SKP Group
SKP GCC VAT Alert
23 May 2018
UAE VAT Updates: Currency Exchange Rate published, Taxability of Director Services clarified, Clarification mechanism established and VAT Refund announced
 
Currency exchange rate for VAT obligations[1]
The Central Bank of UAE has published the listed foreign currency rates against AED (Arab Emirates Dirham) for the calculation of the VAT obligation of UAE business entities as per the requirement of UAE VAT Law on their official website. These rates would be updated from Monday to Friday and will be based on forex rates prevailing at 6:00 p.m. UAE time each day. In instances where specific markets are closed due to a local holiday, then the prevailing rate of the previous day at 6:00 p.m. will be the applicable rate.
 
Thus, businesses will have to ensure that the other currency amounts stated in the tax invoice are converted into the AED according to the exchange rate published by Central Bank of UAE on the date of supply. Also, in case of imports, the appropriate tax would have to be accounted under reverse charge basis as per published exchange rates.  
 
Taxability of Director Services[2]
The UAE Federal Tax Authority (FTA) has released a VAT Guide with clarification on various aspects relating to taxability of Director Services. The Guide clarifies that taxable persons who provide independent director’s services (viz. an individual who acts as an executive or non-executive director) to other legal entities would be considered to be making a taxable supply of services (subject to place of supply rules) and would attract a tax at the rate of 5%.
 
The FTA has also clarified that the value of supply will be calculated on both monetary (e.g., basic director fees and cash bonuses) and non-monetary (e.g., stock options or free accommodation) consideration received by the director.
 
Taxability of few specified scenarios have been clarified below:
 
Scenario Taxability
UAE Director providing services overseas Zero Rated - since services are physically performed outside the GCC
UAE Director providing services to the overseas company from UAE Zero Rated - if the overseas company does not have a presence in the UAE, and the performance of the services is not received in the UAE by any person who would be able to recover VAT incurred
Business supplied director (i.e., a business providing an employee or director to serve as a director of another entity, company, etc.) Taxable as normal supply of services between two entities
Common director (i.e., an individual acting as director of a number of companies and  for convenience, one company may pay all the director’s fees and then allocate the costs to recover appropriate proportions from the others) Individual services to a company – taxable if the place of supply is in India
 
No supply of services between two company’s allocating cost
Right to appoint a director
(i.e., fees charged for appointing a director by one company to another)
Taxable as normal supply of services between two entities.
 
 
Facility to seek clarifications from the FTA[3]
In continuance to the efforts made by FTA to aid businesses' understanding of VAT, FTA has provided a mechanism to provide taxpayers with written guidance or advice about the FTA’s interpretation and position on specific tax matters of uncertainty, subject to the terms, conditions, and procedures established by FTA.
 
Any person (who has analyzed the law and has interest in the matter at hand) may use the clarifications mechanism to seek technical clarification on specific VAT matters, i.e., such facility is not restricted to a person registered with FTA or a person who has appointed tax agent. However, tax advisors who are not registered as tax agents are not permitted to seek clarification.
 
The answer provided by FTA would apply to the applicant and the specific transaction on which such advice has been requested only. Clarification can be sort for a proposed transaction as well towards a completed transaction. The complete clarification process is paperless since it is required to be submitted in a prescribed format via email. The detailed guide provides the procedure as well as the form for application of a clarification.  
 
VAT refund for Business Visitors[4]
The prescribed scheme aims to provide a refund of UAE VAT paid by foreign businesses in the UAE. The scheme shall be available to foreign business provided specific conditions are fulfilled, one of which being that the foreign business is from a country that provides refunds of VAT to UAE entities in similar circumstances. The period of each refund claim shall be 12 calendar months, hence the first application can only be made after the end of 2018. It is pertinent to note that the minimum amount of each tax claim that may be submitted under this VAT Refunds for Foreign Businesses Scheme shall be AED 2,000.
 
Refund of VAT paid by conferences, events companies[5]
To upkeep UAE’s status as an ideal location for MICE Industry (i.e., Meetings Incentives Conferences and Exhibition Industry), FTA has decided to provide a refund of VAT paid by companies in exhibition and conference sector. The business shall be eligible for refund where such event is held for seven days or less and such entity is authorized by the competent authority as eligible for the VAT refund. The detailed procedure of applications of refund along with necessary refund application form is awaited.
 
Tourists to avail refund of UAE VAT paid[6]
The FTA has formally approved the implementation of the tourist refund scheme at its fifth meeting, held on 25 April at the Dubai Ruler’s court. Non-GCC based travelers shall be eligible to claim back the VAT paid on expenses incurred in the UAE. This scheme aims to provide that the tourists are not burdened with the implementation of VAT. Detailed procedure and mechanism are awaited.
 
Apart from the above, the FTA has also published an extensive guide to help UAE residents claim back the VAT paid on construction of their residences. It is evident that the FTA has adopted a pro-active approach in order to assists business. Also, given the facility of seeking clarification being made available, it is advisable that businesses should exercise such option to be tax compliant.
SKP
Emirates Financial Towers | 503-C South Tower | DIFC | PO Box 507260 | Dubai | UAE
+91 22 6730 9000 |
skp.uae@skpgroup.com | www.skpgroup.com

 
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