UAE VAT, GST, and Sales Tax Guide

United Arab Emirates

Dubai GMT +4

EY

ICD Brookfield Place Al Mustaqbal Street Dubai International Financial Center P.O. Box 9267 Dubai

Indirect tax contacts

Aamer Bhatti +971 50 8050 757 aamer.bhatti@ae.ey.com

Sana Azam +971 54 305 4736 sana.azam@aey.ey.com

Stuart Halstead +971 4 701 0621 stuart.halstead@ae.ey.com

Abu Dhabi GMT +4

EY

Nation Tower 2 Corniche P.O. Box 136 Abu Dhabi

Indirect tax contacts

Sana Azam +971 54 305 4736 sana.azam@ae.ey.com

James Bryson +971 56 199 2349 james.bryson@ae.ey.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Value-added tax (VAT)

Date introduced 1 January 2018

Trading bloc membership Gulf Cooperation Council (GCC) Greater Arab Free Trade Area (GAFTA)

Administered by Federal Tax Authority (FTA) (www.tax.gov.ae)

VAT rates

Standard 5%

Other Zero-rated (0%) and exempt

VAT number format

VAT return periods

Quarterly General rule

(15-digit combination)

Monthly Determined by the Federal Tax Authority (FTA) at its discretion based on size and sector of the taxable person

Thresholds

Registration

Mandatory AED375,000 Voluntary AED187,500

Deregistration

Mandatory AED187,500

Voluntary AED375,000

Recovery of VAT by non-established businesses Yes (for residents of jurisdictions and subject to conditions)

B. Scope of the tax

VAT applies to the following transactions:

• The supply (and deemed supply) of goods and services made in the United Arab Emirates (UAE) by a taxable person

• The acquisition of goods from another Gulf Cooperation Council (GCC) Member State by a taxable person

• Reverse-charge services received by a taxable person in the UAE

• The importation of goods into the UAE, regardless of the status of the importer

Designated Zones. A “Designated Zone” specified by a decision of the cabinet shall be treated as being outside the UAE and outside the GCC, subject to the following conditions:

• The Designated Zone is a specific fenced geographic area and has security measures and cus toms controls in place to monitor entry and exit of individuals and movement of goods to and from the area

• The Designated Zone shall have internal procedures regarding the method of keeping, storing and processing of goods therein

• The operator of the Designated Zone complies with the procedures set by the authority

Note that not all Free Zones in the UAE qualify as Designated Zones for VAT purposes.

A transfer of goods between Designated Zones shall not be subject to VAT if the following two conditions are met:

• Where the goods, or part thereof, are not released and are not in any way used or altered during the transfer between the Designated Zones

• Where the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law

Where goods are moved between Designated Zones, the FTA may require the owner of the goods to provide a financial guarantee for the payment of the VAT, which that person may become liable for, should the conditions for movement of the goods not be met.

If a supply of goods is made within a Designated Zone to a person to be used by him or by a third person, special rules apply. The place of supply shall be the UAE unless the goods are to be incorporated into, attached to or otherwise form part of or are used in the production or sale of another good located in the same Designated Zone that itself is not consumed.

The place of supply of water or any form of energy shall be considered to be inside the UAE if the place of supply is in a Designated Zone.

Goods located in a Designated Zone on which the owner has not paid VAT will be treated as imported into the UAE by the owner, with VAT chargeable subject to normal rules if the goods are consumed by the owner. An exception to this applies where these goods are incorporated into, attached to or otherwise form part of or are used in the production of another good located in a Designated Zone that itself is not consumed.

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Any person established, registered or who has a place of residence in a Designated Zone shall be deemed to have a place of residence in the UAE for the purposes of the VAT law.

There are minimal special rules or exemptions for services rendered in Designated Zones. If the place of supply is in the Designated Zone, the service is considered to be provided within the UAE. This means that services provided in a Designated Zone may be taxable under the normal VAT rules. A special rule does, however, exist for certain services related to the shipping and delivery of goods supplied within a Designated Zone or moved from a Designated Zone to a loca tion within the UAE.

C. Who is liable

A “taxable person” is any person registered or required to register for VAT in the UAE.

Every individual/business who has a place of residence in the UAE, or in another GCC Member State, where the total value of all taxable supplies made in the past 12 months, or expected tax able supplies in the next 30 days, exceeds AED375,000, must register for, collect and remit VAT. This includes non-executive directors receiving director fees greater than the registration threshold.

Where a person has a requirement to register based on the above, they must apply to the FTA to register within 30 days of the end of that month. Where a person does not file its VAT registration application despite being required to do so, the FTA shall register that person with effect from the date on which the person first became liable to be registered for VAT and impose the neces sary penalties.

For registrations based on supplies made in the last 12 months, the registration will take effect from the first day of the month following the month in which the person is required to register or from an earlier date as agreed between the FTA and the person.

For registrations based on expected supplies in the next 30 days, the registration will take effect from the date on which there are reasonable grounds for believing the person will be required to register or from an earlier date as agreed between the FTA and the person.

A taxable person who has been late in registering for VAT is liable to account for and pay to the FTA the VAT due on all taxable supplies and imports made by that person before registering.

Exemption from registration. A taxable person providing zero-rated supplies only may upon appli cation to the FTA be exempted from the mandatory VAT registration obligation. Any taxable person excepted from the VAT registration obligation must inform the FTA of any changes to their business that would make them subject to VAT within 10 business days of making such supplies.

The FTA has the right to collect any VAT due and administrative penalties for the period of exception if the taxable person was not entitled to the exception from VAT registration.

Voluntary registration and small businesses. A taxable person who is not obliged to register for VAT may apply for VAT registration where its taxable supplies or expenses over the past 12 months exceeded AED187,500. Alternatively, an application for voluntary registration can also be made where it is expected that its supplies will exceed AED187,500 in the next 30 days. It should be able to provide evidence of an intention to make taxable supplies or incur expenses that are subject to VAT (at the standard rate) greater than AED187,500.

Where a taxable person applies to register for VAT voluntarily, the FTA shall register it with effect from the first day of the month following the month in which the application is made or from an earlier date as agreed between the FTA and the person.

Group registration. Two or more taxable persons may apply for VAT registration as a tax group if all of the following conditions are met:

• Each taxable person has a place of establishment or fixed establishment in the UAE

• The taxable persons must be related parties

• One or more taxable persons must control the other taxable person(s), i.e., there must be com mon ownership

A tax group must select one of its registered members to act as the representative member of the tax group.

An application to form a tax group must be made by a taxable person. This person is the repre sentative member of the tax group.

Any goods or services supplied to any of the members of the tax group (including imports) will be deemed to be supplied to the representative member. Any supplies made by a member of the tax group shall be deemed to be made by the representative member, which includes output tax charges or input tax incurred by any of the members.

All members of a VAT group in the UAE are jointly and severally liable for VAT debts and pen alties. While the representative member is deemed to have made supplies and acquisitions (and account for output tax and input tax) for the members of the VAT group as if it had made them itself, all members of a tax group shall be personally and jointly liable for the payable tax of the VAT group (reported by the representative member on behalf of the VAT group) during any tax periods that the member is part of the VAT group.

Any supplies made by a member of the VAT group to another member of the same group may be disregarded for VAT purposes. The tax group registration takes effect from the first day of the tax period following the tax period in which the application is received or any date as determined by the FTA.

