fall within the scope of VAT as the recipient of a sponsorship generally provides supplies to the sponsor (for e.g. displaying the sponsor’s logo). • Grants are treated as Out of scope’ only in cases where the grantor does not receive any benefit. In cases where the grantor does receive a benefit, the grant will be taxable. • Donations, sponsorships and grants will be considered as ‘Deemed Supplies’ if they are provided in the form of goods
https://www.tax.gov.ae/pdf/VATP011 - Donation Grants and Sponsorships.pdf
The FTA has released VAT Public Clarification - VATP011 on Donations, Grants and Sponsorships which provides details on the principles that must be applied in order to determine their taxability. The document thereby explains the following:
VAT Guides issued by FTA
New Guide on Financial Services
The FTA has released a new Guide on the VAT treatment of Financial Services. The guide is meant to provide clarity on the taxability of certain financial services, and the extent to which providers are able to recover VAT. The taxability of certain financial services is summarized as follows:
Islamic Finance • Supplies that fall under ‘Islamic financial arrangements’ which obtain the same outcome as a non-Islamic financial product, shall be treated similarly to the non-Islamic supplier Financial Services treated as Zero Rated • Supply of services in investment grade precious metals • Export of financial services to a recipient located outside the GCC. This treatment applies even if the service would have been exempt if supplied in the GCC Financial Services treated as Standard Rated • Import of financial services from outside the GCC; which would have been standard rated if provided in the UAE. The recipient will need to account for VAT under the Reverse Charge Mechanism (‘RCM’) • Share registrar, trading and settlement services provided in exchange for a fee • Support provided for managing stakeholders, payment of dividends, arranging annual general meetings and delivering reports • Portfolio Management Services • Trustee Services • Settlements of future contracts by delivery of commodities • Intermediary services, such as brokers or dealers who charge explicit fees • Preparatory services performed separately to a supply of a financial service • Debt recovery services such as litigation and the management of the recovery of debts due • The hire or leasing of equipment, and where equipment is subsequently sold to a third party at the end of the lease Exempt Financial Services • The issue, allotment, or transfer of ownership of an equity security or a debt security (including stocks and other securities) • The provision, or transfer of ownership, of a life insurance contract or re-insurance contracts • Interest Rate Swaps (with no explicit fee) • Currency Swaps (with no explicit fee) • Income derived from arbitrage, or gains from net margin or spread • Trading income earned on the underlying financial instruments • The supply of credit is exempt from VAT (where there is no explicit fee etc.) Derivatives • Devising, advising on, originating and the issuing of derivatives and similar structured products for an explicit fee is standard rated. • Trading in derivatives (and the related income) and the transfer of ownership of derivatives or of a futures contract with regard to commodities is exempt from VAT. • Settlement of futures contracts by delivery of commodities is taxable. Outside the Scope of UAE VAT • Financial Services provided to recipient registered/ registerable for VAT in a GCC state • Payments specifying a return on an investment, such as interest on deposits, dividends, drawings • Payments into a pension or a collective investment scheme (Fees charged for the management of a pension fund or collective scheme will be standard-rated) • Stock lending of shares (Fees charged for this service, will be subject to VAT) Input Tax Apportionment Businesses must ensure they use an input tax apportionment method which is ‘fair and reasonable’. In cases the method is not, the business should ensure that an appropriate alternative method is identified and implemented for their particular case.
Please follow the link to access the full guide from the FTA Website
https://www.tax.gov.ae/pdf/Financial Services VAT Guide VATGFS1.pdf
GENERAL UPDATES
Disclaimer for Public Clarifications
The FTA has released the following statement: “The Public Clarifications issued by the FTA are meant to clarify certain aspects related to the implementation of the Federal Law No 7 of 2017 on Tax Procedures, the Federal Decree-Law No 7 on Excise Tax, the Federal Decree-Law No 8 of 2017 on Value Added Tax and their Executive Regulations. These Public Clarifications state the position of the FTA and neither amend nor seek to amend any provision of the aforementioned legislation. Therefore, the public clarifications are effective as of the date of implementation of the relevant legislation, unless stated otherwise” This is a very important point in that the above disclaimer clarifies that all public clarifications released by the FTA are effective retrospectively, unless stated otherwise.
