What's must for VAT collection
It is unlawful for unregistered individuals to charge or even collect value added tax (VAT) in the UAE, experts cautioned on Wednesday.
In addition, if an unregistered individual has collected the tax, then they are obligated to pay it to the government to avoid penalties.
Speaking during the second edition of the 'VAT Clinic' at the Khaleej Times office in Dubai, experts also revealed that a business which falls below the mandatory registration limit of Dh375,000 can voluntarily register, and then claim a refund on the VAT paid upon their purchases.
The VAT Clinic is a series organised by Khaleej Times, the UAE's first English newspaper, in partnership with the Institute of Chartered Accountants of India (ICAI Dubai Chapter) and Qadi Accountants, a boutique advisory firm that provides services ranging from audit, accounting, advisory and taxation.
"With less than 30 days to go before the VAT laws are applicable in the UAE, companies are in an urgency to understand the different aspects relating to VAT some of which are: product wise/sector wise VAT applicability; implementation of VAT in the current operational and accounting systems of companies; training of accounting and commercial staff members of an organisation; business owners and accountants are now facing the reality check of VAT implementation as the deadline approaches," said Abdul Haseeb Kazi, Associate Partner, Qadi Accountants.
"Although there is a high demand for VAT related understanding, the market seems to be divided to a certain extent when it comes to investing towards the understanding of VAT and how it effects their businesses. Some companies had proactively invested towards obtaining the knowledge of VAT, how it effects their business, and trained their employees beforehand. Currently we are assisting the remaining businesses that had not acted proactively in making sure they are VAT compliant in time."
The second edition of the event, which comes right on the heels of the UAE's Federal Tax Authority (FTA) announcing the final VAT rates for food, fashion, gold, cars, and other items. T.P. Anand, chief strategist at Leap Business Excellence Advisory; Hemant Mundhra, director of consultancy at Slant Agency; Anurag Chaturvedi, senior director at Horwath MAK; Radhika Verma, lead VAT advisor, LnCo Tax Advisors; and Dilip Jain, VAT lead, ICAI VAT Faculty, sought to clarify many of the concerns that business owners had.
Below are some of the key issues discussed during the event.
If we do the voluntary registration, are we obliged to file monthly returns?
Article 62 of the Executive Regulations No. (8) states a taxable person tax period is three months. A taxable person is a person registered or obligated to register.
When will the return for VAT refunds come?
Refer to Article 64 of Executive Regulations and Article 34 of Federal Law No. (7) of 2017 on Tax Procedures.
Who can be a tax agent?
A tax agent criteria requires a Bachelor's or Master's degree in tax, accounting or law from a recognised educational institution; or a tax certification from an internationally known tax institution if the Bachelor's degree is in any other field. A recent professional experience certificate (of a period of at least three years in either tax, accounting or law) is required. Also, a language proficiency certificate in both Arabic and English, written and spoken; in addition to a certificate of medical fitness. It is prohibited to practice the profession of a tax agent without completing the registration and receiving accreditation from the FT - doing so constitutes a legal offense.
What will be the treatment of input and output taxes for high seas sales?
In the case of high seas, goods have not entered the UAE and there is no taxable supply happening within the country, so it is outside the scope of the VAT.
Can you explain freezone companies and their VAT applicabilities?
Designated zones (DZ) only have specific provisions where a transaction between the DZ to other company in the DZ is outside the scope and is not taxable. Any sale or consumption between all other companies including freezone are taxable. All services within the UAE, including designated zone, is taxable and companies need to register.
Is a Jebel Ali Freezone company required to collect VAT for sale in inland UAE?
As the UAE Cabinet is yet to announce applicability of Jebel Ali as a designated zone (though it is fenced and also has custom controls), inland sale to another registered dealer may be exempt, while those supplies consumed will be taxable.
What is the situation if goods are coming from a foreign country to a UAE port and transferring directly to the customer, with no sales in UAE?
In this case goods have not entered the UAE after customs clearance, and are still not a supply in the state, and thus not taxable.
What happens for the purchase and sales return of goods sold in December this year and returned in January next year?
Goods returned in January are for sales where no VAT was levied, hence there is no tax invoice for credit note.
A company has a branch, which is registered in Jebel Ali under the same name as its parent company and has no share capital. Do we need to register it separately?
Only the parent company is to be registered; the branch gets its identity from the parent company. A mention/reference would need to be made in return.
What if the TRN number is not received before Dec 31, 2017?
The FTA will endeavour to issue a TRN to all correct applicants who have applied by the December 4, 2017 deadline. Those with queries would have also received e-mails from TRA for clarifications. Intentional error, because of which TRN could not be generated, may be liable to penalties.
Can a company claim VAT input credit on staff accommodation expenses, and is VAT on school building lease rent claimable?
No, as the accommodation is used for residential purposes. Residential units are exempt and do not form part of the VAT law. Leasing of labor camps, which are used for residential purposes will also be exempt as the end use is still residential. In the case of the school building, it is still commercial and taxable; Article 40 of the Executive Regulations do not cover this.
What is the VAT applicability on donations, and other activists registered under CDA?
As donations do not have consideration received in the course of business, as per the definition of taxable supply, is not covered under VAT provisions.
How VAT applicable to a travel agency?
A service fee received by the travel agency will be liable to vat. The individual components like air travel, hotel stay, etc will follow individual provisions and the tax is to be separately determined.
How is the VAT levied on the export of vehicles wherein multiple dealers are involved?
The export of vehicles is zero rated. Every dealer who accounts for his stock as taxable supply will submit returns accordingly.
Is tax applicable for a transportation company providing limousine services?
Yes, limousines are not used for local transport, but more for leisure and tourism. Refer to Article 45 and the definition of qualifying means of transport.
How is gold scrap treated under VAT regulations?
Gold scrap would be melted and reused to make jewellery. The sale of gold in any form, other than bullion of investment grade, would be taxable at a standard rate.
Are software licenses defined as goods or services under the law?
Executive Regulations have defined goods as physical property that can be supplied. Software will qualify as a service, as the underlying nature is supply of intellectual property, licenses, etc and not the hard disk itself.
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