Where the FTA establishes that two or more taxable persons are associated as a result of their economic, financial and regulatory practices in business, the FTA may register them as a VAT group. Such notice may only be issued where the FTA is satisfied that to treat such businesses separately would create a VAT advantage. In this scenario, the FTA may only register a taxable person as part of a tax group if the taxable person’s business includes making taxable supplies (or imports) and would exceed the mandatory registration threshold.

There is no minimum time period required for the duration of a VAT group.

Self-supplies. Goods or services that a taxable business (same legal person) supplies to itself are not taxable (i.e., outside the scope of UAE VAT). This includes instances where one member of a tax group provides goods and services to another member of the same tax group.

Supplies and acquisitions of goods and/or services between a head office and/or its branches should be disregarded, being a supply between the same legal person (i.e., outside the scope of UAE VAT).

Non-established businesses. Every individual/business that does not have a place of residence in the UAE or in another implementing GCC Member State, and where no other taxable person is obliged to pay the VAT due on these supplies in the UAE (i.e., via the reverse-charge mechanism) must register for VAT if they make taxable supplies of goods or services. There is a nil registra tion threshold for nonresidents. A GCC Member State is only regarded as an implementing state if it is fully compliant with the provisions of the Common VAT Agreement of the States of the GCC and recognize the UAE as implementing state. At the time of preparing this chapter, none of the Member States that have implemented VAT in the GCC recognize another Member State as an implementing GCC Member State.

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An individual/business who has a place of residence in a UAE Designated Zone shall be deemed to have a place of residence in the UAE for the purposes of UAE VAT. The FTA shall register a non-established business from the date on which it started making tax able supplies in the UAE or from an earlier date as agreed between the FTA and the business.

A non-established business may not take into account the value of goods and services imported into the UAE to determine whether they are entitled to apply for VAT registration if the calcula tion of VAT for such goods and services is the responsibility of the importer via the reversecharge mechanism.

Tax representatives. The registered tax agent may act on a taxable person’s behalf in respect of lodging VAT returns in the UAE for the taxable person, by submitting a notification. Notwithstanding the appointment of a tax agent, the taxable person shall maintain individual responsibility for all such obligations. In performing their duties as a tax agent, the tax agent may rely on information provided to them by the person unless the tax agent has reasonable grounds for believing that the information may be incorrect. The FTA may also rely on the information provided to it by the tax agent in the case of a tax audit, even after the expiry of the agency engagement or the dismissal of the tax agent. It is not permitted for any person to practice the profession of a tax agent in the UAE unless it is listed as tax agent with the FTA and licensed for this purpose by the Ministry of Economy and the competent local authority.

A local tax agent must be licensed and registered with the FTA, where a file shall be kept regard ing all matters of professional conduct associated with the agent. For the agent to be registered with the FTA, he must satisfy several conditions, including:

• To be of good conduct and behavior

• Never have been convicted of a crime or misdemeanor

• The ability to communicate orally and in writing in both Arabic and English

• To pass any tests to meet qualification standards as may be specified by the authority

• To perform his activity through a legal person approved by the Ministry of Economy and the local competent authority

The FTA shall not deal with any tax agent where the FTA has been informed that the agency engagement has ended or that the tax agent has been dismissed.

Reverse charge. Generally, reverse-charge VAT is applicable to the purchase of goods or services from a place outside the UAE. Imports into the UAE by a VAT-registered person are required to be accounted for under the reverse-charge mechanism. Imports of goods by a non-VAT registered person will be subject to VAT at import, with an actual payment of VAT required. The goods may not be released until the VAT has been paid (a registered freight-forwarding agent can also be used to clear and pay the import VAT on their behalf).

Domestic reverse charge. A domestic reverse charge is applicable to supplies made in the UAE of any crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons, and the recipient of these goods intends to either resell the purchased goods as any of these types of goods, or to use these goods to produce or distribute any form of energy.

The domestic reverse charge is also applicable to supplies of gold, diamonds and any products where the principal components are gold or diamonds. The supplies must be made to recipients registered for VAT in the UAE who intend to either resell such goods or use them to produce or manufacture any such the goods.

This domestic reverse charge shall not apply in any of the following situations:

• Before the supply takes place, the customer has not provided a written confirmation to the sup plier that their acquisition of the goods is for the purpose of resale

• The customer is VAT registered and the supplier has not verified the VAT registration of the customer by means approved by the FTA

• Where the supply would have been subject to the zero-rate VAT as a direct or indirect export of goods

• Where the supply includes a supply of goods or services other than crude or refined oil, unpro cessed or processed natural gas, or any hydrocarbons

If the supplier was aware (or was supposed to be aware) that the customer was not VAT registered at the time the supply takes place, the supplier and the customer shall be jointly and severely liable for any VAT due and relevant penalties.

Digital economy. For the purposes of UAE VAT, telecommunication services include those supplied using communications equipment or devices that can deliver, broadcast, convert or receive com munications, such as wired/wireless communications, music, viewable images and signals used to operate machinery, etc.

Where telecommunication and electronic services are supplied within the UAE, the place of sup ply will be within the UAE to the extent that the use and enjoyment of the supply is within the UAE. Where the services are supplied outside the UAE, the place of supply shall be outside the UAE to the extent that the use and enjoyment of the supply is outside the UAE. The actual use and enjoyment shall be where the recipient consumes and enjoys the services, regardless of the place of contract or payment.

Telecommunications services may be zero-rated where the supplier has a place of residence within the UAE and makes the supply to either:

• Another telecommunications supplier who has a place of residence outside the implementing states

• A person who is not a telecommunications supplier but who has a place of residence outside the UAE, where the services are initiated outside the implementing states

Nonresident providers of electronically supplied services for business-to-consumer (B2C) sup plies are required to register and account for VAT on the supplies made in the UAE. This is because for nonresident suppliers, the registration threshold is nil.

Nonresident providers of electronically supplied services for business-to-business (B2B) supplies are not required to register and account for VAT on the supplies made in the UAE. Instead, the customer is required to self-account for the VAT due via the reverse-charge mechanism (see the Reverse-charge subsection above).

There are no other specific e-commerce rules for imported goods in the UAE.

Online marketplaces and platforms. Electronic services include those delivered automatically over an electronic network or marketplace, including the supply of domain names, web hosting, software (including updates), images, music, magazines, advertising space, distance learning and livestreaming.

At the time of preparing this chapter, the respective tax authorities of the UAE, Saudi Arabia, Bahrain and Oman are not treating each other as implementing states. Consequently, until being recognized as implementing states by the UAE, GCC Member States are treated the same as non-GCC jurisdictions. Therefore, the zero-rating provisions are still applicable. This situation should, however, be monitored as going forward GCC Member States that implemented VAT may be recognized as implementing states. Note that where we refer to the GCC, we are referring to GCC Implementing States.

Registration procedures. A UAE VAT registration application must be made online on the FTA portal (www.eservices.tax.gov.ae). The following details must be provided:

• Company information: including, the UAE trade license; if the company has a place of residence in the UAE; legal name of the company in English and Arabic; certificate of incorporation

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• Details of the authorized signatory and manager of the business: including copy of the signato ry’s/manager’s passport; copy of the signatory’s/manager’s Emirates ID; signatory’s/manager’s scanned copy of proof of authorization, for example, power of attorney

• Contact and bank account details, for taxable persons in a repayment position

• Actual or estimated financial information, for example, audited or non-audited financial state ments or revenue forecasts

• Cross-border flows of goods and/or services, specifying if they will be in relation to any other GCC Member States

• Details and evidence of business relationships

Upon receipt of the application, the FTA will usually process the application within 20 business days. If the application is successful, the taxable person will receive its VAT registration certifi cate, containing the tax registration number, registered address, effective registration date, first and subsequent registration periods and VAT return due date.