GCC UPDATES
New Income Tax Law Approved in Qatar
The Ministry of Finance in Qatar has recently published ‘Income Tax Law No. 24/2018’, which will be used instead of the current ‘Income Tax Law No. 21/2009’. The previous law, whereby Qatar applies a territorial tax system with a standard Corporate Income Tax (CIT) rate of 10% will be maintained. However, other changes announced are as under: • There have been substantial increases in non-compliance penalties • Payments made by Qatari residents to non-residents with no permanent establishment in Qatar will now be subject to a 5% withholding tax rate (as opposed to the previously implemented 7% withholding tax rate) • Profits linked to non-Qatari stockholders in companies and investment funds listed on the Qatar Stock Exchange, in addition to gains made from trading income will be exempt from tax • Petrochemical industry Agreements will face a CIT of 35%. This was previously solely applied to petroleum operations. • Company profits wholly owned by GCC nationals, along with corporate profits attributable to GCC nationals resident in Qatar, will be exempt from tax. • Exempt taxpayers are now obligated to submit an annual corporate tax return
VAT Law
Cabinet Decision on Tax Refunds for Tourist Scheme
1.Cabinet Decision No. (41) of 2018 on Introducing the Tax Refunds for Tourist Scheme
The FTA has released Cabinet Decision No. (41) of 2018 on Introducing Tax Refunds for Tourist Scheme highlighting the mechanism of Tourists VAT Refund Scheme under Article 75 of the UAE VAT law and Article 68 of the Executive Regulations to the UAE VAT law. Further, the FTA has also conducted couple of workshops to create awareness about the Scheme, which shall come into effect from Quarter IV of 2018.
Legislative framework of the scheme allows tourists to claim VAT refunds with minimum purchase amount of AED 250, if the following conditions have been complied with: • Goods have been supplied to an Overseas tourist. An overseas tourist is a natural person other than: 1. residents of UAE/ Implementing States; 2. a crew member on a flight leaving an Implementing State] along with a Tax-free form; • The goods have been purchased as per the specified procedures and the overseas tourists depart from UAE along with goods within 90 days from the date of purchase; and • The goods purchased have not been consumed, fully or partially in UAE or any Implementing State or should not be motor vehicles, boats and aircrafts
Please use the below link to access the Cabinet Decision from FTA Website:
https://www.tax.gov.ae/pdf/Cabinet-Decision-No-(41)-of-2018-on-Tax-Refunds-for-Tourist-Scheme.pdf
Public Clarification released on tax invoices
Updated VAT User Guide
Updated VAT Import Declaration User Guide
VAT Guide on Insurance
VAT Guide on Charities Sector
Other Updates
https://www.tax.gov.ae/pdf/FTA%20Decision%20No%201%20of%202018%20on%20Requirement %20of%20Retailers%20to%20Participate%20in%20TRS.pdf
2. FTA has released Decision No (1) of 2018 on the requirements for Retailers to participate in VAT Refunds for Tourist Scheme which can be accessed from FTA website by following link:
Cabinet Decisions
Contact Us
To discuss the VAT updates further contact our team at grantthornton@ae.gt.com
VAT Guide on Charities Sectoer
General updates
1.Updated Version of VAT refund guide by UAE Nationals on new residences
https://www.tax.gov.ae/pdf/VAT-Refund-Building-New-Residences-by-UAE-Nationals-User-Guide-full-aug.pdf
Please use the below link to access the full guide from FTA Website:
Cabinet Decision-Tax refunds for tourist scheme
The FTA has published an updated version of VAT Refund for Building New Residences by UAE Nationals – August 2018. The updated guide provides information relating to substantial documentation requirements while submitting refund claim. It also specifies that the VAT incurred on the expense of installing a swimming pool in or on the premises of the home will not be recoverable.
