Federal Tax Authority UAE Begins New Digital Tax System for Tobacco Product in 2019

FTA UAE Begins New Digital Tax System

To collect taxes and combat tax avoidance, the Federal Tax Authority (FTA) is ready to launch a tax control system in UAE for tobacco products as per the Decision No. (42) of 2018. To roll out the single integrated set, the scheme is ready to be implemented in alliance with the applicable authority, which guarantees the protection of rights and responsibilities of a taxable person and also to ensure the procedures that will balance their relationship with the authority.

Penalties

The Federal Tax Authority (FTA) told that penalties will be imposed on:

  • Tobacco suppliers must obey the new scheme to avoid the administrative penalties which will be into effect at the starting of 2019, which also includes a ban on disobedient businesses and they cannot do any commercial activity until they obey the system fully.
  • Violation of the procedures which include the fines imposed on a person who own tax goods that does not carry any digital stamp, or who allows the use of their facilities to sell the products.
  • The person who prints on these goods, or interfere with the stamps placed on them.
  • Those who fails to declare the transfer of tax goods
  • The person who fails to obey the safe-storage requirements for the stamps.
  • The person who accepts unofficial trading, exchange, sale or supply of stamps
  • The person who reused the previously used stamp.

Recommended: 100% tax To be Levied on energy drinks and tobacco in UAE

Why a Digital Tax Stamp?

FTA Director General His Excellency Khalid Ali Al Bustani said: “Cabinet Decision No. (42) of 2018 On Marking Tobacco and Tobacco Products complements the UAE’s tax legislation infrastructure, which is one of the most advanced in the world. It was developed following extensive studies and offers simple procedures to help businesses comply with tax obligations.”

FTA explained that the Cabinet decision defined the procedure to be followed to apply the stamps on tobacco products and specify that the required tax has indeed been paid. On specific products and exact position determined by the authority, the stamp must be applied which was also authorised to determine cases where stamps are not required. Stamps must be placed onto tax goods (after packaging) at the facility where they are produced (if manufactured in the UAE), or importing them to foreign countries, the decision specified.

Placement and Supply of Stamp

The shape of the stamp can be determined by the authority, as per the cabinet decision and the condition for applying it, which includes determining the cases where no stamps is required, the method of placing the stamp and its location on the tax good in question.

To purchase the stamp, the decision need the importer or local producer to issue an order according to procedures surrounding the supply of the stamp which is predefined by the authority; which indicates that the accepted supplier must supply the stamps to the importer or local producer, according with the procedures agreed between the approved supplier and the FTA. These stamps cannot be traded, exchanged, sold or supplied by any other individual; To supply the stamps directly to the particular producer of tax goods, which may also include foreign producers, requested by the importers across the UAE about approved supplier.

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

Due taxes are set on the stamp by FTA, which must be paid by the supplier before stamps are issued.

The decision of the Cabinet specified the procedure for identifying and tracking the origin of specific tax goods (tobacco and tobacco products), which indicates that local producers/importers/persons who are designated in the supply chain have to keep the records of the transfer of all the tax goods ro and within the UAE during the period in which they are in control of these goods. This includes (but is not limited to) entry of said tax goods into the control of the local producer/importer/ Person designated in the supply chain, as well as the measured transfer of these goods within the UAE, until they exit the control of said local producer/ importer/person designated in the supply chain.

Any person who is dealing with the questions of tax goods and who is required by the FTA to document the movement of these goods is known as the “designated person.”

All local producers/importers/Persons designated in the supply chain must register and declare the tax goods they sell, store, transfer, buy, or process. Meanwhile, customs agencies are tasked with verifying stamps on tax goods entering the UAE.

FTA Approves VAT Refund Scheme for Tourists in UAE

FTA Approves VAT Refund Scheme for Tourists in UAE

The Federal Tax Authority (FTA) has granted its consent for implementing a VAT refund scheme for tourists in the UAE. The Tourist Refund Scheme which will be start in November 2018. The refund of the VAT paid by these tourists during their time in the UAE will be made available through various points of sales and outlets throughout the country.

The FTA declare UAE’s Federal Tax Authority has appointed Planet as its exclusive tax refund operator for the Tourist Refund Scheme which will be rolled out in November 2018.

“We wish to invite you to an event organised by the FTA and their exclusive tax refund operator, Planet, who will be operating the Tourist Refund Scheme,” said the invite

The decision was taken during the fifth meeting of the FTA which was held this Wednesday. The authority also said that the number of VAT registered businesses has increased to 281,00 while stats for excise tax registration stand at 637, as per latest data. Read More

Simplified VAT Refund Process Rolled Out For UAE Nationals

Simplified VAT Refund Process Rolled Out For UAE Nationals

The refund of Value Added Tax (VAT), for UAE nationals who are building new residences, have been clarified with electronic procedures, announced by Khalid Ali Al Bustani, the Director- General of the Federal Federal Tax Authority (FTA) on 16th October 2018.

Through a press release, the announcement was declared in which the update was given about the VAT refund process for Emirates building new residences. Al Bustani said, “The happiness of UAE citizens is the top priority for the Federal Tax Authority. We are committed to implementing our services through the most advanced, innovative, and easy-to-use digital systems.”