Deregistration. A taxable person must apply to the FTA to deregister from VAT within 20 busi ness days of the occurrence of any of the following cases:

• If the taxable person stops making taxable supplies and does not expect to make any such supplies over the next 12-month period

• If the value of the taxable supplies made over a period of 12 consecutive months is less than AED187,500 and the taxable person does not expect its total value of supplies (or costs subject to VAT to be incurred) will exceed AED187,500 during the next 30-day period

If the deregistration application is approved, the FTA shall cancel the VAT registration of the taxable person with effect from the last day of the tax period during which the taxable person has met the conditions for deregistration or from another date determined by the FTA.

A taxable person may not apply for VAT deregistration within 12 months of the date of VAT registration (where registered voluntarily).

Where a taxable person requests to be deregistered from VAT due to the reduction of its taxable supplies to less than AED375,000, the FTA will, if in agreement with the taxable person, cancel the VAT registration. This is in effect from the date requested by the taxable person in the appli cation, or the date on which the request is made if the taxable person did not indicate a preferred deregistration date.

Changes to VAT registration details. Any changes to the business details already submitted to the FTA at the time of obtaining VAT registration should be reported to the FTA within 20 days from the change in circumstance.

For certain types of changes, such as change in business activities or customs registration infor mation, the taxable person is only required to update the details on the FTA’s portal. Further approvals are not required for these changes.

For updates regarding the applicant’s details, contact details, banking details, etc., the taxable person is required to initiate an amendment application on the FTA’s portal. The changes will appear on the form only after the FTA has approved the amendments. The FTA may ask for more information while reviewing the amendment application.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.

The VAT rates are:

• Standard rate: 5%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for the zero-rate or an exemption.

Due to COVID-19, the FTA has confirmed that the supply of certain face masks, gloves, chemi cal disinfectants and antiseptics should be eligible for zero-rating. The zero-rating applies to qualifying supplies made between 1 September 2020 and 31 December 2021.

Examples of goods and services taxable at 0%

• A direct or indirect export of goods to outside of the GCC territory (with certain evidence and timings)

A movement of goods into a Designated Zone from a place in the UAE or a supply of goods to a Designated Zone shall not be considered an export of those goods

• Export of services, where the following conditions are met:

The services are supplies to a recipient of services who does not have a place of residence in the GCC and who is outside the UAE at the time the services are performed

The services are not supplied directly in connection with real estate situated in the UAE or any improvement to the real estate or directly in connection with moveable personal assets situated in the UAE at the time the services are performed

The services are actually performed outside the GCC or are the arranging of services that are actually performed outside the GCC

The supply consists of the facilitation of outbound tour packages, for that part of the service

For the purpose of the export of services above, a recipient shall be considered as being “outside the UAE” if they only have a presence in the UAE of less than a month and the presence is not effectively connected with the supply. One of the exceptions of zero-rating the export of services is where the supply is made to a nonresident recipient and all of the following conditions are met:

a) The performance of the services will be received in the UAE by another person, including but not limited to, an employee or a director of the nonresident recipient of services

b) The other person in the UAE will receive the services in the course of making supplies for which input tax is not recoverable in full

• Export of telecommunications services, in the following situations:

A supply of telecommunications services by a telecommunications supplier who has a place of residence in the UAE to:

A telecommunications supplier who has a place of residence outside the GCC

A person who is not a telecommunications supplier and who has a place of residence outside of the UAE for a telecommunications service that is initiated outside the GCC

• Intra-GCC and international transport of passengers and goods, which starts or ends in the UAE

• The supply of sea, air and land transport services for the transportation of passengers and goods (including related goods and services designed for the operation, repair, maintenance or conversation of these means of transport, and supply of rescue planes and ships for the provision of sea and air help in addition to fishing vessels)

• The supply or import of investment precious metals (gold, silver, platinum that is a metal of purity of 99% or more and the metal is in a form tradeable in global bullion markets)

• The first supply of residential buildings of the following cases:

Within three years of its completion, either through sale or lease in whole or in part

Specifically designed to be used by charities through sale or lease

Buildings converted from nonresidential to residential through sale or lease

• The supply of crude oil and natural gas

• The supply of educational services and related goods and services, for nurseries, preschool, school education and higher education institutions owned or funded by federal or local govern ment and providing the curriculum and the educational institution are recognized by the com petent federal or local government entity

•

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The supply of preventive and basic health care services and related goods and services, made by a health care body or institution, doctor, nurse, technician, dentist or pharmacy, licensed by the Ministry of Health or by any other competent authority – this includes the supply of medi cations and medical equipment registered with the Ministry of Health and Prevention or imported with permission or approval

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Financial services, as outlined below, that are not conducted in return for an explicit fee, dis count, commission and rebate or similar. Also, any Islamic financial products, being financial products under contract that are certified as Islamic Shariah compliant, which simulate the intention and achieve effectively the same result as a non-Shariah compliant financial product, will be treated in a similar manner as the equivalent non-Shariah financial product for the purpose of applying exemption from VAT

Issue, allotment, or transfer or ownership of an equity security or debt security

Provision or transfer of ownership of a life insurance contract or the provision of reinsurance in respect of any such contract

Exchange of currency, whether effected by the exchange of bank notes or coin, by crediting or debiting accounts or otherwise

The issue, payment, collection or transfer of ownership of a cheque or letter of credit

The issue, allotment, drawing, acceptance, endorsement or transfer of ownership of a debt security

The provision of any loan, advance or credit

The renewal or variation of a debt security, equity security or credit contract

The provision, taking, variation or release of a guarantee, indemnity, security or bond in respect of the performance of obligation under a check, credit, equity security, debt security

The operation of any current, deposit or savings account

The provision or transfer of ownership of financial instruments such as derivatives, options, swaps, credit default swaps and futures

The payment or collection of any amount of interest, principal, dividend or other amount whatever in respect of any debt security, equity security, credit and contract of life insurance

Agreeing to do so or arranging any of the activities outlined above, other than advising thereon

• Supply of residential buildings, unless it is zero-rated, where the lease is more than six months or the tenant of the property is a holder of an ID card issued by the Federal Authority for Identity and Citizenship

• Supply of bare land, meaning land that is not covered by completed or partially completed buildings or civil engineering works

• Supply of local passenger transport services in a qualifying means of transport by land, water or air from a place in the UAE to another place in the UAE

Option to tax for exempt supplies. The option to tax exempt supplies is not available in the UAE.

E. Time of supply

The time at which VAT becomes due is called the “date of supply” (referred to as “time of sup ply” or “tax point” in this section). The time of supply is the earliest of any of the following dates:

• The date on which the goods were transferred (if such transfer was under the supervision of the supplier)

• The date on which the recipient of the goods took possession of the goods (if the transfer was not under the supervision of the supplier)

• Where the goods are supplied with assembly and installation, the date on which the assembly or installation of the goods was completed

• Where the goods are supplied on a returnable basis, the date on which the recipient of the goods accepted the supply or a date no later than 12 months after the date on which the goods were transferred or placed under the recipient of goods disposal

• The date when the performance of services has taken place

• The date of receipt of payment or the date on which the tax invoice was issued

Deposits and prepayments. The receipt of a deposit or prepayment would create a tax point where this forms part of the total payment of a particular supply if it precedes the issuance of a tax invoice.

