• Taxation/ Visa

    UAE to introduce VAT Tax Refund Scheme for Tourists

    UAE to introduce VAT Tax Refund Scheme for Tourists

    The UAE Federal Tax Authority (FTA) has announced a tax refund scheme for tourists to claim refunds of Value Added Tax (VAT). Tax invoices issued as of 18 November 2018 and forward will be eligible for the refund.

    VAT refunds will be valid on purchases over AED 250 at more than 4,000 participating retail stores. Requirements for retailers to register for the scheme include the production of a Tax Registration Number (TRN), submitting a request to the FTA to participate in the scheme and meeting the financial credit requirements specified by the system. Eligible outlets will be identifiable via visible posters displayed on their storefronts.

    Tourists will receive refunds through a special refund kiosk at their point of departure upon production of the valid tax invoices, copies of their passport and a credit card. The VAT will then be refunded either in cash or by credit card.

    The scheme will be introduced in two phases; from the 18 November 2018, Abu Dhabi, Dubai and Sharjah international airports will implement the digital refund systems and as of mid-December 2018, the system will be fully operational and include all airports and land and sea ports in the UAE.

    For any of your legal requirements please get in touch with Davidson & Co today.

  • Economy/ Legal Update/ Taxation/ Uncategorized

    Federal Tax Authority announce list of Designated Zones in the UAE

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    Cabinet decision No. (59) of 2017 on the Executive Regulations of the Federal Decree-Law No. (8) of 2017 (UAE VAT Law) has provided for 20 Designated Freezones in the UAE (as listed below), which will be treated for VAT purposes as being outside the UAE.

    Under the UAE VAT Law and Executive Regulations, a Designated Zone is defined as “a specific, fenced geographic area which has security measures and customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area.”

    Subject to the below exceptions, in general, if a supply is deemed to have taken place in a designated zone, VAT should not be charged. The place of supply is generally determined by looking at the location of the goods, activities or parties to a transaction. The rules are as follows:

    • Goods that arrive into a Designated Zone from outside the UAE are not treated as imported into the UAE, and no VAT should be charged on the arrival of such goods; and
    • A transfer or sale of goods from a place in the UAE which isn’t a Designated Zone into a Designated Zone is not an export for VAT purposes, and therefore will not give rise to zero-rated VAT treatment.

    The transfer of goods between Designated Zones will not be subject to VAT, as stated in Article (51) of the VAT law, provided both of the following conditions are met:

    • The goods (or part of the goods) are not released, used, or altered during the transfer between Designated Zones; and
    • The transfer is in accordance with the rules for customs suspension pursuant to GCC Common Customs Law.

    The Federal Tax Authority may also request that, where goods are moved between Designated Zones, the owner of the goods provides a guarantee in respect of the VAT in case the conditions outlined above are not met.

    However, there are exceptions within the VAT Executive Regulations that state that certain types of supplies taking place in the Designated Zones are to be treated as if they actually took place within the UAE, and are therefore subject to VAT. These supplies include:

    • Any services provided;
    • Water and all forms of energy; and
    • Goods sold for use or consumption.

    Designated Zones:

    Abu Dhabi: Free Trade Zone of Khalifa Port; Abu Dhabi Airport Free Zone; and Khalifa Industrial Zone.

    Dubai: Jebel Ali Free Zone (North-South); Dubai Cars and Automotive Zone (Ducamz); Dubai Textile City; Free Zone Area in Al Quoz; Free Zone Area in Al Qusais; Dubai Aviation City; and Dubai Airport Free Zone.

    Sharjah: Hamriyah Free Zone; and Sharjah Airport International Free Zone.

    Ajman: Ajman Free Zone.

    Umm Al Quwain: Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port; and Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road.

    Ras Al Khaimah: RAK Free Trade Zone; RAK Maritime City Free Zone; and RAK Airport Free Zone.

    Fujairah: Fujairah Free Zone; and Fujairah Oil Industry Zone (FOIZ).

     

  • Economy/ Taxation

    Proposed removal of UAE from EU tax-haven blacklist

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    The UAE is amongst 8 countries recommended to be removed from the EU tax-haven blacklist. The blacklist was introduced by the EU in December of last year, as part of an initiative against tax evasion and to urge countries to observe and adhere to EU standards of tax matters.

    The recommendation for removal comes from the UAE Code of Conduct working group on business taxation, and is likely to be implemented towards the end of the month. The effect of the recommendation will see the UAE move from a list of countries which are deemed non-cooperative for tax purposes, to a gray list of countries that will be observed to ensure that their tax practices are compliant with EU standards.

