VAT

A foreign business may be entitled to refund of VAT paid in certain instances subject to fulfillment of conditions.

Who can claim a refund?

• The foreign business which does not have a place of establishment or fixed establishment in the UAE or an Implementing State; They are not a taxable person in the UAE;
• They are registered as an establishment, with a competent authority in the jurisdiction in which they are established;

They are from a country that has VAT and which also provides refunds to UAE entities in similar circumstances.

The real estate guide issued by the FTA has clarified certain aspects associated with real estate transactions in the UAE such as mixed-use development of the real estate, VAT applicability on various types of supplies between landlords and tenants, VAT refund for new residences of a UAE national, supplies of bare land and commercial real estate, supplies associated with the construction industry, etc.

Services provided by a director (where he is not simply an employee of the company) should be taxable if the director undertakes services on a regular, ongoing and independent basis (such as an individual who acts as an executive or non-executive director on a board or a number of different boards) subject to threshold conditions.

Supplies of real estate which include sale and lease of real estate are treated as supply of goods. The place of supply in case of such supplies is where the real estate is located. The real estate is not treated as consumed when sold or leased within a Designated Zone and therefore such supplies of real estate are outside the scope of UAE VAT.

A Tax Group can be formed between an entity based in the UAE mainland and another based in a Designated Zone subject to fulfillment of conditions. The supplies made between these two entities would be disregarded for VAT purposes. However, where a supply of goods between the tax group members results in movement from a Designated Zone to the UAE mainland, this importation of the goods would trigger the obligation to pay import VAT and accordingly VAT under the reverse charge mechanism would need to be accounted for by the tax group registrant.A registrant may have a branch or head office located in a Designated Zone and a branch or head office located in the UAE mainland. The supplies made between different parts of the same legal entity are to be disregarded for VAT purposes. Further, where a supply of goods between the head office and branch results in movement from a Designated Zone into the UAE mainland, this importation of the goods would trigger the obligation to pay import VAT and accordingly VAT under the reverse charge mechanism would need to be accounted for by the registrant.

In a case where an employer provides health insurance to the family of the employee, input tax will only be recoverable by such an employer if there is a legal obligation to provide such insurance to the family members. In case there is no legal obligation by the employer to provide such services, the input tax on such expenses would not be recoverable by such employer. A contractual obligation between the employer and employee to provide such services is not relevant to claim input tax under this scenario.

In case of travel insurance, the supplies shall be subject to VAT at the standard rate where the recipient is a resident in the UAE. The said services shall be zero-rated if the recipient is resident outside the GCC implementing states, is located outside the UAE and the performance of the insurance services is not received by anyone in the UAE who would not be able to recover VAT incurred.

The FTA has accepted that the standard method of input tax apportionment as provided under the UAE VAT laws may not be appropriate in every situation and may give rise to outcomes that might not be reflective of the actual use of goods or services by the business. Consequently, the FTA introduced a number of alternative methods of input tax apportionment to be used where the standard method does not provide an outcome that is reflective of the actual use of the acquired goods or services.

The input tax apportionment methods which are available to taxable persons are the Outputs-based method; Transaction count method; Floor space method; Sectoral method.

The above methods can be used by the specified sectors of industry subject to fulfilling specific condition however, prior approval of the FTA is required.

Although it is not compulsory for a VAT-registered person to apply for a special apportionment method, any taxable person may be required to perform annual wash-up calculations as prescribed in the guide and then possibly decide if it needs to apply for the special method.

The FTA clarified certain sundry expenses on which input VAT can be claimed by businesses such as tea, coffee, dates, chocolates or equivalent snacks available in the office or provided during meetings for general use by employees and non-employees for no charge and flowers for display in reception areas, offices or for decoration during special events.

The FTA also clarified certain instances wherein input VAT on costs incurred by an employee would be recoverable by a business: where an employee is on a domestic business trip and requires overnight accommodation, the VAT incurred on e.g., hotel costs; or input tax incurred on subsistence costs e.g., food and drinks purchased by the employee for their own consumption during the business trip.

The FTA has clarified that passively earned interest income generated from bank deposits does not amount to consideration for a supply. Similarly, dividend income received by merely holding shares in a company does not constitute consideration for a supply. Accordingly, such supplies would be out of scope for VAT purposes.

The above clarification is restricted only to interest earned from bank deposits. Interest income generated from extending loans and credit would continue to remain exempt supplies for VAT purposes.

Further, any amount charged as a “management fee” would be subject to VAT. For example, management fees charged by a holding company to its subsidiaries would be subject to VAT.

The FTA issued this decision clarifying that in the case where the mailing address of the recipient of goods or services was included on the tax invoice or tax credit note, such a tax invoice or tax credit note may not include the physical address of the recipient of goods or services.