Continuous supplies of services. The date of supply of goods or services for contract that includes periodic payments or consecutive invoices shall be the earliest of any of the following dates, provided it does not exceed one year from the date of the provision of such goods and services:

• The date of issuance of any VAT invoice

• The date payment is due as shown on the VAT invoice

• The date of receipt of payment

Goods sent on approval for sale or return. There are no special time of supply rules in the UAE for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).

Reverse-charge services. Generally, reverse-charge VAT is also applicable to the purchase of goods or services from a place outside the UAE. Where these types of purchases are made, which would be taxable if supplied in the UAE, the taxable person shall be treated as making a supply to itself. Therefore, the taxable person is responsible for all applicable VAT obligations and accounting for the tax due in respect of these supplies.

The above mechanism applies where the following conditions are satisfied:

• The taxable person is UAE VAT registered at the time of import

• The taxable person keeps sufficient and appropriate records concerning the supply received

• In the case of goods, the taxable person has given the FTA its customs registration number

• The taxable person has cooperated and complied with the FTA in respect of the import

In terms of the time of supply, the taxable person who has received the goods and/or services must declare and pay the due tax in the VAT return that relates to the tax period at the date of supply for which the purchase took place. Where any relevant VAT amount is expressed in a currency other than AED, the amount must be converted to AED using the daily rate prescribed by the central bank at the date of supply. Supplies within the same legal entity, e.g., branch to branch or head office to branch are, however, disregarded.

Leased assets. At the time of preparing this chapter, there are no special time of supply rules in the UAE for the supply of leased assets. As such, the general time of supply rules apply (as out lined above). It is expected that both operational and finance asset leases are treated as con tinuous supplies of services (see below subsection), provided that legal title to the goods does not pass to the recipient and there is no express contemplation that title will transfer at some point in the future.

Goods supplied on terms that expressly contemplate that title will transfer at some point in the future (e.g., under hire-purchase or conditional sale agreements) are treated in the same way as a normal sale of goods where title passes at the outset. Unless periodic VAT invoices are issued and the payments do not exceed one year from the provision of such goods/services, the time of supply should be linked to the basic tax point (see above). This means that the full amount of VAT may become payable up front, instead of being due as and when installment payments are made.

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It is also expected that leases made under Islamic finance arrangements should follow the same VAT treatment as their conventional finance equivalents.

Imported goods. For the supply of imported goods, the time of supply rule is the date when the goods are imported into the UAE, under the customs legislation.

Other supplies. Deemed supplies. The tax point of a deemed supply of goods or services shall be the date of their supply, disposal, change or usage or the date of deregistration, whichever is applicable.

Vouchers. The tax point of a supply of a voucher shall be the date of issuance or supply thereafter.

Vending machines. The tax point of supply, in cases where payment is made through vending machines, shall be the date on which the funds are collected from the machine.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. Recovery is by way of deducting input tax against output tax, which is the VAT charged on supplies made by the business.

Input tax includes VAT accounted on imports of goods and self-assessed through the reversecharge mechanism.

The time limit for a taxable person to reclaim input tax in the UAE is the first tax return period or a later tax period as outlined below. The key test for recovering input tax is that it must be recovered in the first tax period in which two conditions are satisfied:

• The tax invoice is received

• An intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed

Upon receipt of a tax invoice, a taxable person can recover input tax only when an intention to make the payment within a prescribed period is formed. Therefore, if the intention to make the payment is formed in a tax period that is later than the tax period in which the tax invoice is received, the input tax can be recovered only in the later tax period.

Where the timeframe above is not met, then a taxable person must submit a voluntary disclosure to recover any outstanding input tax (see the Correcting errors in previous returns subsection below, under Section I. Returns and payment).

Nondeductible input tax. Input tax may not be recovered in respect of certain expenses specifi cally listed as nondeductible.

The following lists provide examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.

Examples of items for which input tax is nondeductible

• VAT incurred for making exempt supplies

• Provision of entertainment services to anyone not employed by a taxable person, including customers, potential customers, officials, or shareholders or other owners or investors

• Where goods or services were purchased to be used by employees for no charge to them and for their personal benefit, including the provision of entertainment services, except in certain specific cases

• Where a motor vehicle was purchased, rented or leased for use in the business and is available for personal use by any person

• Business gifts supplied for no consideration, unless the total value of these gifts is less than AED500 per recipient within a 12-month period

• Health insurance for dependents, except in respect of non-national Abu Dhabi employees

• Staff party expenses

Examples of items for which input tax is deductible (if related to a taxable business use)

• Motor vehicles not available for private use where this can be sufficiently evidenced

• Where an employee requires hotel accommodation/subsistence for an overnight stay on a domes tic business trip

• Food and drink in the normal course of a business meeting (e.g., simple refreshments)

• Short-term accommodation provided to a new employee joining the business (i.e., less than one month)

Partial exemption. Input tax related to goods and services used to provide supplies that are subject to VAT and other supplies that are exempt, may be deducted in accordance with the proportion of costs related to the supplies subject to the VAT.

The standard partial exemption method consists of the following two-stage calculation:

• Attribution of input tax exclusively used in making either taxable or exempt supplies

• Apportionment of non-attributable input tax using the standard input-based calculation, which will calculate the percentage of recoverable input tax. This percentage is based on respective values of VAT incurred wholly to make taxable supplies and VAT incurred to make wholly exempt and outside-the-scope supplies

The percentage calculated shall be rounded to the nearest whole number. The percentage calculated shall be multiplied by the amount of total non-attributable input tax incurred to establish the recoverable portion of that input tax.

The calculations referred to above shall be undertaken in respect of each tax period where input tax incurred relates to making exempt supplies or to activities that are not in the course of busi ness.

At the end of each tax year the taxable person shall undertake the calculation outlined above, but in respect of the entire tax year just ended and include the result in the first tax period of its subsequent tax year (“annual wash-up adjustment”). The amount calculated for the tax year shall be compared to the input tax amount actually recovered in all the tax periods making up the tax year, and an adjustment to the recoverable tax shall be made in the tax period. The FTA prescribes a number of different methods to ascertain the actual use via the annual wash-up adjustment, depending on the nature of industry/business of the taxable person. There may be a difference between the recoverable tax amount calculated and the amount of a calculation that reflects the actual use of the goods and services to which the input tax relates. If that difference exceeds AED250,000, the taxable person shall, in the tax period for the tax year, make an adjustment to the input tax.

If the calculation outlined above would give a result that the taxable person considers would not reflect the actual extent to which the input tax relates to making taxable supplies, it may apply to the FTA to authorize the use of an alternative basis of calculation based on the list of accepted mechanisms issued by the FTA.

Special methods are allowed in the UAE where the standard method is not appropriate for the business. The taxable person should apply for approval from the tax authority to use a special method to calculate its input tax apportionment to the extent the standard method is not appropriate for the business

Capital goods. Capital assets are items of capital expenditure that are used in a business over several years. If capital assets are supplied or imported by a taxable person, they shall assess the

period of use of the assets and make the necessary adjustments to the input tax paid, in line with the capital assets scheme.

For purposes of the capital asset scheme, a capital asset is a single item of expenditure of the business amounting to AED5 million or more, excluding VAT, on which VAT is payable and which has an estimated useful life equal to or longer than 10 years in case of a building or a part thereof and 5 years for all capital assets other than buildings or parts thereof.

Items of stock, which are for resale, shall not be treated as capital assets.