Special care has been taken for not raising the burden on the UAE’s citizens and residents said the UAE legislator. The primary rate of VAT as supply in the real estate (sale or rent) industry is 5 per cent, excluding the first three years of construction is subject to zero-rated VAT.

Specific benchmark and documents have been recognised by the authority that must be attached to petition to claim VAT, said Al Bustani, and to make sure that the VAT recovery is given to the citizen who meets the conditions.

Three key conditions have been noted by the authority about the refund procedure, which can be completed on the FTA website:

  • Only Emirati National applicants can apply
  • Only the applicant and/or their family can use the residential unit
  • The VAT refund will only include the money spent on units of the residence, such as amount paid for building materials.

Read Also: Federal Tax Authority Clears up VAT on Compensation Payment

The FTA stated that four simple electronic steps carry recovery request procedure, including:

  • First, From the FTA website, the VAT refund form must be downloaded
  • Second, print out the completed form (as handwritten forms are not accepted), and sign.
  • Third, scan the completed and signed form, along with supporting documents, and then submit them in PDF format to homebuilders@tax.gov.ae within the six-month period following the completion of the construction work. The supporting documents include a copy of the applicant’s passport and Emirates ID, as well as the paperwork proving his/her ownership of the plot of land in question, such as utility bills, which must also include the date of completion.
  • Fourth, the applicant must submit the request as mentioned on its official website.

After submission, an email will be sent to the applicant saying that the authority has received the documents. Within five working days, another email will be sent to inform the applicant whether they are qualified for the refund or not. Those who are eligible for the refund, will have to provide a reference number issued by FTA for the application in question.

“Global tax practices have underscored the importance of extending VAT on goods and services, reducing exemptions and exceptions in the system to preserve tax revenues and prevent tax evasion practices,” Al Bustani said.
“It would be difficult for contractors and construction consultants involved in the procurement process to track what is exempt from the VAT. This is why the authority cannot allow the contractor to determine when the tax is collected, as it could lead to the possibility of tax evasion,” he added.

A VAT refund application is accepted 20 days from the date of receipt of the application and supporting documents, adding five working days more for the delivery of the refund to the successful applicant.

Federal Tax Authority Clears up VAT on Compensation Payment

FTA Clears up VAT on Compensation Payment

If the payment is not related to the supply of goods and services then the payments will not be levied with the 5 per cent VAT, clarified the Federal Tax Authority (FTA) on compensation type payments.

As a part of business agreements, businesses that make payments to compensate each other for any negligence, loss or other errors must not be included in the VAT taxation as they are contradictory to the supply of services definition.

The FTA noted that under Article (2) of Federal Decree-Law No. (8) of 2017 on Value Added Tax, VAT is inflicted, among other things, on taxable supplies of goods and services, was stated in recent press. Taxable supply is defined in Article (1) of the same Law as a “supply of goods or services for a consideration by a person conducting business in the UAE and does not include exempt supply”.

Read Also: VAT in UAE: What Are Exempt Supplies under VAT

To govern the reason for the payment, it is important to appraise the contractual and legal arrangements fully and to decide whether a payment is considered a supply or not:

  • It is important to appraise whether the consideration of payment is agreed for past goods and services.
  • For creating new supply of goods and services, it is considered.
  • If for a supply, the past agreed-upon consideration calibrate the payment.
  • If rights are granted between two parties in return for a payment.
  • In return for a payment, a party is encouraging a not to exercise a right.
  • If anything is given in return for a payment by a party.

Under the liberty of UAE VAT Law, the damages do not fall for any provision of goods and services since such payments do not give considerations but for the loss of earnings, party can be remunerated. Liquidated damages is referred as the amounts which are commonly to remunerate the loss of earnings. They are outside the scope of VAT, as they are not consideration for supplies.

Any payment is not included in this, which are made towards termination of rights for the supply of services or goods, and accordingly fall under the aim of UAE VAT Law. Hotel charges cancellation fee is the example of this.

He added that, payments for compensation against any loss, negligence or other errors must not be treated as a consideration for a supply and must be outside the aim of UAE VAT Law.

VAT in UAE: What Are Exempt Supplies under VAT

VAT Exempt Supplies in UAE

What is Exempt Supplies

In simple words, VAT is not collected as there are some exempted goods and services informed in UAE executive regulations. This implies, VAT is not charged, on supplying these goods and services. By definition, exempt supplies are defined as ‘supply of goods or services for a consideration while conducting business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law ‘.

Then again, businesses supplying these exempted goods or services will not be permitted to guarantee the input tax paid on your purchase. For example, the manufacturer cannot claim the 5 per cent input VAT which was levied once at the time of purchasing the raw material used for production and thus adding it to the cost of the product.

List of VAT Exempted goods and services in UAE

Predominantly, UAE VAT exemption is given for certain financial services, residential building, and supply of bare land, local passenger and etc. The specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled to consider a supply as exempted from the VAT.

