FAQs

Consultancy services to a company in Kuwait, which has no branches in UAE.

Question –
I am providing consultancy services to a company in Kuwait, which has no branches in UAE. The services are provided by way of emails only. Could you kindly clarify the following:
1. Are the services zero-rated?
2. Is the place of supply Kuwait?

Answer –
As per Article 31(1)(a) of the VAT Executive Regulations, where the Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed, the services can be zero rated.

In the absence of agreement at the GCC level, the Implementing State condition is diluted to outside State (UAE).

The services described falls in the above criteria, hence it will be zero rated.

We are transportation “Taxi” under exempted category

Questions 

We are transportation “Taxi” sector in Abu Dhabi under exempted category with 1347 taxi vehicles.

1. Question 

As per Regulator (ITC) the taxi vehicles should not be work more than 5 years or pass 700,000 km whichever is earlier, we always do de-fleeting (replacement) and change the expired car by low with a new one by selling the used/expired one thought formal Bidding, please advise on the following :

A. In case of the sale price for used car is over the net book value is this transaction subject to VAT?

B. In case of the sale price for used car is less the net book value is this transaction subject to VAT?

(A&B) Answer – In the context of VAT, VAT is applicable on the consideration of the good sold. So in this case it is applicable on the sale price (consideration). It has no relation to NBV.

C. What is the method of selling the used car value selling price or NBV-VAT paid for purchase).

(C) Answer – Consideration for VAT is the selling price.

D. If I am selling the existing cars which I bought prior to VAT implementation so is this transaction still subject to tax?

(D) Answer – Yes, VAT is applicable on the sale transaction.

2. Question

Can we capitalize the VAT paid for assets purchase as an child asset over the life cycle?

3. Question

Can we amortize the VAT paid for assets purchase by coding the VAT as prepayment to be amortized over the life of assets?

2 & 3. Answers  – Normally wherever there is VAT paid, it is recorded as VAT receivable in Balance sheet as it is input tax credit recovered against the output tax payable. It is not to be capitalised with the asset.

However in your case, as transportation is exempt revenue, you would not be claiming input tax credit. The accounting treatment for VAT on asset purchase – expensed/capitalised/prepayment is something to be agreed with your Management/Auditors.

4. Question

Can we amortize the VAT paid for service & rental by coding the VAT as prepayment to be amortized over the agreement?

4. Answer – Normally wherever there is VAT paid, it is recorded as VAT receivable in Balance sheet as it is input tax credit recovered against the output tax payable. It is not to be capitalised or treated as prepayment.

However in your case, as transportation is exempt revenue, you would not be claiming input tax credit. The accounting treatment for VAT on service/rental – expensed/amortisation is something to be agreed with your Management/Auditors.

VAT Applicability of Designated and Free Zone export and import of goods

Question
Our Standered Operative system is as under.

We are in Free Zone/Designated Zone.
Maximum of the Purchase are Imported by Sea, which is the real import against duty deposit.
Some material comes from Mainland companies with VAT and some from the designated zone with zero vat.
Our Maximum Sales is as export outside the country with the document maccasa with duty paid at our custom office.
Sometime in export sale customer tell he will arrange the consoled transport for getting the material then we send the material with the local out document but the material in really gone out of the country.
And we have few businesses in the mainland and we cleared the material with our custom code and make tax invoice.
I explained our business operation above
Now please advise what exactly we do.
If we send the consolidated shipment and the same will treat as export and if we sold in local/export mainland and the same will not come in our import box no. 6

Answer
If the goods are exported outside the country and there is commercial and official evidence of the export, it will be zero-rated for VAT.

If sold in local/ export mainland, this will be out of scope as the customer is importing into the mainland and he will pay the VAT on RCM basis.

Do business selling across the GCC register in each country?

A business selling across the GCC will only be required/entitled to register for VAT in another member state if the nature of its supplies of goods and services requires it to be (e.g. the place of supply is in another GCC member state and the reverse charge mechanism cannot be used).

Source: Deloitte

Will there be a common system of VAT registration so you can check whether you are dealing with a taxable person?

The GCC Agreement envisages an electronic matching system for intra-GCC systems. In practice, we do not think this system will be available for a while and so it is likely a VAT number checking system will be made available country by country.

Source: Deloitte

Will there be group registration for companies in the GCC?

Based on the GCC Agreement, member states do have the discretion to implement VAT groups. The UAE and KSA laws indicate that grouping will be available for groups of legal persons established in these respective countries, depending on control requirements being met.

Source: Deloitte

Will associations of persons (e.g. open consortium) be considered as a taxable person?

Whilst the GCC Agreement does make reference to companies being able to form VAT groups, it does not specifically confirm the legal form required to be VAT registered.

Source: Deloitte

If only residents can be VAT registered, does this mean that offshore companies cannot be VAT registered?

There is a requirement for non-residents to register for VAT in the GCC, in the event that they need to pay VAT on supplies made by them in a GCC member state (e.g. the place of supply is in the GCC and the customer is not able to self-account for the VAT due under the reverse charge mechanism).

Source: Deloitte

Will zero-rated supplies count for the registration threshold?

Yes, the taxable supplies including zero-rated supplies count for the registration threshold. However, note that it might be possible that some GCC member states will allow, under certain conditions, a company which only makes zero-rated supplies to be excluded from the mandatory registration on request. The UAE and KSA have indicated that they may allow such exclusions in certain cases.

Source: Deloitte

What do we know about the establishment VAT registration requirement?

If an entity has a Permanent Establishment (PE) for corporate tax purposes in a member state, then it is very likely to also have an establishment for VAT purposes in that country. The bar for a PE is arguably higher than that for having an establishment for VAT purposes. Where it is unclear which establishment of a legal entity (i.e. the head office or the PE) has made the supply then an analysis would be required as to the establishment most closely connected with the supply. Where such a PE is considered to be making taxable supplies, a VAT registration would be required.

Source: Deloitte