Expenditure consisting of smaller sums that collectively amount to AED5 million or more shall be treated as a single item of expenditure of AED5 million or more, where the sums are staged payments for any of the following:

• For the purchase of a building

• For the construction of a building

• In relation to an extension, refurbishment, renewal, fitting out or other work undertaken to a building, except that where there is a distinct break between any such works being undertaken, they shall be taken to be separate items of expenditure

• For the purchase, construction, assembly or installation of any goods or immovable property where components are supplied separately for assembly

A taxable person shall keep the records related to capital assets for at least 10 years.

A capital asset eligible for the capital asset scheme shall be monitored and the input tax incurred shall be adjusted, over a period of 5 or 10 years (as outlined above), commencing on the day on which the owner first uses the capital assets for the purposes of its business.

Refunds. The amount of VAT reclaimed must be supported by a valid VAT invoice and (if necessary) the customs documents that prove the taxable person is the importer of the goods in accor dance with the Common Customs Law. The recoverable input tax may be deducted through the VAT return relating to the first tax period in which the taxable person receives and keeps the tax invoice. As a condition for input tax recovery, the taxable person must also pay the consideration for the supply or for any part thereof. The taxable person shall be treated as having made a payment of consideration for a supply to the extent that the taxable person intends to make the pay ment before the expiration of six months after the agreed date for the payment of the supply.

If the taxable person entitled to recover the input tax fails to do so during the tax period, it may include the recoverable VAT in the VAT return for the subsequent tax period.

A taxable person can recover input tax only when it has crystalized its intention to make payment within the next six months and where it has a valid tax invoice in its possession. Where a tax invoice has been received, the input tax cannot be recovered until the period in which the inten tion to pay has also been crystalized.

Where a taxable person’s recoverable input tax exceeds the output tax payable in the same tax period, the taxable person may opt to apply for a refund or carry forward any excess recoverable VAT to the subsequent tax periods and offset such excess against VAT payable or any administrative penalties imposed, until such excess is fully utilized. The refund request must be submitted through the prescribed form. As part of the application process, the taxable person must submit a letter to verify its banking details and agree to submit additional documentary proof to support the VAT refund application, if requested by the FTA.

Pre-registration costs. A taxable person may recover input tax incurred before its VAT registration on the VAT return submitted for the first tax period following the VAT registration. It can relate to input tax paid of the supply of goods and services made to them (and also the import of goods by them) prior to the date of the VAT registration. This is on the basis that these goods and

services were used to make supplies that give the right to input tax recovery upon VAT registra tion.

Input tax may not be recovered in any of the following instances:

• The receipt of goods and services for purposes other than making taxable supplies (for exam ple, supplies made prior to the taxable person’s VAT registration effective date)

• Input tax related to the part of the capital assets that depreciated before the date of the VAT registration

• If the services were received more than five years prior to the date of VAT registration

• Where a taxable person has moved the goods to another GCC Member State prior to the VAT registration in the UAE

Bad debts. A taxable person may reduce the output tax in a current tax period to adjust the output tax paid for any previous tax period, if all the following conditions are met:

• Goods and services have been supplied and the VAT due has been charged and paid

• Consideration for the supply has been written off in full or part as a bad debt in the accounts of the supplier

• More than six months has passed from the date of the supply

• The supplier has notified the customer of the amount of consideration for the supply that has been written off

The customer shall reduce the recoverable input tax for the current tax period related to a supply received during any previous tax period where the consideration has not been paid and all the following conditions are met:

• The supplier reduced the output tax by way of an adjustment for bad debts and the customer has received a notification from the supplier of the consideration being written off

• The customer received the goods and services and the relevant input tax was deducted

• The consideration was not paid in full or in part for the supply for over six months

The reduction shall be equal to the VAT related to the consideration that has been written off. Any adjustment on account of VAT related to bad debt relief should be made in the “adjustment col umn” of the VAT return.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in the UAE.

G. Recovery of VAT by non-established businesses

The FTA may refund VAT paid for any supply received by or import carried out by any of the following:

• A citizen of the UAE in respect of the goods and services related to the construction of a new residence that is not part of the person’s business

• A nonresident who is not a resident of a GCC Member State and conducts a business and is not a taxable person

• A nonresident, for goods supplied to them in the UAE that will be exported

• Foreign governments, international organizations, diplomatic bodies and missions according to treaties that the UAE is a party to

• Any persons or classes listed in a cabinet decision issued at the suggestion of the minister

Designated persons. The FTA may allow certain persons to apply for a refund of VAT paid by them on supplies of goods or services received in the UAE. These persons include (officials of) foreign governments, international organizations, diplomatic bodies and missions. A claim may be submitted to the FTA requesting a repayment of the VAT incurred.

ATES

This mechanism is subject to the following conditions:

• The goods and services are for official use

• The jurisdiction in which the person is established excludes the same type of entities from the burden of any VAT in that jurisdiction, i.e., reciprocity

• The refund claim is consistent with the terms of any international treaty or other agreement concerning the liability to tax of such persons

• Officials of the person should not hold UAE nationality nor have a residence visa under the sponsorship of an entity other the person

• The person should not carry out any business in the UAE

Designated charities. The FTA may allow certain charities to apply for a refund of VAT paid by them on supplies of goods or services received in the UAE, to the extent that the VAT paid does not relate to onward exempt supplies made or those expenses are not blocked from input tax recovery.

Refund of VAT to taxable persons in other GCC Member States. Persons who are registered for VAT in another GCC Member State may submit an application for refund of VAT incurred in the UAE in accordance with the mechanism agreed between the GCC Member States.

Refund of VAT to taxable persons nonresident in the GCC Territory. The FTA has implemented a business VAT refund scheme for foreign businesses to allow the repayment of VAT on expenses incurred in the UAE by a foreign entity that has no place of establishment or fixed establishment in the UAE or in an implementing GCC Member State and is not taxable in the UAE. The foreign entity must be registered as an establishment with a competent tax authority in the jurisdiction in which it is established, and that foreign jurisdiction should have a reciprocal arrangement to provide refunds of VAT to eligible UAE businesses. The FTA has provided a list of jurisdictions that may be eligible for VAT refunds. In the event that a jurisdiction is not on the approved list or does not have a VAT system, the Ministry of Finance of that jurisdiction would have to contact the UAE Ministry of Finance for inclusion on the approved list.

A foreign entity is not entitled to make a claim under the VAT refunds for foreign businesses scheme in the following cases:

• If it makes supplies that have a place of supply in the UAE or implementing GCC State, unless the recipient of the goods or services is obliged to account for VAT on those supplies through the reverse-charge mechanism

• If the input tax relates to goods or services for which the VAT is not recoverable

• If the foreign entity is from a jurisdiction that does not in similar circumstances provide refunds of VAT to entities that belong to the UAE (per the above, the FTA has specified a list of jurisdic tions it considers eligible)

The claim for any refund shall be made on an electronic form as will be provided for the purpose by the FTA. The period of the claim shall be 12 calendar months (“calendar year”). The minimum claim amount of VAT that may be submitted under the VAT refunds for foreign businesses scheme shall be AED2,000. This may comprise single or multiple purchases.

The FTA will only process refund applications for six months from the date the business can first make a claim, i.e., from 1 March of the year following the calendar year. Note: the condition that the period of claim shall be one calendar year does not apply in the case of residents in any GCC Member State that is not considered to be an implementing state.