The list of the VAT exempted goods and services is:

1. Financial Services

The financial services under VAT exemption supplies are:

a. Exempted financial services which are not connected are discount, commission, in return for an explicit fee, and rebate or any similar return.

b. VAT rate exemption includes allotment, issue, or transfer of ownership of an equity security or a debt security.

c. Under VAT exempted list, the provision or transfer of ownership of a life insurance contract or the provision of reinsurance in respect of any contract.

But how would I know whether an activity or service which I am giving is a financial service? How can financial services be defined?

Yes, Financial service is not defined by the UAE VAT Executive Regulation, but the examples which amount to financial services has been listed down.

Financial services are defined as the services which are linked to dealing in money or its equivalent and the provision of credit. Examples of financial services are Exchange of currency issue, advance or credit, provision of any loan, deposit or savings account, the operation of any current etc.

Kindly note, all the financial services discussed above are not exempted from VAT. Taxable supply would be considered if any of these services will be conducted in return for an explicit fee, discount, rebate, and commission or similar as inspection in respect of the supply of services.

2. Residential Buildings

VAT exemption subject includes the supply of residential buildings subject to the following condition:

a. The contract is of more than 6 months or

b. The holder of an ID card issued by the Emirates Identity Authority is the inhabitant of the property

The above referred period of tenancy will be identified with reference to the contractual period of tenancy and the period of tenancy is extended or it is renewed or any period arising from a contractual period of tenancy will be included.

The residential building meant for human accommodation referred to building includes residential accommodation for students or school pupils, armed forces and police, nursing homes, principal place of residence, rest homes, and orphanages.

All the residential accommodation which are inside the meaning of residential building and fulfilling the above conditions are VAT exempted.

Does the buildings which are not considered as a residential building exists?

Yes, and below are the examples of non-residential accommodations which are not considered as residential buildings:

Any building that can be moved without being damaged which is not fixed to the ground.

Any building that is utilized as a hotel, motel, bed and breakfast establishment, or hospital or something like that.

In addition to the supply of accommodation, a service is provided to a serviced apartment.

5% of VAT will be applicable in all the cases mentioned above and any building which will be constructed or converted without any lawful authority.

3. Bare Land

‘Bare land’ is defined as the land that is not covered by complete buildings or civil engineering works or partially completed buildings.

4. Local Passenger Transport Services

From a place in the State to another place in the State will be exempted if the supply of local passenger transport services will be by land, water or air. VAT exemption will occur in means of transport such as motor vehicle including bus, tram, taxi, monorail, abra, railway train, ferry boat or other similar vessel or similar means of transport, designed or adapted for transport of passengers.

In accordance to the Civil Aviation Act, for transportation of passengers via helicopter or aeroplane which are designed or adapted and approved for transportation of passengers is exempted.

As mentioned in UAE executive regulation, neighbourhood traveller transport benefits with regards to leisure trip and nearby traveller transport benefit via aeroplane which establishes “international carriage’ is not exempted and 5% VAT will be levied.

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VAT in UAE: What Are Zero-Rated Supplies under VAT

VAT-in-UAE-What-Are-Zero-Rated-Supplies-under-VAT

VAT is charged at zero rate on taxable supply and this is known as zero-rated supplies in UAE VAT. The specified goods or services which are listed under zero-rated list are charged at zero rate. It includes the nature of supply, despite the goods and services supplied.

Mostly, zero-rated supplies will include all exports of goods and services in UAE. Under the UAE executive regulations, there are set of conditions laid to qualify a supply as zero-rated which needs to be met for charging zero-rated tax:

List of Zero-rated VAT goods and services in UAE

Here is the list of zero-rated VAT goods and services in UAE. However, as mentioned above, the condition mentioned in UAE executive regulations needs to meet in order to consider the following supplies as zero-rated supplies:

  1. To all direct and indirect export of goods and services outside the non VAT States
  2. Telecommunication to be exported
  3. For Passengers and Goods there must be International transportation services including all other transportation-related services
  4. The metal is in the form which is tradable in global bullion markets and the metal purity of gold, silver and platinum must be 99% which are supplied or imported for investment precious
  5. Residential buildings intended and designed for the human occupation which includes Residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes and rest homes
  6. Charity buildings
  7. Educational services
  8. Healthcare Services

Does Zero-rate supplies and Exempt supplies in UAE VAT have any difference?

The above question is obvious because the final conclusion of zero-rated supplies and exempt supplies are similar, i.e. VAT is not charged on the supply.

Although the VAT rate is at zero percent, they have differential treatment in declaring input tax credit (ITC). While purchasing goods or services which are supplied as zero-rated supplies, you are permitted to utilize the VAT paid as ITC and set-off against your output responsibilities. You will not be allowed to claim ITC on VAT amount aid on your purchase, in case of exempt supplies.

The zero-rated supplies and exempt supplies are expected to be reported separately n VAT return. The VAT Return is yet to be made available.
So, the zero-rated supplies must be understood by businesses to know the difference between zero-rated and exempt supplies because the reason why VAT is not charged in each of these cases is different. This will help the business in making an accurate claim of ITC and filing VAT returns.

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