VAT Refund Scheme for Foreign Business Visitors in UAE

VAT refund for Foreign Business Visitors VAT refund for Foreign Business Visitors

The UAE’s Federal Tax Authority (FTA) announced the implementation of the VAT refunds scheme for business visitors on Tuesday. Those who are qualified for refunds can apply through a form available on the website.

The minimum VAT amount business visitor can reclaim is fixed at Dhs2,000, which may encompass a single purchase or multiple purchases.

The Authority behested potential applicants to keep the original tax invoices of the purchases for which they would like to reclaim VAT, as they will have to submit them along with their applications as an attestation.

What is the business VAT refund scheme?

Under the VAT Refund scheme for Business Visitor in UAE, if all the require condition met for a foreign business visitor then, He is allowed to claim VAT refund on expense occurred in UAE.

When FTA start receiving VAT refund applications?

UAE’s FTA already start receiving VAT refund applications from business visitors

The FTA said that it is now receiving applications to refund VAT incurred by business visitors to the UAE in 2018.

Khalid Ali Al Bustani, FTA Director General, said “The new clear and transparent procedure complements efforts to establish the UAE as a global hub for trade and creates an investment-friendly environment to support economic activities in the sectors where business visitors are active. This, in turn, reflects positively on various other sectors such as trade, exhibitions, and conferences, among others,”

He explained, “Reciprocity is a key condition for the procedure, whereby the authority will collaborate with countries that refund VAT for UAE businesses visiting their territories,”.

Who is a foreign business visitor?

Al Bustani further added, “The procedure abides by Federal Decree-Law No. (8) of 2017 on VAT and its Executive Regulations, which call for refunding taxes on supplies or imports made by a Person not residing in the UAE or any of the Implementing States, provided they meet the necessary conditions,”.

The time period for which refunds can be claimed is one calendar year like, at this time as on April 1, 2019, FTA is accepting refund applications for the calendar year 2018.

However, in subsequent calendar years, the opening date for refund applications submission will be March 1 of the following year which interprets that acceptance o the refund applications will be commenced on March 1, 2020, for the period from January 1 to December 31, 2019.

Who can claim a VAT refund as business visitors?

The scheme states the following conditions under which foreign businesses will be eligible to recover VAT incurred in the UAE :

  • Foreign businesses must not have any place of establishment / fixed establishment in the UAE or any of the GCC states that implement VAT
  • They must be registered as an establishment with recognized authority in the jurisdiction in which they are settled
  • They must not be registered or a tax chargeable person in the UAE
  • They must be from a VAT implementing country which equally provides VAT refunds for UAE companies under similar circumstances

The UAE’s Federal Tax Authority (FTA) also clarified that businesses established in any of other GCC states are still eligible to submit a VAT refund application.

Who are not eligible to claim VAT refund as a business visitor?

It outlined three circumstances under which VAT cannot be reclaimed –

The first is if the foreign business is involved in making supplies to the UAE (except that the recipient is certified to account for VAT under the reverse charge system).

Secondly, if the input tax in terms of any goods or services is non-recoverable as per VAT legislation. Hence, not recoverable by a taxpayer in the UAE.

The third is if the foreign business is a non-resident tour operator.

The UAE implemented 5 % VAT on the supply of most goods and services in the country on January 1, 2018.

VAT Refund Scheme for Foreign Business Visitors in UAE

How To Manage Your End-of-year Input Tax Adjustments For VAT in UAE?

How To Manage Your End-of-year Input Tax Adjustments For VAT in UAE?

As the VAT (Value Added Tax) system in the UAE completes its first year, many businesses are engaged in analysing their tax liabilities and especially adjusting their end-of-year input tax dues, if any. Input tax recovery is generally made by partial exempt taxpayers who claim input tax for the supplies which are exempted.

Such taxpayers need to review their input tax records and the amount recovered over the last year to detect any mistakes and miscalculations.

The aim of annual input tax adjustment is to find and correct any fluctuations in the input tax recovery which has already been made during that particular tax year.

Here are a few tips and procedure to help you easily process your end-of-year input VAT adjustments.

