UAE Introduces Tourist Refund Scheme on Goods Purchased

FTA Approves VAT Refund Scheme for Tourists in UAE

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).

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. 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.

Related Article:

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.

Related Article:

VAT Refund Scheme Proposes Four Conditions for UAE Retailers

vat-refund-scheme-conditions-for-uae-retailers

The Tax Refund scheme for Tourists will come into effect this year under which the Federal Tax Authority (FTA) reported Four conditions for UAE retailers to enroll in the online system eventually becoming effective as in the final quarter of this current year.

  • Every person must be enlisted with FTA and have a tax registration number (TRN).
  • Refund scheme must not exclude the goods sold by suppliers.
  • The retailer must present a demand to take an interest in the plan as controlled by the FTA.
  • The retailer must meet the money related credit necessities determined by the framework administrator and be focused on submitting Tax Returns and making regular payments of due taxes.

The Specialist is actualizing the Scheme in collaboration with Planet, government’s exclusive tax refund operator.

In a press articulation, the Federal Tax Authority adviced that a retailer’s participation in the Tax Refund Scheme for vacationers would be renounced in the event that they neglect to meet their commitments, regardless of whether those expressed in tax laws or in the agreement between the framework administrator and the retailer.

Khalid Ali Al Bustani, director-general, Federal Tax Authority, attested that a previous couple of days saw an awesome interest for enlistment in the Tax Refund Scheme for sight-seekers.

“The system operator will coordinate between retailers registered in the tax system and wishing to register for the Scheme, connecting them with ports of entry and exit all around the UAE,” he explained.

“This, in turn, allows tourists who are eligible for a tax refund – as per the terms and conditions of the Cabinet Decision – to request a refund for taxes incurred on their purchases through a state-of-the-art digital system.”

Read Also: Will VAT Apply on Pre-Owned Items in UAE

He said that there must an agreement with retailers to furnish the Planet with the innovations that should have been a piece of Scheme, which connect this business to the advanced framework of the Federal Tax Authority, and also aeroplane terminals and land and ocean ports. A designated place for sight-seekers is created by Scheme where they can apply for a tax refund and effectively recoup the qualified refundable amounts, which will be precisely computed through the advanced digital system.

A meeting is hosted by the FTA on September 25 in Ajman in which there will be an effort for maintaining direct and constant communication with organizations, and acquaint for enlisting in the Tax Refund Scheme for sight-seekers, Al Bustani included.

“We have seen strong enthusiasm from retailers, outlets and shops across the UAE to register for the scheme, and look forward to seeing registrations grow,” said Gary Byrne, director of Worldwide Strategic Partnerships & New Markets at Planet.

Read Also: Procedure for Filing VAT Returns in Dubai, UAE

Nimish Goel, partner, WTS Dhruva Consultants, said in accordance with the best worldwide practices, the UAE has likewise embraced a key measure to enable refund of the VAT to global sight-seekers. In any case, the key will be execution i.e. instructing and on additionally onboarding retailers and an effective system to concede refunds to visitors.

“Looking at the latest initiatives and developments from FTA, I believe this will continue to support the tourism in the country,” Goel added.