2.Updated Version of VAT User Guide
https://www.tax.gov.ae/pdf/VAT-User-Guide_English_V0.7.0_User-amendments.pdf
The FTA has published an updated version of the VAT User Guide (Registration, Amendments & De-Registration) - September 2018 which gives an option to make online amendment to major fields of details of taxable person. This facility was not available before but now the taxable person can amend many fields online on FTA portal after logging.
1. Updated Version of VAT refund guide by UAE Nationals on new residences
3.Updated Version of VAT Import Declaration User Guide
https://www.tax.gov.ae/pdf/VAT-Importers-User-Guide_English_V0.5.0.pdf
The FTA has published an updated version of VAT Import Declaration User Guide – September 2018 which is primarily intended to help taxable persons understand the process for declaring goods at Customs, completing VAT declaration forms, and providing the necessary information to Customs to validate the import declaration and VAT due.
4.New Guide on VAT Financial Guarantee or Cash Deposit Release for Non-Registered Importers User of VAT Import Declaration
The FTA has released a new Guide on VAT Financial Guarantee or Cash Deposit Release for Non-Registered Importers User of VAT Import Declaration. It helps non-registered importers to submit a request via Form VAT 702 to liquidate partially or completely an e-Guarantee or refund partially or completely an e-Dirham deposit provided while importing goods under tax suspension. The guide provides insights on below topics:
About VAT 702
When should you submit VAT 702?
Who should submit a VAT 702?
Accessing VAT 702
Completing VAT 702
5.New Guide on VAT Insurance
The FTA has released a new VAT Guide on Insurance Sector - September 2018. The Guide covers the following important discussions:
Definition and Features of Insurance Services and Re-insurance
VAT treatment of insurance and related services in UAE
VAT treatment of Islamic Insurance
Input Tax Apportionment Methods
Clarity of Employer claim on Medical Insurance for employees and his family
VAT treatment on insurance related to real estate
Clarity on VAT treatment related to Travel Insurance
https://www.tax.gov.ae/pdf/Insurance%20VAT%20Guide%20VATGIN%20-%20September%202018.pdf
Clarification issued by FTA on tax invoices
1.UAE FTA launches VAT 'Tax Clinics' campaign across UAE
UAE FTA has launched an innovative campaign to host ‘Tax Clinics’ across the UAE which has started from August 2018 and will run till October. The campaign intends to increase awareness of VAT procedures among all business sectors with a focus on assisting small and medium enterprises (SMEs). Tax Clinics provide the opportunity for the FTA to communicate directly with businesses with the objective of promoting compliance with the VAT legislation.
Cabinet Decision-Tax refund for tourist scheme
Public Clarification on tax invoices
2.Excise Update - Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products
The FTA has released Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products which sets out the rules for applying a digital or physical stamp, seal, or mark which has been approved by the FTA on tobacco/ tobacco products and came into effect on 24 July 2018. The purpose of applying these marks is to track whether Excise tax has been paid on the affected goods. Such marks are commonly referred to as “tax stamps”.
https://www.tax.gov.ae/pdf/Cabinet-Decision-No-42-of-2018-on-Marking-Tobacco-and-Tobacco-products.pdf
3.VAT Update in other GCC Countries
• The parliament in Bahrain has recently approved that VAT will be introduced w.e.f. 1 January 2019 at the expected standard rate of 5%. The government has published draft law in Arabic which states that detailed Regulations are expected to be issued within 15 days after the effective date of VAT on 1 January 2019. Also, FAQs relating to VAT are released by the government on its website. • As per member of Omani Ministry of Finance, Oman is expected to implement VAT by September 2019. • No confirmed dates have been released yet for implementation of VAT in Qatar and Kuwait.