Know your tax liability and period

The tax year is not always the same as the calendar year. For a taxpayer who files quarterly VAT returns, the tax year ends as per the following criteria.

  • If your tax period is ending on 31 January/April/July/October, the tax year will end on 31 January.
  • If your tax period is ending on the last day of February/May/August/November, the tax year will end on the last day of February.
  • If your tax period is ending on 31 March/June/September/December, the tax year will end on 31 March.

However, if you file monthly VAT returns, your tax year ends with the last day of the calendar year, i.e. 31 December.

You should calculate the end-of-year input tax adjustments and file the same in the first tax period of the following tax year. For instance, if the tax year is ending on 31 March for you, you should file adjustments in the June tax return.

How to know your end-of-year input tax adjustments?

Taxpayers who are eligible for input tax recovery against exempt or non-economic supplies must calculate their input tax amount/eligibility for each tax period.

This is how it can be done:

First of all, the taxpayer needs to filter out the expenses which were made on the tax-exempted supplies. Then, he/she needs to calculate the input tax which is to be incurred on the particular supply. Second, the taxpayer needs to calculate the input tax which is not attributed to any particular supply.

The same calculation must be repeated by the taxpayers at the end of each tax year in order to calculate and make input tax adjustments.

Actual use adjustment

Now that you have calculated the annual input tax recovery following the standard method explained above, you may now need to make the adjustment in the recovered input tax based on the actual use.

In the actual use adjustment, the availability of input tax is determined on the basis of the type of expenses on which the tax was recovered and the supplies for which these expenses were made in the first place.

The actual use adjustment is required to be carried out in case if the difference between the input tax calculation via these two methods (standard and actual use) is more than AED 250,000.

Capital Asset Scheme

Capital Asset scheme is a special scheme under UAE VAT designed to govern the input VAT recovery on large value capital assets which have long-term usage. Any assets or expenses with a value over AED 5 million (excluding VAT) and having a life of more than 5 years (10 years in case of buildings) qualify for the Capital Asset Scheme.

A taxpayer must confirm whether any of the expenses incurred by them on assets quality under this scheme. If so, they need to verify and adjust the amount of input tax recovered during the tax year against the use of the capital asset.

VAT in UAE: No VAT on Bank Deposit Interests And Dividends

VAT on Bank Deposit Interests And Dividends

The UAE’s Federal Tax Authority (FTA) expounded that income earned through Bank interest and Dividends are outside the scope of VAT in the UAE. These are passively earned interest income sourced from bank deposits/dividends and are not subject to value-added tax (VAT) in the country. So, there is no obligation to report them in the VAT return.

“VAT is imposed on the import and supply of goods and services at each stage of production and distribution, therefore, VAT implications arise only when there is a supply – if there is no supply, there is no VAT implication,” the FTA explained.

To understand more clearly let us take an example of a retail business which saves its income into a bank account to yield interest on the deposited amount then the interest earned is the income which arise from solely depositing the money in the account, & the income earned in the form of interest is earned passively because the businessmen put no efforts to earn this income.

For this, the retail business did not make a supply to the bank, and the interest income gained is not a consideration for a supply. It is simply a financial service as stated by VAT law.

“The UAE tax system stands out for its transparency and accuracy in all its procedures; it strives to establish a conducive environment, setting up all the necessary infrastructure and legislation to conduct business efficiently and effectively and ensure its growth across all sectors. This includes the banking and finance sector, which enjoys high confidence both locally and internationally while maintaining steady growth and contributing to economic development,” said Khalid Ali Al Bustani, director-general, Federal Tax Authority.

Under the VAT law, the payment or collection of any amount of interest and dividend is defined to be a financial service and is therefore exempt from VAT.

The rules under the VAT law implies:

  • Income derived in the form of interest from the bank is not deemed as supply and not accountable for VAT.
  • The interest gained from extending loans or credit are exempt supplies for VAT purposes and does not hold any such bearings.

