Federal Tax Authority approves tourist refunds

Federal Tax Authority approves tourist refunds

The Federal Tax Authority’s (FTA) Board of Directors has formally approved implementation of the tourist refund scheme at its fifth meeting, held on Wednesday at the Dubai ruler’s court.

The meeting was headed by Shaikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance.

According to the statement, the scheme includes comprehensive procedures to connect outlets and points of sale across the UAE with the refund system.

Earlier this month, the FTA’s top official, Khalid Al Bustani, told the media that tax refunds for tourists would be finalised “soon”, adding that he expected a company to be selected to handle tourist refunds in the coming weeks.

“We have tender for the selection of a tourist refund operator, and we are in the final stages now. We are waiting for the final approvals in order to finalise the contract with the operator,” Al Bustani, who is director general of the FTA, said at the time.

When asked for details on who the front-runner in the bidding process was, FTA spokespeople declined to comment.

Shaikh Hamdan said in a statement at the board meeting on Wednesday: “The UAE tax system has proven to be a great success, encouraging self-assessment, and providing an example to be emulated across the region and the world. The Federal Tax Authority’s seamless and integrated electronic system, coupled with a sophisticated world-class fiscal legislative environment, has ensured increased compliance.”

The statement made no mention of which company, if any, had been selected to administer the service, nor how much the government anticipated refunds would amount to.

Tourists visiting the UAE will be able to claim back VAT on purchases they make whilst on holiday in the country, according to the FTA’s executive regulations.

The regulations add that the refund system will only be eligible to those travelling to the UAE from outside Gulf Cooperation Council (GCC) countries.

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VAT: Beyond the first 100 days

VAT: Beyond the first 100 days

This time last year, many were sceptical about the implementation of value-added tax (VAT) in the United Arab Emirates, but on January 1, 2018, the country joined the global tax arena. The introduction of VAT was a landmark event, but what have we learnt in the first 100 days and what might we expect going forward?

It appears that for a minority, the introduction of VAT was straightforward but for many it had mixed results. Despite significant publicity around the matter, many organisations were not registered for VAT on time or were not properly prepared. This has had an impact on those who were prepared for they were then burdened with the task of educating their unprepared suppliers and customers on how to implement an adequate VAT framework.

 

 

During the first 100 days, worries included technology gremlins, customer enquiries and supplier slip-ups. Many organisations either delayed or failed to issue valid tax invoices resulting in reputational, commercial, cash-flow or administrative issues. Several failed to link all their customs certification numbers with their tax registration numbers resulting in them experiencing difficulties and delays in importing their goods.

Free zones and the new designated zones were considered the same. In fact there are distinct differences between the two from a VAT perspective. VAT transactions in free zones are treated no differently to those in the mainland, but there are special provisions and treatment of goods in designated zones. It is thus imperative to fully grasp the concepts and consequences of each.

Completion and submission of the first VAT return is a key milestone; it represents the first VAT declaration to the FTA. The largest businesses submitted their first, even second VAT returns by the end of March, whilst others will do so toward the end of April, May or June.

Many may have found the process to complete a VAT return challenging. The greatest difficulty encountered so far is to ensure that the information included in the return is complete and accurate. Best practice would be to have a well-informed VAT manager with sufficient experience, and documented processes and controls that include segregation of duties. Not all businesses, however, will require this level of detail and so may decide to co-source or out-source their VAT reporting.

For small businesses, a good working knowledge, straightforward accounts and an understanding of Excel spreadsheets might be all they need to complete their VAT reporting.

To answer the questions pertaining to VAT compliance, it is important to understand what VAT compliance means to your business.

It is generally accepted that the first VAT return may not be representative. There are a number of reasons for this, ranging across transitional rules, invalid returns, delays, errors and misunderstanding.

The FTA has already issued some enquiries on the first VAT returns. Some organisations are thus quickly learning the importance of accurate and complete reporting and, unfortunately for some, the costly consequences of failing to comply.

In addition to an external tax advisers market, there is growing demand for in-house advisers. They are needed where the size and complexity of the business require it and are an excellent way of managing VAT compliance on a budget. The selection of the suitable individual is critical, with practical experience of managing a VAT-compliance function and a good knowledge of VAT as essential characteristics. Typically this person would have a fairly senior role, have junior support, and be answerable to the Chief Financial Officer (CFO).

Finding suitable candidates can be challenging; remember that VAT requires a detailed and specialist skill, and in order to maintain a level of knowledge, access to information and support is crucial.

