SKP Group
SKP GCC VAT Alert
12 February 2018
UAE VAT update: Highlights of the clarifications issued by Federal Tax Authorities (FTA) during meeting held on 29 January 2018

The Federal Tax Authorities (FTA) had recently organised a seminar wherein following points were clarified:
  • Bare Land: Land with any construction on it will not qualify as ‘bare land’. A road which surrounds land without entering it will not prevent land from being ‘bare land’.
  • Designated zone real estate supplies: Supply of real estate will be treated as outside the scope of UAE VAT if the real estate is located in a designated zone because the real estate will not be treated as goods used or consumed under Article 51 (5) of the VAT Executive Regulations. Type of supplies of real estate would include sale, lease, and transfer of lease or surrender of interest in real estate.
  • A new process for sales of standard-rated commercial property: Under the new process the buyer of the commercial property will have to make the payment of tax directly to FTA to complete the transfer of property transaction and seller to file the sales in relevant return cycle as per normal tax administration activities. More information will be published on the process by FTA subsequently.
  • Owners Association (OA): If OA either has a legal personality or is registered as OA and can enter into a contract with third parties then the owners association should levy VAT on its charges to its members and should issue a tax invoice.
  • Head Office (HO) to Branch Transactions: Supplies by a UAE branch to its overseas HO to be considered as out of scope for the VAT. Furthermore, the UAE branch would be able to recover the tax paid on procurements, if the HO of the entity makes supplies that are treated as outside the scope of VAT in UAE but would have been taxable in UAE if the place of supply was in UAE.
  • Input tax recovery: Input tax is only recoverable during the first two periods once the conditions for recovery are met. Where input tax has not been recovered in first two periods, a voluntary disclosure can be made to the FTA to include the input tax in one of the first two periods.
  • The Kingdom of Saudi Arabia (KSA) to be treated as ‘Non-Implementing State’ – By Article 70(15) of Executive Regulations, KSA not to be considered as an implementing state for VAT treatment.
  • Aircraft: The condition that ‘bus or train must be designed or adapted for public transportation of 10 or more passengers’ prescribed for zero-rating of certain means of transport should not be extended to ‘aircraft’. Furthermore, to determine the commercial use of an aircraft, one needs to evaluate the same on a case to case basis.
  • VAT return period: Changes have been made to allow some taxable persons to have a longer first tax period. To establish this, they should check their dashboard within their FTA e-Services account. Following the first tax return, the taxable persons will proceed with filing and pay their VAT returns as per originally assigned periods. Furthermore, the return period will be reviewed again by the FTA after six months.
  • VAT return format: The FTA released VAT Return format on 1 February 2018. Here it may be noted that the FTA has already released the VAT Return format along with a detailed user manual which provides guidance on requirements of VAT Returns.
  • VAT filing due date: Under UAE VAT Law, the due date for filing VAT return is the 28th day following the end of the VAT return period. However, as per instructions provided on the FTA portal and VAT return user guide, the due date for submission of VAT return would be the next business day in case the 28th day is a public holiday or weekend. Accordingly, the due date for submission of return and payment of VAT for the period ending 31 March 2018 (monthly/quarterly), is 29 April 2018 and not 28 April 2018 (being a Saturday).
  • Penalty: A true 'penalty' charge is not a consideration for supply and thus, is outside the scope of VAT. However, it is important to review the nature of each supply and legal agreements to determine if the payment is indeed penalty or consideration for the supply. Sometimes, a payment described as a ‘penalty’ may actually be an additional charge for supply and the same would attract VAT. Further, if the penalty is in the nature of consideration for some other services (e.g. administrative fee), in that case, the VAT treatment of that supply should be considered separately.
  • Collaboration with Department of Economic Development: FTA in collaboration with Department of Economic Development is dealing with issues related to consumer rights. The FTA has contacted dealers to modify invoices which are invalid as a first time warning. Subsequently, such invalid invoices with wrong tax amounts would be penalised. Furthermore, the FTA has clarified that there is no requirement to provide Tax Registration Number (TRN) certificates to the vendors, information on TRN numbers would suffice.
  • Tax Information Desk: To get further understanding/clarification on VAT Treatment of any transaction, a person may write an email to briefings@tax.ae. The email should consist of draft question/query, the tax analysis of querist and possible recommendations/solutions.
  • Actions in Pipeline by FTA:
    • Video on how to file VAT Return – To be released on FTA domain 
    • Exchange rate to be used for AED conversion which would be soon provided by the Central Bank or there would be a link on the FTA website to that effect. Until then, one would have to adopt ‘recognised international rates, consistently from the same source’ 
    • Ministry of Health (MoH) to release a list of 0% items in next couple of weeks and this would be regularly updated 
    • From 1 February, there would be an options tab given on the login dashboard to deregister 
    • Next seminar to be scheduled on 26th February 2018
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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