Tourist Refund Scheme Phase 2 Rollout From Dec 16

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According to an announcement by the Federal Tax Authority (FTA), all preparations for the launch of the 2nd phase of the VAT refund scheme for Tourists have been completed and the scheme will of officially launched on Sunday, December 16. Starting from this date, tourists in the UAE would be able to claim a refund of the VAT paid by them on the purchases made from 12 air, land and sea ports covered under the scheme.

The first phase of Tourist VAT refund scheme was introduced on November 18, 2018, under which purchases made at the Abu Dhabi, Dubai and Sharjah airports were covered.

The following ports will be covered under Phase 2:

3 Airports – Al Ain International Airport, Al Maktoum International Airport and Ras Al Khaimah International Airport
2 sea ports – Zayed Port in Abu Dhabi and Port Rashid in Dubai
4 land ports: Al Ghuwaifat Border Post in Abu Dhabi, Hili Border Port and Al Madheef Border Crossing in Al Ain, and Dubai’s Hatta Border Exit

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The refund scheme for tourists visiting the country is already in effect, with over 3,800 daily refund requests being processed as of now. Al Bustani, director-general of FTA, indicated that he aims to grow daily VAT refunds more in the coming period. “The FTA coordinated with the system operator Planet, running all necessary experiments to ensure the scheme is implemented smoothly and accurately,” he said.

The FTA said that retail stores that are registered in the system under the refund scheme must provide tax invoices for such eligible transactions. These stores can be distinguished by placing ‘tax-free’ sign on their outlets to let the customers know that they are registered for the scheme.

Recommended: VAT Refund Scheme for Businesses in UAE

Earlier, at the time of the launch of the VAT refund scheme for tourists, the FTA had also released a list of conditions for tourists to be eligible to apply for VAT refunds. A buyer must be 18 years or above, a foreigner and must have purchased the said goods on UAE soil and paid VAT on the same with the intention to take the goods outside of the country within 90 days from the purchase date.

UAE Government Executes A New VAT Relief Scheme For Charities

charities vat compensation scheme

The UAE Government has made the announcement of a new tax relief scheme for charities who want to compensate for the VAT expenses they have incurred on donations and charities under the VAT reform. The step has been taken to ensure that charities have to pay less VAT and can keep most of the amount raised by them through fundraising and other charitable acts.

A good news for the charitable institutions or non- profit organizations is that now that they can claim for the compensation under the VAT reform which is set to be commenced in the New Year.

Under the new tax relief scheme, €5 million will be released for refunds to various charities who pay VAT on fundraising. The charities who apply for the compensation have to pay less tax which will result in more money incurred by charities through fundraising for good causes.

Read Also: Three UAE Free Zones List Of VAT Exempted Areas

Under the charities vat compensation scheme, the charitable institutions are liable to apply for the compensation paid for one year in advance, that means the charities, who have incurred the VAT costs in the whole year of 2018, are also allowed.

Michael McGrath, the party’s finance spokesperson said that the scheme has been pending for long period of time and now finally introduced by the UAE government. According to Mr McGrath, “It is a really important step forward and a breakthrough that has been long sought by the charitable sector because the reality is that a lot of the money that they raise through fundraising, by volunteers is ultimately paid to the Exchequer by way of VAT when they expand their services and invest in facilities.”

“I am advised that the Revenue Commissioners have developed systems to enable charities submit claims and to support processing and payment of claims. The facility to make claims under the scheme will be available on ROS from January 2019,” he added.

e-Guarantee Cancellation in FTA portal (A Complete Guide)

cancel e-guarantee

The situation of UAE import where an e-guarantee is necessary, are the situations in which the importer is not reliable on the import and if the conditions are not satisfied then the e-guarantee helps as financial security for payment of the VAT due. The submitted e-guarantee earlier will be cancelled if the conditions for cancellation of import VAT are satisfied.

Easy Steps to Cancel e-Guarantee in FTA portal in UAE

Given below is the step by step process to cancel a submitted e-guarantee in the FTA portal

1. Login to FTA portal
2. Click on the ‘VAT’ tab.

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3. Click ‘VAT 701- E-Guarantee Cancellation form’.

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4. Fill up the e-guarantee cancellation form and give all the required information, including the import declaration number, import declaration date and the e-guarantee number.
5. After the filling of form, click on ‘Submit’ button.6. After the submission of the form, a confirmation message will pop-up on the screen, saying that the request is successful and you will also receive a confirmation email on the given email ID.