Areas where substantial transactions or restructuring occur will also require VAT support, for example, the sale of a property, the purchase or sale of a business or a commercial restructure. Diligence should now include a section on VAT as well as warranties and indemnities. Imagine restructuring your business only to discover you created your own VAT cost, or failing to ask for VAT diligence and finding a hole in your finances!

Looking forward to the next few months, we can expect more VAT enquiries and audits from the FTA. Arranging a VAT review or a post implementation health check would be a wise investment. Finding any discrepancy and having the opportunity to correct it voluntarily can save thousands of dirhams in penalties.

Additionally, businesses should start to consider implementation of VAT across the rest of the Gulf Cooperation Council (GCC) region. Anyone supplying and/or receiving goods or services from other member states will be required to identify these transactions and report them correctly for VAT purposes.

A new industry has been formed but the quality of advice and reputation of many is still to be established. It is likely mistakes will be made; the difference will be how these are managed and reported. Investing in a post-implementation review and selecting and working with the right VAT partner will help set out on the right path to VAT adoption.

Clare McColl is partner and head of VAT of KPMG in the Lower Gulf region.

Key points about VAT registration in UAE

Key points about VAT registration in UAE

The Federal Tax Authority (FTA) has stressed that all businesses subject to the implementation of value added tax (VAT) should be fully aware of key on registering for VAT.

Khalid Ali Al Bustani, Director-General of FTA, urged business sectors to learn and understand key information, which has been identified based on the first period of VAT implementation, with the new taxation system coming into effect from January 1, 2018.

He said that it was incumbent on all businesses to ensure that they are compliant and properly registered.

“This continuous follow-up is a commitment by the FTA to adopt the highest standards of transparency and accuracy in its efforts to achieve optimum implementation of tax systems locally and to avoid misconceptions that can lead to the arising of issues that can have a negative impact,” he said.

“This information is being added to the existing guidelines, laws and regulations available through the FTA’s website: www.tax.gov.ae, as well being made available in the form of infographics, short film presentations and induction workshops in the UAE. The messaging has been designed to guide community members and business sectors to the mechanisms of calculating VAT, to explain the steps and procedures related to it, and to outline the obligations of each party,” he added.

The FTA clarified that included in the information were seven essential pointers to ensure optimum VAT implementation, including:

Businesses whose supplies are less than Dh375,000 are not required to register for tax

Businesses must register for VAT if their taxable supplies exceed Dh375,000 over the previous 12 months, or expected to exceed the threshold in the next 30 days. Businesses with supplies less than voluntary registration of Dh187,500 cannot register with the Authority to obtain a tax number and are not required to have a tax registration number (TRN).

Natural persons are subject to VAT if their supplies exceed the mandatory threshold

A natural or legal person in business is required to register for VAT if their taxable supplies exceed the mandatory registration threshold of Dh375,000 000 over the previous 12 months, or expected to exceed the threshold in the next 30 days. They should register as soon as possible to avoid late penalties and the accumulation of payable tax duties.

The tax registration number (TRN) is sufficient to carry out all commercial activities.

Providing a TRN is sufficient to carry out any business or other economic activity, which can be verified using the service of the TRN verification through the FTA website at www.tax.gov.ae. Businesses do not need to wait for the completion of a VAT registration certificate in order to trade – a TRN is sufficient. This policy is in line with FTA’s continuous efforts to ensure there’s no negative economic impact on businesses that could result from not being permitted to trade. 

Registration is continuous

Registration for VAT is continuous for either new business or businesses reaching the mandatory registration threshold or late registration cases for which the legal process will be applied upon registration.

Computation of the mandatory limit according to revenues.

The mandatory registration threshold shall be calculated on the basis of total business turnover relating to taxable supplies provided no explicit provision for exemption has been issued. The registration threshold is calculated on the value of imported goods and services and not based on profits. 

Exemption from the late registration penalties only until the end of April.

The FTA’s decision to exempt late business sectors from VAT registration procedures applies only up until the end of April 2018. All taxable businesses are still required to settle all due taxes due from January 1, 2018.

Unregistered businesses are not entitled to impose tax 

Unregistered businesses are not entitled to impose a tax on their customers and therefore cannot issue tax invoices. Such businesses will still have to pay tax on imported goods before they clear customs outlets. Violating parties will be required to pay an administrative penalty of Dh20,000.

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