What happens when a tourist buys goods in the UAE and returns the goods in participating stores in the UAE or abroad (if allowed by the merchant)?
Returns are allowed before the Tax Free Tag has been validated at the point of exit (the merchant will have to void the Tax Free Tag following Planet’s procedures). Returns are not allowed after the tourist has validated the Tax Free Tag at the point of exit from the UAE.
Does the tourist have to present Tax Free Tags at the time of refund when leaving the UAE?
The invoice must be attached to the Tax Free Tag and presented at the airport as part of the refund process. If not, the tourist will not receive their tax free refund at the exit point. Invoice wallets will be handed to tourists at the stores to keep their Tax Free Tag purchases organised.
What happens if the tourist claims their VAT refund and a relative then tries to refund or exchange the goods?
The person requesting the refund must be the person whose name and passport number is recorded in the Tax Free Tag transaction. The return of goods is allowed before the Tax Free Tag has been validated at the point of exit (the merchant will have to void the Tax Free Tag following Planet’s procedures). Returns are not allowed after the tourist has validated the Tax Free Tag at the point of exit from the UAE.
Can I claim a refund if the payment is made by my friend or relative using cash or credit card?
Yes, as long as the tourist exporting the goods is present during the purchase, and it is the exporter’s information that is completed for the VAT refund.
If the refund is above AED 10,000, can the tourist claim this at the airport?
The tourist can get a refund in cash up to AED 10,000, for all the Tax Free Tags that add up to that amount (or less). Once they pass that amount, the remaining tags must be refunded by credit or debit card only.
What happens if there is no cash refund counter at the border point?
The refund will be made by credit card, debit card or e-voucher where applicable.
Is there any additional cost to get a refund on a credit card by Planet or my bank?
There would be a standard currency exchange rate that would be applied to convert funds into the cardholder’s currency (where currency is not AED).
Is there any charge for a refund in cash?
There is no charge for a refund in cash, however, if a tourist wishes to exchange the refund from AED into another currency, the Cash Refund Agent’s advertised exchange rates would be applied.
Can one claim the refund before getting to the point of exit from UAE?
Is a cash refund available on both the air-side and land-side at airports?
Where available, a cash refund will only be given at the air-side.
How many days will it take for a credit card refund?
Card refunds are typically processed by Planet within 10 days, excluding the bank’s or credit card company’s own processing times.
Who does the tourist need to contact if there is a delay in the refund?
Tourists are advised to track their refund by scanning the QR code on the Tax Free Tag using a smartphone, and that will take them to a unique tracking page to see further details. If further assistance is required, the tourist can contact the Planet Customer Services team.
Can one reclaim VAT if ordering on an e-commerce website? If yes, what will be the procedure?
Yes, the invoice should be issued on the date the goods are collected in person by the tourist at a physical store, and the Tax Free Tag issued and attached to it on the same day. If the tourist pays online, the invoice must clearly state that it is an advance / deposit / booking fee and when collectiing the goods the actual sales invoice is issued on the day. Otherwise it is not possible to purchase online and claim tax free refunds.
Who is eligible?
Overseas Tourists are eligible for this type of refund. In the law, a tourist is defined as any natural person who is not resident in any of the Implementing States and who is not a crew member on a flight or aircraft leaving an Implementing State. Please note that currently, all GCC countries are considered as Non-Implementing States of the GCC VAT Treaty and therefore visitors from the other GCC states will be able to claim VAT refunds on their UAE shopping. This is subject to change in the future. Please note the tourist should be 18 years old or over to be eligible to claim a refund.
Can a resident who has cancelled his resident visa and is on the grace period for one month claim VAT on items purchased after the visa is cancelled?
Can restaurants register?
Yes, if a restaurant sells goods that are eligible under this scheme, they can register.
Who can or will be able to register for VAT?
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
What are the VAT-related responsibilities of businesses?
All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.
VAT-registered businesses generally:
- must charge VAT on taxable goods or services they supply;
- may reclaim any VAT they’ve paid on business-related goods or services;
- keep a range of business records which will allow the government to check that they have got things right
If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.
If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.
What does a business need to do to prepare for VAT?
Concerned businesses have time to prepare before VAT will come into effect in January 2018. Businesses will need to meet requirements to fulfill their tax obligations. Businesses should have started so that they will be ready later. To fully comply with VAT, we believe that businesses may need to make some changes to their core operations, their financial management and book-keeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisers). It is essential that businesses try to understand the implications of VAT now and once the legislation is issued make every effort to align their business model to government reporting and compliance requirements. We will provide businesses with guidance on how to fully comply with VAT once the legislation is issued. The final responsibility and accountability to comply with law is on the business.
When are businesses supposed to start registering for VAT?
VAT registration has opened in October 2017 for businesses that need to be registered by 1 January 2018. Any business that is required to be registered for VAT and charge VAT from 1 January 2018 must be registered prior to that date.
According to the Federal Law No. (7) on Tax Procedures, the Authority has 20 business days to review and respond on registration applications.
Registration applications shall be submitted via the E-Services Portal on the FTA website www.tax.gov.ae
When are registered businesses required to file VAT returns?
Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be:
- Quarterly for businesses with an annual turnover below AED 150m
- Monthly for businesses with an annual turnover of AED 150m or more.
The Tax returns shall be filed online using e Services.
What kind of records are businesses required to maintain, and for how long?
Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them is clarified in Federal Law no. (7) of 2017 on Federal Tax procedures and the Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No (7) of 2017 on Tax Procedures.
How long must a taxable person retain VAT invoices for?
Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.
How should a business determine the place of supply?
The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.
For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).
For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).
Can businesses offset customs duty against VAT payments?
VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.