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Read Also: How to Avoid Penalties Under VAT in UAE?

For the import in UAE, the non-registrants who import goods in definite specified situations must submit an e-guarantee. After the customs clear the goods and the conditions for cancellation of import VAT are satisfied then the e-guarantee which was submitted earlier can be cancelled by the process which is given above.

e-Guarantee for VAT in UAE [A Complete Guide]

Here we will discuss all the angles through which the unregistered entity is eligible to pay Value Added Tax on the imports via an e-guarantee while having a look on the process and steps to submit e-guarantee on FTA portal:

Context for VAT Payment via e-Guarantee

  1. Shifting of goods from one VAT designated zone to another
  2. Under customs duty suspension, import of goods into UAE. Customs duty suspension is appropriate for fixed identified goods on which the importers have to pay customs duty at a reduced rate or zero customs duty.

Process for VAT Payment on Import

Given below are the processes by which an unregistered person as to pay VAT in UAE in all these cases-

A. Customs Declaration

In the personal Customs portal, the importers must prepare and propose the customs declaration and do the following-

1. Give all the important details about all the goods being imported
2. For processing, submit customs declaration by Customs

After the approval of declaration, it moves to ‘Pending tax payment’ status.

Note: After the Customs declaration is sent to the FTA then there will be no further editing in the form will be done by the customs system. The status of declaration form can be only changed to either ‘Declined’ or ‘Approved’.

B. Obtain e-guarantee (Financial security)

From their bank, the importers must obtain an e-guarantee. The process for this is-

  • From the bank, get an e-guarantee form for a value equal to the value of VAT due
  • For the e-guarantee, get the reference number

C. On FTA portal, create an e-Services account

The person who is not registered must create an e-Services account on the FTA portal to pay VAT on import. The sign-up process is given below-

  • By entering your email id and a unique password, sign-up as a new user
  • At the registered email ID, you will receive a mail to verify your email ID
  • Your e-Service account will be created after you verify the email ID and you can log in to the FTA e-Service portal

D. Login to the FTA portal and complete the VAT import declaration form

The importer must submit the e-guarantee number which was obtained from the bank after the importer login the FTA e-Services portal. for VAT payment, this e-guarantee number must be submitted in the Form VAT 301- Import declaration form. The customs clearance process can be completed after the submission of e-guarantee number is processes.

The process of VAT Payment on import by registered entities is different from the process for unregistered entities. In a few cases, the unregistered importer has to get an e-guarantee from the bank and submit the same in the FTA e-Services portal.

Steps to submit e-guarantee in FTA portal in UAE

The steps for submission of e-guarantee number in the FTA e-Services portal is explained below-

1. Login to FTA e-Services portal
2. As shown below, click on the ‘VAT’ tab

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3. Click ‘VAT 301- Import declaration form for VAT Payment’

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4. After filling the Customs Authority, Declaration Number and Declaration Date, click Next

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5. The screen ‘About Declaration’ will open and the declaration details (Import date, destination, etc.) will be auto-filled. Click Next
6. The screen ‘Declaration Details’ will open and the declaration details [e.g. HS (Harmonised System) Code, Import Value, Customs Duty, CIF (Cost, Insurance and Freight) value, etc.] will auto-filled. Click Next
7. As the scenario of import requires an e-guarantee, the VAT Payment screen will verify the e-guarantee number to proceed. Fill in the e-guarantee number and click ‘Verify e-guarantee’ button

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8. After the submission of the e-Guarantee is processed successfully, then a confirmation message will appear on the screen giving the transaction ID and the amount. Further, an email confirmation will be received that the e-Guarantee has been successfully submitted. After this, the customs clearance process can be completed.

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The FTA made the simple process for submitting an e-guarantee in the FTA portal. The above process must be followed by the entities who have to pay VAT on imports via an e-guarantee in the mentioned scenario.

Know All About Input Credit and Tax Payments Under VAT UAE

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VAT UAE is considered as a general consumption or final consumer tax which is imposed on most of the transactions of goods and services until any particular commodity is exempted by the law.