Refund of VAT to tourists. The cabinet issued a decision in July 2018 that introduced the tax refunds for tourists scheme. The decision specified the following:

• The goods are purchased from a retailer who is participating in the scheme

• The purchase of the goods from the retailer is conducted in accordance with requirements as determined in a decision issued by the chairman

• The export of goods is conducted in accordance with requirements as determined in a decision issued by the chairman

• The goods are not excluded from the scheme by the authority

The following conditions shall apply to the tax refunds for tourists scheme:

• The goods that are subject to the tax refunds for tourists scheme must be supplied to an overseas tourist who is in the UAE during the purchase of the goods from the supplier

• At the date of supply, the overseas tourist intends to depart from the UAE within 90 days from that date, accompanied by the goods

• The relevant goods are exported by the overseas tourist to a place outside the implementing states in the GCC, within three months from the date of supply, subject to such conditions and verifications as may be imposed by the FTA

The phrase “overseas tourist” means any natural person who is not resident in any of the imple menting states in the GCC and who is not a crew member on a flight or aircraft leaving an implementing state. The FTA may publish a list of goods that shall not be subject to tax refunds for tourists’ scheme. Hence residents of other GCC jurisdictions will be treated as “overseas tourists” until their jurisdiction of residence is recognized by the UAE as an implementing state. VAT shall not be refunded under the scheme in respect of any claim where the value of tax inclu sive purchases is less than AED250 from the same supplier.

The authority may charge an administrative fee amounting to 15% of the amount of VAT to be refunded to the overseas tourist as well as a fixed fee of AED4.8 per refund claim. These fees are deducted from the refundable amount. The cash VAT refund is limited to a maximum of AED10,000 per overseas tourist per 24 hours.

Refund of VAT to Expo 2020 official participants. An official participant incurring VAT on goods and services connected with the Expo 2021 may be eligible to claim a refund of VAT.

For the purpose of the above, “official participant” means jurisdictions and intergovernmental organizations that have received and accepted the official invitation from the State to participate in the Expo 2020 Dubai and engaged in a noncommercial capacity as an exhibitor.

H. Invoicing

VAT invoices. The supplier of taxable goods and services must issue and deliver a tax invoice or a similar document either upon partial or full receipt of the goods and services and also for deemed supplies. This can be in the form of a printed copy or in an electronic format.

The supplier must issue a tax invoice within 14 days as of the date of supply, as per the tax point rules.

Where the VAT chargeable on a supply is calculated to a fraction of a fils, the taxable person is permitted to round the amount to the nearest fils on a mathematical rounding.

Where the supply is a wholly zero-rated supply and there are or will be sufficient records avail able to establish the particulars of a supply, a taxable person is not required to issue a VAT invoice for the supply.

Credit notes. A VAT credit note may be used to reduce the VAT charged and claimed on a supply and for deemed supplies.

Electronic invoicing. Electronic invoicing is allowed in the UAE, but not mandatory. A taxable person may issue a VAT invoice and VAT credit note by electronic means provided that:

• The taxable person must be capable of securely storing a copy of the electronic VAT invoice or VAT credit note in compliance with the record keeping requirements

• The authenticity of origin and integrity of content of the electronic VAT invoice or VAT credit note must be guaranteed

Simplified VAT invoices. A simplified VAT invoice may be issued in either of the following situa tions:

• Where the recipient of goods or services is not VAT registered

• Where the recipient of goods or services is VAT registered and the consideration for the supply does not exceed AED10,000

The FTA may at its discretion grant an exception to standard rules applicable to VAT invoices, VAT credit notes, length of tax period, VAT staggers and standard time period for export of goods from the UAE. The FTA considers requests for an exception on a case-by-case basis, depending on each applicant’s individual circumstances.

Third party. Where an agent who is VAT registered makes a supply of goods and services for and on behalf of the principal of that agent, that agent may issue a VAT invoice in relation to that supply, as if that agent had made the supply, and provided that the principal shall not issue a VAT invoice. The same rules apply for an agent issuing a VAT credit note.

Summary invoices. A taxable person does not need to issue separate VAT invoices in respect of supplies where it makes more than one supply of goods or services to the same person and those supplies are included on a summary VAT invoice. The summary VAT invoice must be issued to the recipient of the goods or services, in the same calendar month as the date of supply of the goods and services supplied.

Self-billing. Where a recipient agreed to raise a VAT invoice on behalf of a VAT registered sup plier, in respect of a supply of goods or services, that document shall be treated as if it had been issued by the supplier if the following conditions are met:

• The recipient of the goods or services is VAT registered

• The supplier and the recipient agree in writing that the supplier shall not issue a VAT invoice in respect of any supply between the parties

• The VAT invoice shall contain the full VAT invoicing requirements (as outlined above)

• The words “tax invoice raised by buyer” are clearly displayed on the VAT invoice

Under self-billing, any invoice issued by the supplier shall be deemed to not be a VAT invoice. The same rules above apply for issuing VAT credit notes.

Proof of exports and intra-GCC supplies. Where a taxable person makes a supply of goods from the UAE to a person who has a place of residence in an implementing GCC Member State, and the supply requires the goods to be physically moved to that other GCC Member State, the tax able person shall retain official and commercial evidence of export of those goods to that other GCC Member State.

Where a supply of the goods and goods or services is considered as supplied in another imple menting state in the GCC, the taxable person must include the following additional particulars in the document issued:

• The VAT registration number of the recipient of the goods or services issued to them by the competent authority of the implementing state in which the supply is treated as taking place

• A statement identifying the supply between the UAE and the implementing state

• Any other information specified by the FTA

At the time of preparing this chapter, the respective tax authorities of the UAE, Bahrain, Oman and Saudi Arabia are not treating each other as implementing states.

Foreign currency invoices. Tax invoices must be issued in the domestic currency, which is the UAE dirham (AED). If the supply is made in a currency other than AED, the amount stated on the tax invoice must be converted into AED according to the exchange rate approved by the central bank at the date of the supply.

Supplies to nontaxable persons. In the UAE, a taxable person is not required to provide a full tax invoice for goods and services where the recipient is not registered. Simplified VAT invoice provisions exist, with the requirements as outlined above in the Simplified VAT invoices section.

Records. Records of all goods and services supplied by a taxable person or on its behalf, showing goods and services, suppliers and their agents; shall be kept and retained in sufficient detail to enable the FTA to readily identify goods and services, suppliers and agents.

A taxable person who makes a taxable supply of goods or services in the UAE must keep records of the transaction to prove the Emirate in which the fixed establishment related to the supply is located. If the taxable person who makes a taxable supply of goods or services does not have a fixed establishment in the UAE, the taxable person must keep records of the transaction to prove the Emirate in which the supply is received.

A taxable person must keep the following records:

• Records of all supplies and imports of goods and services

• All tax invoices and alternative documents related to receiving goods or services

• All tax credit notes and alternative documents received

• All tax invoices and alternative documents issued

• All tax credit notes and alternative documents issued

• Records of goods and services that have been disposed of or used for matters not related to business, showing taxes paid for the same

• Records of goods and services purchased and for which the input tax was not deducted

• Records of exported goods and services

• Records of adjustments or corrections made to accounts or tax invoices

• Records of any taxable supplies made or received in respect of the reverse-charge mechanism, including any declarations provided or received in respect of those taxable supplies

• A tax record that includes the following information:

VAT due on taxable supplies

VAT due on taxable supplies pursuant to the reverse charge mechanism

VAT due after the error correction or adjustment

Recoverable VAT for supplies or imports

Recoverable VAT after the error correction or adjustment

Record retention period. The taxable person must hold and maintain these records for a period of five years after the end of the tax period to which they relate, or the concerned document was created, in the case of nontaxable persons. This period is extended to 15 years for records relating to real estate.