On January 1, 2018, FTA fixed 5% VAT to be charged on the supply of other Goods and Services, and within the first year of implementation of VAT in the UAE, FTA witnessed a total of 296,000 business registration for VAT

The FTA foresees a “significant leap forward for the UAE tax system”, in 2019 and look forward to, further improvement in tax compliance rates, more registration among taxable businesses, and completely brush off the tax evasion.

No VAT on Donations, Sponsorships and Grants: Said FTA

vat on sponsorship

The FTA (Federal Tax Authority) has recently confirmed that VAT (Value Added Tax) will not be charged for donations, grants and sponsorships only in cases when they are made for no return benefit. It further added that if any benefit is received in the return of a donation, then VAT will be charged.

On the official website of FTA, a new update has been released by the authority on VAT treatment for donations, grants, and sponsorships in order to make the taxpayers aware about the changes in technicalities and procedures in the tax system.

FTA has today released a statement saying that the VAT eligibility for payments such as “donation”, “sponsorship” and “grant” cannot be simply determined by the definition, as businesses must consider the associated facts and terms before making a decision. Khalid Ali Al Bustani, Director-General FTA, further added that VAT has been designed such as to encourage charity and social activities with a focus on keeping the underlying principles in mind.

Consideration has been defined under Article (1) of the Federal Decree-Law No. (8) of 2017 on VAT as, “All that is received or expected to be received for the supply of Goods or Services, whether in money or other acceptable forms of payment.”

According to that definition, donations should not be treated as considerations only if no exchange of services or benefits is taking place.

FTA further said that payment in the form of donations and grants can be received by any registered taxpayer from any third party such as an employee, relative, customer and others. The eligibility of such payments for VAT will depend on whether these payments can be treated as a payment against taxable supplies/services.

As has already been clarified several times before, the VAT can be implicated only in the case when a taxable supply is made, as the definition of consideration is quite wide under the VAT system. If a donation, grant or sponsorship is made in exchange for a direct benefit in the form of a service, VAT would be levied on such payments. However, if a donation or similar act is made without any implied benefit or service, no VAT is levied on that.

In short, a donation or grant must be unconditional and unrestricted in order for it to be eligible for VAT exemption.

As an example, FTA said that if a business is donating money to a hospital and in exchange getting space to market its offerings/products/services, it would be considered as a taxable supply and VAT would be levied on the same.

Similarly, sponsorships are usually made in exchange for a benefit or supply, such as business advertisements or promotion, then this kind of supply would not be exempted from VAT.

UAE VAT Deregistration [Criteria & Disadvantages]

UAE VAT Deregistration

The VAT UAE Laws provide registered taxpayers (including voluntary registrants) and companies with provisions for VAT deregistration too. An entity can apply for deregistration if the annual turnover did not exceed Dh187,500 ($51,000) 13 months after registering with the FTA.

The VAT UAE Deregistration Criteria

Under the VAT Decree Law and Executive Regulations, VAT Registered Taxpayers and companies must fulfill the below criteria to put into motion the VAT Deregistration:

  • Total Taxable Supplies within 12 months from the date of VAT registration do not exceed Dh187,500.
  • Anticipated taxable supplies for the succeeding 30 Day period starting from the end of tax year will also not make cumulative taxable supplies or expense cross the Dh187,500 threshold.

If the above two criteria hold true for a particular entity, taxpayer or company, it can apply for deregistration.

Note: Failure to do will attract an administrative VAT deregistration penalty of Dh10,000.

The Tax Year in UAE

Tax Year varies with respect to the date of application for Tax Registration. To cite an example, if the applicant applied for voluntary registration on May 1, 2018, his/her tax year will end on April 1, 2019.

In the above case if the registrant has not made supplies equal to Dh187,500 for the tax year. And has also assessed his supplies and expenses for the next thirty days (ending on May 30) to be confirmed that the, an application for deregistration can be made before June 20.

Reportedly, more than a few thousand companies in UAE will file for deregistration owing to liquidation or any of the above-mentioned criteria. Accordingly, a number of companies will apply for registrations as they meet the registration criteria for the first time this year.