As per the above line, VAT is levied at every stage of ‘Value Addition’ in the supply chain and the mechanism of Input Tax Deduction guarantees that the companies act as a tax collector or tax agents of the government, who collects the tax from the final consumers, account and pay the tax. Finally, the tax is paid by the final consumer.

As the paid tax on inward supply of goods and services is given as input credit to the tax liable person to ensure the tax component is only a value addition.

Important points for consideration:

1. Payable Tax: Tax which is due for payment to the Authority.
i.e. Payable Tax = Output Tax – Recoverable Tax

2. Output Tax: Tax which is charged on a Taxable Supply and any supply which is considered as Taxable Supply is Output Tax.

3. Input Tax: Tax or due paid by a person when Goods or Services are supplied to him, or when conducting an Import.

4. Recoverable Tax: The paid-up amount which has been returned by the tax authority to the taxpayer according to the provisions of Decree-law in accordance with some conditions.

It has been understood that what Output Tax is. Now, the question arises that does the law permits the registered person to change or update the Output Tax that was once charged on Tax Invoice?

Read Also: VAT Invoices UAE – Tax Credit Note Explained Conditions, Eligibility

The answer to this question is- Yes. Article (61) of Decree-Law gives the example/ scenarios where an adjustment of Output can be done. Given below are the illustrations in which the registered person can make an adjustment to the Output Tax on supply after the date of supply:

a. If the supply was cancelled.
b. If the Tax treatment of the supply changes due to the change in the nature of supply.
c. If the formerly agreed consideration for the supply was changed for any reason.
d. If the Recipient of Goods or Services returned them to the Registrant fully or in part and the consideration was returned fully or in part.
e. If the tax was levied in any mistake.

If any of the events which are stated above occurs then the output VAT formerly computed requires an adjustment. The adjustment of Tax can result in a decrease or increase in output VAT.

Given below are the conditions for adjusting the output tax amount which is charged in the invoice

If any of the conditions which are given below are met then only the supplier will be permitted to adjust the output VAT on the occurrence of any of the events discussed above:

a. If the Output Tax charged in the Tax invoice does not match the Actual Tax then that must be charged due to any of the examples listed above; or
b. If a tax return has been submitted by the registered person of the particular tax period of the supply duration and the calculated amount is assumed as output tax.

Read Also: 17 Most Important VAT Guidelines For Businesses

Process for Adjusting the Output Tax

a. If in case, actual tax due is more than the formerly imposed, then when such increase is identified, a new tax invoice for the extra amount must be issued during the period. This will be applicable in all the situation which will maximize the output VAT like a change in tax treatment (exempt to taxable), escalation of price (an upward revision of price), error in charging tax in the invoice etc.

b. If in case, the actual tax due is less than what was formerly imposed, then for the differential amount, a tax credit note should be issued which will minimize the output tax of the supplier and input tax of the recipient. For instance: cancellation of supply, the return of goods, etc.

Process for adjusting the output tax in the case on Bad debts

Given below are the condition by which the supplier can make an adjustment of output tax in case of bad debts:

A. Conditions for Supplier:

If the conditions which are given below are satisfied then the registered supplier can minimize the Output Tax in a present Tax Period to adjust the Output tax paid for any formerly Tax Period:

a. Goods and Services has been supplied and the Due Tax has been charged and paid;
b. To write off in full or part as a bad debt the consideration for supply in the supplier account
c. If more than six months have passed from the date of the supply; and
d. The supplier has informed the Recipient of Goods and Services of the amount of Consideration that has already been written.

B. Conditions for Recipient:

The registered Recipient of Goods and Services must minimize the Input Tax for the present Tax Period being claimed during any formerly Tax Period where the Consideration has not been paid and where all the following conditions are met:

a. As mentioned above, the registered supplier has minimized the Output Tax and the Recipient has received an information from the supplier about the amount of Consideration which has been written;
b. The Goods and Services were received by the Recipient and the applicable Input Tax was deducted; and
c. For more than six months, the Consideration was not paid fully or in part.

The amount of reduction by the recipient and supplier must be equal to the Tax on the Consideration which has been written.

Read Also: VAT Penalties: How to Avoid Penalties Under VAT in UAE?

Input Tax

Input Tax is defined as the tax which is paid by the registered person while purchasing Goods or Services and also on the expenses of a business. The tax might be paid by the registrant either to its supplier on goods or services supplied to it or may be paid by it under reverse charge mechanism. But, it is important to note that the only payment of tax on inward supply does not result in such tax which is in nature of the recoverable tax and the test of recoverability of input tax has been stated under Article (54) of Decree Law.

