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.