VAT Deregistration Disadvantages

One of the primary disadvantages would be the inability of businesses to make VAT input claims on supplies made by them. This will make their supply dearer by a considerable fraction which may force VAT-registered customers to look for other alternative suppliers.

Moreover, non-registered businesses would be required to pay VAT against inventory and assets procured while they were registered under VAT. This would be applicable irrespective of any VAT Claims on them.

All such supplies would be treated as deemed-supplies or self-supply of assets from date of deregistration. Hence, Businesses need to be careful while applying for deregistration.

However, there are a few underlying benefits of deregistration too. The primary among this is that they can make supplies to unregistered individuals and businesses at cheaper rates than their registered counterparts.

Also, businesses would not have to pay VAT Compliance Fees. However, experts say that the nominal threshold limit will mean that very few businesses will be eligible for deregistration.

7 Business expenses on which Input VAT can be recovered

7 Business expenses on which Input VAT can be recovered

VAT Regime was introduced in UAE on January 1, 2018. It has been almost one year in the introduction of VAT in UAE and we are pretty sure that businesses enterprises are aware of how to claim for the Input VAT recovery.

The UAE government also has clearly mentioned the conditions for the businesses while there is also a detailed list expense wherein the businesses are allowed to recover the Input VAT.

The eligibility of Input VAT has clearly mentioned under the VAT regime. However, there are various types of expenses which people might think not directly related to outward supplies but VAT has allowed people to claim Input VAT recovery on it.

In this article, we are going to tell you about 7 types of expenses which have been frequently incurred by the businesses and they are eligible to recover Input VAT on it.

Input VAT Recovery on 7 business expenses

1. Food and drinks For Customer or clients

If an employer has offered lunch, soft drinks, coffee or any kind of beverages to the customers during the course of the business meeting then the businesses are liable to claim for Input VAT. If providing additional benefits to the customers by presenting gift, movies or lunch in this case businesses would not be liable to claim input VAT on it.

From the above definition, it is clearly stated that the VAT regime allows taxpayers to claim Input VAT on the entertainment expenses only if it is incurred during the course of business meeting otherwise it is totally restricted.

2. Fuel expenses

For instance, if you deal in supplying goods and on the daily routine basis you incurs petrol expenses to deliver goods to the customers in this condition businesses would be allowed to recover input VAT. However, it can be applied in both personal and professional purpose. It is quite difficult to evaluate and distribute the Input VAT recovery. People who are working in the marketing field are allowed to claim petrol expenses.

3. Employee Conveyance Expense

Under the Employment Contract Act, it is clearly mentioned that the conveyance facility should be provided to the employees during the late night hours which includes ‘To’ and ‘From’ the office. Here the business can claim for the petrol expenses incurred by them under the VAT regime.

Reason being a contractual obligation or the documented policy of the organization which has included the said services to the employees for assisting them in performing job responsibility and is a normal business practice.

4. Visa to employee Expenses

The Visa Cost of expat employees has been incurred by businesses in UAE and they pay 5 percent of the cost of Visa. Therefore, businesses would be allowed to recover the input VAT on such kind of expenses. Here, the Visa cost incurs by business enterprises allow employees to perform his duties and it is a normal course of the business activity.

5. Employee Medical insurance Expenses

Businesses in Dubai provides health insurance facility to their employees and pay 5 percent VAT on it. Under the VAT regime, the business can claim for the VAT paid on medical insurance which should be compulsorily provided to the employees.

6. Expenses on legal consultation

In case a business firm indulged in the supply of taxable goods has paid Value added tax on the legal fees on a continuous basis for getting legal consultation service from a legal consultancy, is entitled to get the VAT paid on legal services by the business firm even if it is not directly attached to the supply of goods.

Reason being the non-necessity of link each & every purchase with the outward supply within the business unit as various purchases such as the legal consultancy is used by the business firm other than the supply

7. Service industry Capital Expenditure

For instance, law-based firm deals in supplying taxable services has purchased the new furniture or office table for its employees. Although, the law firm has been using the furniture or table to perform its taxable activities so the law firm is liable to claim for the input VAT incurred on purchasing the new furniture.