How can a person claim Input Tax for goods which is obtained in another GCC

When Goods are obtained in another GCC and then shifted into the UAE by the same person, then he can claim credit of tax paid in that country, subject to the conditions which are mentioned in the executive regulations.

Conditions which are to be satisfied are:

The VAT paid on while buying the goods and services which are used for business cause and for few conditions can be recovered by a registered business. The conditions which must be satisfied are-

A. Must Be Used To Make Taxable Supplies

Taxable supplies are the supplies on which the tax is likely to be paid (i.e. supplies made at zero-rated supplies or 5%). Only on the inputs which are used to make taxable supplies can be allowed to claim the Input VAT recovery and not the exempt supplies.

B. Recipient Gets And Keeps The Tax Invoice

The recipient who is claiming the input tax recovery on a supply must confirm that they receive the Tax Invoice involved to the supply and must be kept in the records. The Tax Invoice must show all the details of the supply which is associated with the input tax recovery which is to be claimed.

C. Recipient Pays The Remuneration For The Supply

The receiver who claims input tax recovery must pay or plan to make the payment of remuneration for the supply within a half year (6 months) after the date of supply which has been agreed for the supply.

So, the supply for input tax recovery is a very important component of VAT in UAE. Businesses must confirm the identity supplies correctly on which input tax can be retrieved, confirm that they can satisfy the conditions for claiming the input VAT recovery and also claiming it on time. This will help in the business by confirming the perfect cash flow and working capital. All the works can be made simple by using the VAT software which will automatically perform all these tasks w.r.t. ITC which will give enough time for you to focus on your business.

Moreover, no credit is present for tax paid on goods which enter the UAE for the purpose of transit to another GCC country stated in Clause (2) of Article (48) of the Decree Law. In such cases, the credit will be made available in the GCC country where the goods are finally destined.

Non-Recoverable Blocked/Input Tax Credits

Input Tax must be not available (non-recoverable) if it is suffered by a Person in respect of the following Taxable Supplies:

  1. The person is not considered as a Government Entity as specified in a Cabinet Decision in accordance with Article (10) and (57) of the Decree-Law and a provision of entertainment services not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors
  2. Where a motor vehicle was bought, leased or rented for the purpose of Business and is now used personally by any Person.
  3. Where Goods or Services were bought by the employees for no charge to them and for their personal benefit which includes the provision of entertainment services, excluding the following cases:

a. Where it is a lawful duty to give those Goods or Services to those employees who are under any relevant labor law in the State or Designated Zone.

b. It is a contractual duty or documented policy.

c. Where the provision of goods or services is a deemed supply under the provision of the Decree-Law.

Adjustment of ITC towards Output tax payable

The recoverable input tax can be claimed as input credit, once it is available fulfilling the following conditions stated in Article (55) of Decree-Law:

a. The tax invoice or other duty paying document (in the case of imports) has been received and kept in the records; and
b. Consideration for the supply has been paid fully or in part.

Read Alos: FTA Approves VAT Refund Scheme for Tourists in UAE

Recovery of input tax paid before registration

The taxable person can request a credit of input tax paid after tax registration, in the first return which was submitted post registration. Such claims can be made on:

a. Supply of Goods or Services made to him after registration.
b. Import of goods by him after registration.

It is important to note that for recovery of such input tax paid before the registration of the taxable person one must conform to file return for the first tax period post registration carefully surveying all the exceptions as discussed below and use of such inward supplies. Post-filing of first tax period such recoverable tax credits could not be taken.

Below are the cases in which input credit cannot be claimed in relation to goods or services obtained before registration:

a. Receipt of goods or services for the purpose of making non-taxable supplies. It is important to note that zero-rated supplies are taxable supplies.
b. Tax credit related to part of capital assets devalued prior to the date of tax registration. If part of the asset is devalued then Input tax cannot be recovered on such assets to the extent such assets are devalued.
c. Services received more than five years before the date of tax registration.
d. Where the goods were shifted to another GCC implementing country prior to tax registration.

Procedure and due date for Payment of Payable Tax

A taxable person must file the tax returns as per the compliance while the tax authority must receive the tax returns not later than the 28th day following the end of the Tax Period concerned or other dates as directed by the Authority.