    The recommendation is due to be discussed and approved by EU finance ministers at their next meeting on 23rd January 2018.

  • Economy/ Legal Update/ Taxation

    VAT Update – Insight On the New UAE VAT Law

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    This is a short update from our previous blog article relating to the implementation of VAT in the UAE.

    On 23 August 2017, Federal Law No. 8 of 2017 concerning Value Added Tax (the “UAE VAT Law”) was issued together with the launch of the official tax website for the Federal Tax Authority. Further detail will become available in the yet-to-be-published Executive Regulation.

    Here’s a summary of what we know from the UAE VAT Law:

    • Implementation Date – 1 January 2018. The VAT registration process will open from mid-September 2017.
    • VAT rate – 5%.
    • What will be taxed – “taxable supply of goods or services for consideration and deemed supplies by a taxable person conducting business in the UAE and the import of taxable goods.” Includes imports of goods and services subject to the reverse charge mechanism.
    • Who will be required to account for VAT – The supplier of the goods or services; the importer of taxable goods; and the taxable person registered for VAT who acquires goods.
    • VAT registration – VAT registration will be compulsory where the annual supplies exceed AED 375,000 (the mandatory registration threshold). VAT registration will be optional if the mandatory registration threshold requirement is not met but the taxable supplies or expenses exceeds AED 187,500 (the voluntary registration threshold). In addition:
      • Group VAT registration will be available for related parties who meet specific criteria
      • Government entities will also be required to register for VAT.
      • Individuals not registered for VAT will be required to pay tax on import of taxable goods from outside the GCC at the time of import.
    • Zero rated supplies – Certain exports, supply of certain education and healthcare services and related supplies, supply of crude oil and natural gas, certain investment grade precious metals, supply of new-build residential properties within 3 years of completion and supply of certain means of transportation.
    • Exempt supplies – Certain financial services, residential supplies other than the first supply noted above, bare land and local passenger transport.
    • Free Zone – Subject to certain exceptions, a designated zone that meets specific criteria in the regulations shall be treated as being outside the UAE and goods transferred from one designated zone to another designated zone will not be subject to VAT. Exact details will be in the Executive Regulations. In particular, it remains to be seen how financial free zones such as the ADGM and the DIFC will be treated.
    • Invoices dated pre 1 January 2018 – Various transitional rules apply for cases where (i) payments or invoices are advanced before 1 January 2018; (ii) where contracts are concluded before 1 January 2018 and are silent on VAT; and (iii) contracts are concluded before 1 January 2018 but the supply is made after this date.

    For example, if a contract entered into in 2017 for a supply to be made in 2018 does not contain express provisions about tax on that supply, the price will be considered to include VAT if chargeable, whether or not the tax liability has been taken into account in determining the price. It is therefore recommended that express provision be made for VAT now in the supply of future goods/services.

    • Retaining VAT invoices – Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

    With four months remaining for VAT to apply in the UAE, it is important for individuals to consider the impact of VAT on their business and to comply with VAT obligations by seeking independent financial advice.

    Davidson & Co. are available to assist with any VAT implementation queries you may have specific to your business criteria, including the review and amendment of commercial agreements to understand the applicable VAT position.

  • Legal Update/ Taxation

    New Tax Procedures Law Announced in the UAE

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    Over the last decade, the UAE’s attempts to diversify its economy and move away from reliance on oil has been largely successful.  The most recent evidence of this is the announcement in 2016 regarding the introduction of VAT across not only the UAE but the wider GCC region.
     
    To further back this up and allow for the orderly transition, new tax legislation has been issued by UAE President, Sheikh Khalifa.
     
    Federal Law No. 7 of 2017 (the “Tax Procedures Law”) lays the foundations for an enhanced UAE tax system, which will regulate the administration and collection of taxes, starting with VAT in 2018, and defines the role of the Federal Tax Authority (FTA).
     
    The law sets out the rights and obligations of the FTA and the taxpayer and covers tax procedures, obligations, audits, refunds, collections and objections.
     
    Key provisions of the Law:
     
    – requires businesses to keep accurate accounting records
    – requires any business or individual to register with the FTA
    – requires any taxable business or person to prepare a tax return
    – mandates that all tax agents must be registered
    – allows the authorities to perform tax audits
     
    The establishment of the FTA and The Tax Procedures Law seeks to ensure a smooth transition into tax paying nation.  At this moment in time, there has been no indication that other taxes (such as tax on personal income) is something that will also be introduced.  The UAE government is keen to ensure a sustainable and successful economy into the future; diversifying and increasing revenue streams through taxation is the next obvious step in this process.  They have also stressed that the additional resources will be used to further advance development and infrastructure in the country.
     
