UAE has over the last decade gained widespread recognition as one of the most popular tourist hubs in the world. Its city of Dubai is every shopper’s delight and on top of every global tourist’s list.
And there is more good news for shopaholics as the Arab Emirates is on its course to set all limits and restrictions on tourists’ VAT refund to zero. Reportedly, the UAE had introduced VAT on January 1, 2018. The provision for limitless tourist vat refund UAE has come into effect from Sunday, November 18.
Planet, an International payment service provider, will be a global operator of the refund system. on behalf of UAE’s Federal Tax Authority (FTA).
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What is the tourist refund scheme?
The tourist refund scheme is a part of VAT reform in the UAE under which the ‘overseas tourist’ is allowed to claim a refund of the VAT paid by them on the purchases they incurred during the visit of UAE. Any type of taxes or (VAT) born by ‘overseas tourists’ on purchases made in UAE, a refund will be provided to them.
Who is an ‘overseas tourist’?
Here, an overseas tourist means an individual who is not the citizen of any of the GCC VAT implementing State as well as who is not a crew member of flight or aircraft any of the GCC country in implementing State. So, tourists from a GCC country.
Here are a few highlights of the UAE VAT refund scheme for tourists:
- Tourist will get 85% of the total VAT claims. The remaining 15% will go to Planet as administration fees.
- For cash related refunds, the VAT UAE Tourists will be allowed Dh10,000 in cash. Post this, part of the remaining refunds will be transferred electronically to tourists.
- The remaining amount will be transferred to a bank account, debit or credit cards.
- 4500 companies have so far registered under the UAE VAT refund scheme. Planet expects this number to shoot up to 6000 by end of this year and reach 10,000 by early next year.
Out of the total companies registered under the scheme, most are from electronics, gold traders, general traders, souks.
The Malls and Retail Groups
As part of the preparation, the UAE government has already engaged at levels to bring malls, retail groups, and others on board. All malls and retail groups have agreed for a refund. Most of the VAT refunds will in all likelihood be made on gold jewellery, electronics, and luxury goods.
Note that Minimum retail purchase liable for VAT refund claims is Dh250
For VAT claim Eligibility retailers must:
- Comply with credit check and timely settle all tax payments
- Submit VAT returns corresponding the claims.
Terms and Conditions
For claiming VAT refunds in the UAE, tourists have to fulfill all the conditions that are mentioned below:
- Tourist is Entitled to Purchase Goods from a retailer who has been registered in the Tax Refund for Tourists Scheme(PDF)
- Goods Purchased must not be exempted from the Refund Scheme of the Federal Tax Authority
- Tourists have to export the purchase goods out from the UAE within three months from the date of supply
- The tourist must have an explicit intention to leave UAE in 90 days from the date of supply, along with the purchased supplies
- Tourist is entitled to follow the requirements and procedure of the Federal Tax Authority while purchasing and exporting the goods.
The Impact of Refund Scheme
UAE enjoys global repute as a shopping destination and the VAT refund Scheme will further strengthen this scheme. The scheme covers many if not all goods sought by tourists. This will boost sales and keep the tourists a little longer than usual on the UAE soil. This will UAE doors welcome for tourists. Inbound tourism to Dubai and the UAE is expected to shoot up by fractions due to the foresightedness of the government officials.
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.
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.
“In Europe, you can get tax refund only at the airport when leaving the country. In Japan, tourists can get refunds immediately at retail outlets while shopping after submitting certain documents such as the passport or outward travel air ticket copies, etc. In the UAE, it seems it will be a blend of what happens in Europe and Japan,” said Mayank Sawhney, managing director, MaxGrowth Consulting, explaining that .different countries have different tax refund systems in place.
The UAE is likely to enable specific outlets and money exchanges, most probably at airports and nearby areas, where foreign tourists can go and get a refund of taxes after producing required documents proving their entitlement to claim tourist refunds.
“So these are some of the options the FTA may be considering, because they will not want long queues of tourists at UAE airports waiting to get the refund, given the huge number of tourists who come to UAE every year,” Sawhney said.
In the first phase of implementation, the digital system for VAT Refund will be established at Dubai, Abu Dhabi and Sharjah airports. The system will be further expanded to cover all major airports, sea and land ports in the country and will be fully operational by mid-December. Tourists, who have valid tax invoices issued after November 18, would be able to claim a refund on the same.
How to claim tourist tax refund?
- In order to claim a refund of taxes paid by them in the UAE, the tourists will have to show their original passport to the authority.
- Some retailers may also ask for the passport from tourists and not charge tax on their supplies.
- Therefore, it would be advisable for tourists in the UAE to carry their passports with them all the time.
Some tax experts believe that all the retailers in the country would be associated with the tourist refund system so that they can decide VAT liability at the time of supply. The authority may alternatively establish designated refund processing centers at various public places such as malls.
“The retailers will be able to directly issue refunds to tourists when they are buying the goods subject to the guidelines provided by the FTA. Guidelines will be issued for retailers to get registered and they will have to follow certain process for issuing any such tax refunds. It means, the retailers will have to retain a copy of tourist’s passport or visit visa, etc. as a proof to submit to the FTA for tax refunds,” said Nirav Shah, director, Fame Advisory. He is assuming that the tourist tax refund system may be implemented by 2018’s third quarter.
Some experts are also claiming that tax refunds to tourists will be available through airports, seaports, border ports and all other major ports and customs terminals. Anurag Chaturvedi, partner, Crowe Horwath expects the refund system to be implemented by the end of 2018’s second quarter.
Overall, the FTA’s decision to release a refund of taxes paid by tourists is being appreciated by various industry experts as the right move to help re-establish Dubai as a preferred shopping destination.
The VAT had caused an increase in the prices of many supplies in the UAE resulting in a drop in the demand but the tax refund system for tourists will definitely help the nation get back its reputation as a popular tourist destination.