The Authorities has given three different ways of payment of the payable tax

a. e-Dirham Card: It is a prepaid card that is an integral part of an electronic payment system in the United Arab Emirates (UAE), especially in terms of payment for government service fees.
b. GIBAN: it is a unique IBAN number which is given to all taxable person by Authority and fund transfer can be made from certain UAE financial institutions.

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c. Credit Cards

Article (22) of Tax Procedures

Within twenty business days of an application being submitted, the authority must review the application and inform said Taxpayer of rejecting or accepting the refund claim. And if the Authority has a reasonable reason for requiring a longer period than twenty business days so to consider his application, he must inform the applicable taxpayer.

Where the Authority has given the permission of refund application, then within five business days of the approval it must:

a. Either make the proper payment to the Person
b. Information of authority offsetting the amount requested for refund against other payable administrative tax
c. Or inform the person that the refund will be delayed until all due Tax return are submitted to the Authority.

VAT Penalties: How to Avoid Penalties Under VAT in UAE?

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It is vital for the CEO of business to know and obey the new rules and regulations of VAT to avoid hard penalties which might be as higher as AED 50,000.

Here are the seven steps by which fiscal penalties can be avoided, which is caused due to violations, errors or incorrect record-keeping:

VAT Registration

VAT registration in UAE is important for the company which offers taxable goods or services with a yearly revenue of AED 367,000 or above. Option of registration will also be given to those whose yearly revenue is between AED 200,000 and AED 367,000. The Federal Tax Authority said that if the businesses fails to register in the given time then it could result in non-compliance penalties which can be as drastic as AED 20,000. The unregistered companies cannot do sales until they get their tax registration certificate (TRC).

Record all transactions

The requirement of the law is that, the businesses must stand up to their expectations and must have minimum turnover (as shown through fiscal records) to record their costs, business income and other similar VAT charges, and be sure to keep all the records up to date so that these records can be submitted to the FTA in Arabic.

The businesses which does not meet the minimum yearly turnover are advised to at least maintain the records of all the transactions. Whether your company is registered to VAT or not, the final decision will be taken as per the record which you have maintained and it will be the evidence for the FTA which will come for the survey. Or else, it may be considered as non-compliance, which will lead to the penalty.

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Collect VAT

On goods and services purchased by the customers, VAT is collected by the businesses on behalf of the government. If in any case, businesses fails to collect VAT, then they have to pay five times the VAT levied applicable on the company and must be paid within the time frame given by the tax authorities. So therefore it is suggested to follow the VAT collection compliance as per the tax authorities.

File VAT return

If you business has yearly turnover more than AED 150 million, then VAT returns must be filed every month and if the revenue is less than AED 150 million then they must pay file VAT quarterly. Penalties will given to those businesses which fails to file the tax return at the given time.

Understand zero rates and exempt suppliers

Some businesses have been excluded by FTA from tax. VAT taxable is still applicable to the zero-rated supplier but with the zero-percent rate. So, it is important for the companies to record and report on all the supplies. Real estate developers, airlines, clinics, jewellery, hospitals and schools are included in such industries.

Reverse Charges

The amount of VAT which is paid on goods and services, if purchased in the UAE is Reverse charges. These charges will be applicable on the goods and services which will be imported from outside the GCC. Under the Reverse Charge Mechanism, the business will not pay the VAT, but is shifted from seller to buyer. In this case, the buyer will inform about their input VAT (on the goods purchased) including their normal output VAT (on sale) in their returns for that quarter.

Get the basics right

Within 14 days of date of supply, a tax invoice must be issued. For tax invoice, it is compulsory registrant to include name, address and Tax Registration Number (TRN) to make the supply. An invoice must have the date of issue and a unique number due to which it easy to identify the tax voice and invoice in any order. And it is compulsory for it to precisely state the unit price, the quantity or volume supplied, the rate of tax and the amount payable which must be mentioned in UAE dirham.

From experience, we know that in other mature VAT jurisdictions, businesses have problem to answer the questions raised during audit by tax authorities. This problem is due to the incomplete submission of documents that support liabilities and claims reported within the VAT returns. As VAT is transactional in nature, then it will be advisable for businesses applying the tax to set in place an union of automated processes and tools that can effectively produce an audit file, on the request of tax authorities.