Electronic archiving. VAT records may be archived electronically in any location, provided that the authenticity, integrity and legibility of the content of source documents (invoice data) is protected and any records can be produced in a readable form (within a reasonable period of time) upon request by the FTA.

I. Returns and payment

Periodic returns. A VAT return must be received by the FTA no later than the 28th day following the end of the tax period concerned or by such other date as directed by the FTA.

A person whose registration has been canceled must provide a final VAT return for the last tax period for which it was registered.

The standard tax period is three calendar months (i.e., quarterly) ending on the date that the FTA determines.

E MIR ATES

The FTA may assign a taxable person a shorter or longer time period where it considers that a nonstandard tax period length is necessary or beneficial to:

• Reduce the risk of tax evasion

• Enable the FTA to improve the monitoring of compliance or collection of tax revenues

• Reduce the administrative burden on the FTA or the compliance burden on a taxable person

Where a taxable person is assigned the standard tax period, it may request that the tax period ends with the month as requested by them, and the FTA may accept such request at its discretion.

The four staggers of tax periods and tax years are as follows:

• 31 January, where the tax period ends 31 January and quarterly thereafter (stagger group 1)

• Last day of February, where the tax period ends last day of February and quarterly thereafter (stagger group 2)

• 31 March, where the tax period ends 31 March and quarterly thereafter (stagger group 3)

• Last day of the calendar year, where the tax period ends on 31 January and monthly thereafter (stagger group 4)

As part of the administrative exceptions, businesses in a constant refund position, as well as small and medium enterprises making taxable supplies equal to or less than AED5 million per 12-month period, may apply to change the length of the tax period to 6 months.

At the time of preparing this chapter, it is expected that the VAT return format may be updated in the future to include reporting for intra-GCC supplies once each of the GCC states recognize each other as GCC VAT implementing Member States.

Periodic payments. Payment of UAE VAT due by a taxable person in respect of a tax period must be made at the latest by the 28th day of the month following the end of that tax period. The per son making the payment must provide details of the tax registration number of the taxable person and the tax period or tax periods to which the period relates.

Payment can be made by several means, including:

• Visa/Mastercard bank transfer: there is a cap of AED50,000 per payment; there may, however, be other associated fees levied by the bank

• E-dirham: a payment system used to pay VAT, as well as other federal-level services. E-direct is the online service that allows a taxable person to transfer funds to their e-dirham account from their existing bank account

• Bank transfer: electronic fund payments can also be made to the tax authority using the taxable person’s GIBAN, which is a unique IBAN number allocated to every taxable person

Where any relevant VAT amount is expressed in a currency other than AED, the amount must be converted to AED using the daily rate prescribed by the central bank on the date that the relevant VAT amount becomes due.

Electronic filing. Electronic filing is mandatory in the UAE for all taxable persons. VAT returns must be submitted online on the FTA’s portal and pay any VAT due electronically.

Taxable persons shall keep appropriate accounting records and commercial books for UAE tax purposes, including:

• Records of payments, receipts, purchases, sales, revenue and expenditure

• Balance sheets and profit and loss accounts

• Records of wages and salaries

• Records of fixed assets and inventory

The taxable person must hold and maintain these records for a period of five years after the end of the tax period to which they relate, or the concerned document was created, in the case of nontaxable persons. This period is extended to 15 years for records relating to real estate.

VAT records may be archived electronically in any location, provided that the authenticity, integ rity and legibility of the content of source documents (invoice data) is protected and any records can be produced in a readable form (within a reasonable period of time) upon request by the FTA.

VAT return data, records and documents can be submitted to the FTA in English, except for where the FTA specifically states that it will accept the information submitted by the taxable person to be in Arabic. This decision is at the discretion of the FTA and, it may request that some or all of the information is translated into Arabic.

Payments on account. Payments on account are not required in the UAE.

Special schemes. Profit margin scheme. A taxable person may calculate VAT on any supply of goods by reference to the profit margin scheme in the following situation:

• Where it has made a supply of the following types of goods, which have been subject to VAT before the supply takes place:

Secondhand goods, meaning tangible movable property that is suitable for further use as it is or after repaid

Antiques, meaning goods that are over 50 years old

Collectors’ items, meaning stamps, coins and currency and other pieces of scientific, historical or archaeological interest

• The goods (as outlined above) were purchased from either:

A person who is not VAT registered

A taxable person who calculated the VAT on the supply by reference to the profit margin

The profit margin is the difference between the purchase price of the goods and the selling price of the goods, and the profit margin shall be deemed to be inclusive of VAT.

A taxable person may not elect to calculate VAT on the profit margin in respect of the goods (as outlined above) if a VAT invoice or other document is issued for the supply, mentioning an amount of VAT chargeable on the supply.

Where a taxable person has charged VAT in respect of a supply under the profit margin scheme, the taxable person shall issue a VAT invoice that clearly states that the VAT was charged with reference to the profit margin, in addition to all other information required to be stated in a VAT invoice except the amount of VAT.

The taxable person must keep the following records in respect of supplies made under the profit margin scheme:

• A stock book or similar record showing the details of each good purchased and sold under the profit margin scheme

• Purchase invoices showing details of the goods purchased under the profit margin scheme. Where the goods are purchased from non-VAT registered persons, the taxable person must issue an invoice showing details of the goods itself, including at least the following information:

The name, address and VAT registration number of the taxable person

The name and address of the person selling the good

The date of the purchase

Details of the goods purchased

The consideration payable in respect of the goods

Signature of the person selling the good or authorised signatory

Annual returns. Annual VAT returns are not required in the UAE.

Supplementary filings. No supplementary filings are required in the UAE.

Correcting errors in previous returns. A taxable person in the UAE is required to make a voluntary disclosure to notify the FTA where an error or omission is made in its periodical VAT return, tax

assessment or tax refund application. The regulations state voluntary disclosures should be made where:

• A filed VAT return or a tax assessment is incorrect, resulting in a calculated tax liability that is understated by more than AED10,000

• A filed VAT return or a tax assessment is incorrect, resulting in a calculated tax liability that is understated by up to AED10,000 and there is no VAT return through which the error can be corrected

• A filed VAT refund application is incorrect, resulting in a calculation of a refund to the taxable person of more than the correct amount, unless the error was a result of an incorrect VAT return or tax assessment

Voluntary disclosures can be made by using the tax authority’s online portal by the taxable per son. The taxable person is also required to upload details and supporting documents by way of a letter, which may provide the background information and a detailed description of the errors intended to be rectified by the taxable person with the FTA. This letter should also indicate the reasons for the voluntary disclosure and the errors disclosed, as well as the impact on the relevant sections/boxes of the VAT return. The letter will assist the FTA in acknowledging a taxable per son’s request.

Digital tax administration. There are no transactional reporting requirements in the UAE.

J. Penalties

Penalties for late registration. Any taxable person who has not applied for VAT registration within the set time frame shall receive a penalty of AED10,000.