How will real estate be treated?
The VAT treatment of real estate will depend on whether it is a commercial or residential property.
Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).
On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.
What sectors will be zero rated?
VAT will be charged at 0% in respect of the following main categories of supplies:
- Exports of goods and services to outside the GCC;
- International transportation, and related supplies;
- Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
- Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
- Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
- Supply of certain education services, and supply of relevant goods and services;
- Supply of certain Healthcare services, and supply of relevant goods and services.
What sectors will be exempt?
The following categories of supplies will be exempt from VAT:
- The supply of some financial services (clarified in VAT legislation);
- Residential properties;
- Bare land; and
- Local passenger transport
Will there be VAT grouping?
Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool that would simplify accounting for VAT.
Will there be bad debt relief?
VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business. The legislation will include the conditions and limitations concerning the use of this relief.
Will there be a margin scheme?
To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No.(8) of 2017 on Value Added Tax.
How will partial exemption work?
Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.
In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.
Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.
What are the cases that would lead to the imposition of penalties?
Penalties will be imposed for non-compliance.
Examples of actions and omissions that may give raise to penalties include:
- A person failing to register when required to do so;
- A person failing to submit a tax return or make a payment within the required period;
- A person failing to keep the records required under the issued tax legislation;
- Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.
Will there be any special schemes for SMEs?
No special rules are planned for small or medium sized enterprises. However, the FTA is providing through its website materials and resources for these entities to assist them in their enquiries.
Will there be transitional rules?
Special rules will be provided to deal with various situations that may arise in respect of supplies that span the introduction of VAT. For example:
- Where a payment is received in respect of a supply of goods before the introduction of VAT but the goods are actually delivered after the introduction of VAT, this means that VAT will have to be charged on such supplies. Likewise, special rules will apply with regards to supplies of services spanning the introduction of VAT.
- Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT. There will, however, be special provisions to allow suppliers to charge VAT in situations where their recipient is able to recover their VAT but where there is no VAT clause.
How will insurance be treated?
Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.
How will financial services be treated?
It is expected that fee based financial services will be taxed but margin based products are likely to be exempt.
How will Islamic finance be treated?
Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.
To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products will be aligned with the treatment of similar standard financial services.
Can UAE nationals claim VAT?
A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family. This will allow the recovery of VAT on such expenses as contractor’s services and building materials.
How quickly will refunds be released?
Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.
Will FTA issue rulings or provide tax advice?
In the course of its interaction with taxpayers, the FTA may provide its views on various matters in the law. Taxpayers may choose to challenge these views. It should be noted that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.
Will it be possible to issue cash receipts instead of VAT invoices?
A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.
Will there be any VAT that businesses are not allowed to claim?
VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.
Under which conditions will businesses be allowed to claim VAT incurred on expenses?
VAT on expenses that were incurred by a business can be deducted in the following circumstances:
- The business must be a taxable person (the end consumer cannot claim any input tax refund).
- VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
- The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
- The goods or services acquired are used or intended to be used for making taxable supplies.
- VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.
Will non-residents be required to register for VAT?
Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.
Will VAT be paid on imports?
VAT is due on the goods and services purchased from abroad.
In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.
In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.
How will Government Entities be treated for VAT purposes?
Supplies made by government entities will typically be subject to VAT. This will ensure that government entities are not unfairly advantaged as compared to private businesses.
Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely certain government entities will be entitled to VAT refunds – this is designed to avoid budgeting issues and provide a level playing field between outsourced and insourced activities.
For the supplies provided for government entities, the treatment of such supplies shall depend on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment would remain the same even if it is provided to a government entity.
Will Businesses have to report on their business in each of the Emirates?
Businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate.
Further detail on this can be found in the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.
Will the goods exempt from customs duties also be exempt from VAT?
Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.
Why is the UAE implementing VAT?
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide our country with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
What is VAT?
Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain. To explain how VAT works we have provided a simple, illustrative example below (based on a VAT rate of 5%).
Will VAT cover all products and services?
VAT, as a general consumption tax, will apply at 5% to all transactions of goods and services unless specifically exempted in Article (46) of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of Zero as per Article (45) of the Federal Decree-Law.
When will the VAT go into effect and what will be the rates?
VAT will be introduced across the UAE on 1 January 2018 at a standard rate of 5%.
Why does the UAE need to coordinate VAT implementation with other GCC countries?
The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognize that such a collaborative approach is best for the region.
What is the difference between VAT and Sales Tax?
A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.
Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.
How will the government collect VAT?
Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
Will the cost of living increase?
The cost of living is likely to increase slightly, but this will vary depending on the individual’s lifestyle and spending behavior. If your spending is mainly on those things which are relieved from VAT, you are unlikely to see any significant increase.
What measures will the government take to ensure that businesses don’t use the VAT implementation as an excuse to increase prices?
VAT is intended to help improve the economic base of the country. Therefore, we will include rules that require businesses to be clear about how much VAT you are paying for each transaction. You will have the required information to decide whether to buy something or not.
Does the owner of real estate have to register for VAT?
The owners of residential buildings do not have to register for VAT if they do not have any other business activities. Where owners have other business activities, they should consider their obligations further.
The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over coming 30 days.
Can a real estate owner recover VAT paid in relation to real estate?
An owner of residential building will not be able to recover VAT in respect of expenses related the exempt supply of the residential buildings.
An owner of a commercial building will generally be able to recover VAT in respect of expenses related to the supply of the building.
How is a mixed-use building (residential and commercial) treated for VAT?
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply or a subsequent supply.
The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.
The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.
Will VAT be charged on the property I am renting?
The rent of residential building will generally be exempt from VAT.
The rent of commercial building will be subject to VAT at 5%