    The full text of the new Tax Procedures Law can be found on the Ministry of Finance’s website – www.mof.gov.ae
     
    Based in Dubai, Davidson & Co can assist with any legal queries relating to this new legislation, as well as any corporate law or company formation requirements in the UAE.  We’re here to help, so please get in touch.
  • Taxation

    VAT in the UAE: How will it impact your business?

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    As the UAE’s economy matures and the reliance on oil revenues decreases, we are seeing a greater need for the country to identify new revenue streams to fund many of UAE’s public services.  The introduction of Value Added Tax (“VAT”), set to be introduced on 1 January 2018, will be a significant step in this direction.

    This article explores the impact on businesses through the introduction of VAT; what they should do to comply with the government’s requirements; and how Davidson & Co can assist to achieve the necessary restructuring and protection your business may need to undertake to ensure compliance.

    Businesses likely to be affected 

    Whilst the official announcement of specific conditions is awaited from the Ministry of Finance (“MOF”), it is anticipated that in order to register for VAT, the below requirements must be met:

    1. Business must sell “taxable goods or services”:
      • Likely to apply to majority of transactions in goods and services.
      • A limited number of exemptions and reliefs may be granted (see below).
    1. Business must meet the “minimum annual turnover” requirement:
      • The exact amount is yet to be confirmed by the MOF, however, stakeholders are hoping that this will safeguard small businesses from registering for VAT in support of local entrepreneurship.

    Nevertheless, according to a recent MOF online article[1], all companies in the UAE (whether subject to VAT or not) will still be obliged to maintain their financial records in order to evidence their VAT position to the government if required.

    Exemptions / Reliefs

    Goods & Services likely to be exempt from VAT

    • A number of food items;
    • Health, education & social services.

    Reliefs from VAT

    • The MOF has expressed an intention to allow foreign businesses to recover the VAT they incur when visiting the UAE (although it is still unclear what is meant by “foreign businesses” and “visiting” the UAE).
    • Special rules on VAT for government entities will be applied, as well as refunds in certain scenarios to these organisations.

    What your business needs to do

    As VAT will be charged throughout the supply chain, businesses are ultimately responsible for invoicing / collecting VAT and remitting it to the UAE government as required.

    Those businesses likely to be affected by VAT will have approximately 18 months once the legislation is enforced to ensure any requirements are met to fulfil their tax obligations.

    It is anticipated that the process will be as follows:

    1. Understand VAT registration obligations (take independent advice as necessary);
    2. Apply for a VAT registration number (Davidson & Co can assist with this);
    3. Ensure relevant financial records are maintained in the appropriate manner and in accordance with the regulations;
    4. Charge VAT at the applicable rate (currently estimated at 5%) on the taxable goods / services;
    5. Revise Terms of Business with customers to ensure VAT ultimately becomes the cost of customers and not suppliers (Davidson & Co can assist with this);
    6. Implement necessary changes to core operations and obtain relevant training, such as:
      • Financial management and book-keeping;
      • Technology (implement manual or automatic systems as part of the accounting process);
      • Human resource mix (e.g. accountants and tax-advisors);
    7. Reclaim business-related VAT paid to suppliers;
    8. Report amount of VAT charged and amount that will be paid to the government through an online submission.

    How can Davidson & Co help?

    From a legal perspective, non-compliance with tax laws will have legal ramifications and may in the near future attract severe penalties which are punishable in the UAE.  It is therefore essential to update your company’s policies to apply VAT correctly and avoid additional costs and/or legal liabilities in non-compliance.

    At Davidson & Co we have the right team to help simplify the UAE’s growing legal and tax complexities in order to find practical solutions to cater to your business needs.  As commercial specialists, we work closely with customs and government entities to advise clients on all aspects of the new taxation regime in the UAE.

    Davidson & Co will continue to update this article as new information comes to light.

    About Davidson & Co

    Davidson & Co is a boutique law firm established in Dubai in 2008, with lawyers and legal consultants drawn from across the globe.  Providing a unique combination of corporate / commercial expertise; dispute resolution solutions; as well as private client advice, we are able to cater to the mass market and offer unparalleled legal services in the region.

    For more information about our capabilities and accolades, please visit http://www.davidsoncolaw.com/about.html or contact 04 343 8897 and ask to speak to one of our associates.

    [1] http://www.mof.gov.ae/En/Budget/Pages/VATQuestions.aspx).