Penalties for late payment and filings. A taxable person who fails to submit a VAT return within the prescribed time frame, shall receive a fixed penalty of AED1,000 for the first instance and AED2,000 in case of repetition within 24 months. If a taxable person fails to pay the VAT due within the prescribed time frame, e.g., within 28 days from the end of the taxable person’s tax period, the following late payment penalty is levied up to a maximum of 300%:

• 2% of the unpaid tax is immediately levied when the payment is not received by the FTA on the due date

• 4% monthly penalty is due after one month from the due date of payment, and on the same date monthly thereafter, on the unsettled VAT amount to date

For the purposes of the above penalty, the due date of payment in the case of the voluntary dis closure and tax assessment is as follows:

• 20 business days from the date of submission, in the case of a voluntary disclosure

• 20 business days from the date of receipt, in the case of a VAT assessment

The FTA may impose a VAT assessment on a taxable person irrespective of a VAT return filed by the taxable person. The FTA may make a new VAT assessment to amend a previous assess ment made by it. The FTA must notify the taxable person of a VAT assessment within five busi ness days.

The FTA may not issue or amend an assessment in respect of any tax period, after a period of five years after the end of the tax period to which the assessment relates.

In cases where any transaction is being carried out with the intention of breaching the provisions of the UAE VAT law and regulations, or in cases where a person is required to register but fails to do so, the FTA may issue or amend assessments up to a period of 15 years after the end of the tax period to which the assessment relates.

Penalties for errors. If a taxable person recognizes an error in an already submitted VAT return, it has 20 days to notify the FTA of the error by submitting a correction form. If the error results

in a discrepancy of VAT due under AED10,000, the correction can be made by adjusting the net VAT on the business’s next VAT return.

Any taxable person who carries out the following:

• Files an incorrect VAT return to the FTA

• Amends a VAT return after filing or files any document with the FTA due by them that results in an error and, hence, in an amount that is less than the VAT due, shall be liable for both a:

Fixed penalty: AED1,000 for the first time and AED2,000 for subsequent voluntary disclo sures. Where the incorrect VAT return results in a tax difference that is less than the fixed penalty amount of AED1,000 or AED2,000, the FTA will impose a penalty equal to higher of the VAT difference and AED500.

Percentage-based penalty based on the amount unpaid due to the error and resulting tax benefit:

5% on the difference, where the voluntary disclosure is submitted within one year from the due date of submission of the VAT return, the VAT assessment or the relevant refund application

10% on the difference, where the voluntary disclosure is submitted within one year from the due date of submission of the VAT return, the VAT assessment or the relevant refund application

20% on the difference, where the voluntary disclosure is submitted within the third year following the due date of submission of the VAT return, the VAT assessment or the relevant refund application

30% on the difference, where the voluntary disclosure is submitted within the fourth year following the due date of submission of the VAT return, the VAT assessment or the relevant refund application

40% on the difference, where the voluntary disclosure is submitted after the fourth year following the due date of submission of the VAT return, the VAT assessment or the rel evant refund application

A taxable person must notify the FTA within 20 days of becoming aware of an error or incorrect amount, by submitting a voluntary disclosure. This notification must be given if the taxable person becomes aware of an error or an incorrect amount in a filed VAT return; or becomes aware of such facts which should have led him to be aware of such error or incorrect amount, which has resulted in the amount of VAT payable to the FTA being understated and that amount of net tax payable is more than AED10,000.

In cases where a taxable person becomes aware of an error or an incorrect amount in a filed VAT return that has resulted in the amount of VAT payable to the FTA being overstated, the taxable person may correct that error at any time, by submitting a voluntary disclosure.

Subject to the above, if the understatement of net VAT by the taxable person is less than AED10,000, the taxable person may correct that error by adjusting the net VAT in its next VAT return. If there is no VAT return through which the error can be corrected, the taxable person must instead make a voluntary disclosure.

No correction to any VAT return relating to an overstatement of VAT in respect of a tax period may be made after a period of five years has passed from the end of the calendar year in which the tax period takes place. In the case of an understated amount of VAT payable or an overstated amount of VAT refundable, two penalties may apply:

• Fixed penalty: AED1,000 for the first time and AED2,000 for subsequent voluntary disclosures

• Percentage based penalty based on the amount unpaid due to the error and resulting tax benefit: 50% of the underpaid tax along with 4% of the underpaid tax per month from the due date of the VAT return

R A B E MIR ATES

A taxable person who fails to issue a tax invoice or alternative document, as appropriate, shall be liable for a fine of AED2,500 for each detected case.

A fine of AED20,000 shall be imposed on any taxable person that:

• Fails to submit data, records and documents related to UAE VAT in Arabic to the tax authority when requested

• Prevents or obstructs the employees of the tax authority or anyone working for the tax author ity from performing their duties

Where the taxable person has failed to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes, they shall be liable for a sepa rate fine of AED2,500 for each detected case.

For failure to notify the tax authorities or late notification regarding changes to a taxable person’s VAT registration status, a penalty of AED5,000 may be charged for the first default and AED10,000 in case of repetition. For further details, see the Changes to a VAT registration details subsection above.

Penalties for fraud. Tax evasion shall be punishable by a prison sentence and/or a fine not exceed ing five times the amount of VAT evaded. By way of example, the following would be classified as tax evasion for UAE VAT purposes:

• A taxable person who deliberately understates the actual value of its business or fails to con solidate its related businesses with the intent of remaining below the required registration threshold

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A person who charges and collects amounts from its clients claiming them to be tax without being registered

• A person who deliberately provides false information and data and incorrect documents to the authority

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A person who prevents or hinders the authority’s employees from performing their duties

• A person who deliberately decreases the payable tax through tax evasion or conspiring to evade tax

The imposition of fines shall not prejudice the payment of any tax due and the application of any other penalty stipulated by any other UAE law. In cases where any transaction is being carried out with the intention of breaching the provisions of the UAE VAT law and regulations, or in cases where a person is required to register but fails to do so, the FTA may issue or amend assessments up to a period of 15 years after the end of the tax period to which the assessment relates.

Other penalties. The FTA shall issue an administrative penalty assessment to the taxable person and notify the taxable person within five business days as of the date of issuance in any of the following cases:

• Failure by the taxable person to display prices inclusive of VAT (AED5,000)

• Failure by the taxable person to notify the authority of applying VAT based on the profit margin (AED2,500)

• Failure to comply with the conditions and procedures related to keeping goods in a Designated Zone or moving them to another Designated Zone (penalty is the higher of AED50,000 or 50% of the tax chargeable in respect of the goods as a result of the violation)

• Failure by the taxable person to issue a tax invoice or an alternative document when making any supply (AED2,500 for each detected case)

• Failure by the taxable person to issue a tax credit note or an alternative document (AED2,500 for each detected case)

• Failure by the taxable person to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes (AED2,500 for each detected case)

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Failure by the taxable person conducting business to keep required records (AED10,000 for first offense, AED20,000 in case of repetition)

• Failure by the taxable person submit records in Arabic when requested by the FTA (AED20,000)

If it is proved that a person who is not VAT registered acquires goods (crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons, or gold or diamonds), claiming that they are VAT registered for the purposes of the reverse charge, it shall be considered as having committed tax evasion and shall be subject to penalties.

Personal liability for company officers. Company officers cannot be held personally liable for errors and omissions in VAT declarations and reporting in the UAE.

Statute of limitations. The statute of limitations in the UAE is five years. The FTA may not conduct a tax assessment after the expiration of five years from the end of the relevant tax period, except in cases of proven tax evasion or non-registration of a taxable person for VAT purposes.

If tax evasion is proven, the FTA has 15 years from the end of the tax period in which the tax evasion occurred to conduct a tax assessment. If a taxable person fails to register for tax pur poses, FTA may conduct a tax assessment within 15 years of the date the taxable person should have registered.