News Update

UAE's Federal Tax Authority issues warning over VAT scam

Date: 10 Sep, 2019

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External URL: https://www.arabianbusiness.com/banking-finance/427698-uaes-federal-tax-authority-issues-warning-over-vat-scam

The UAE’s Federal Tax Authority on Tuesday issued a warning after reports of scammers trying to target bank customers over VAT refunds.

In response to reports that some bank customers have received emails from unidentified sources impersonating banks and financial institutions requesting personal data in the promise of helping them claim VAT refunds, the FTA reaffirmed that they can only be processed through its official website.

The authority said that some recipients have been asked to provide personal data, including names, credit card numbers, and PIN codes, claiming that providing the information will allow them to recover VAT.

“Refunding taxes for legally eligible applicants is a direct transaction between the registered business and the FTA, and does not call for any intermediaries,” it said in a statement.

“The process is completed via advanced electronic systems, available on the FTA’s official website, which includes security features for financial transactions. It is done through official channels using the International Bank Account Number (IBAN), and via systems under the authority of – and electronically linked to – the UAE Central Bank.”

The FTA warned all registered businesses, calling on them to remain vigilant and maintain the confidentiality of their personal data.

FTA's dialogue led to smooth VAT implementation in the UAE, says Abdulla Al Gurg

Date: 10 Sep, 2019

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External URL: arabianbusiness.com/politics-economics/427427-ftas-dialogue-led-to-smooth-vat-implementation-in-the-uae-says-abdulla-al-gurg

The UAE’s Federal Tax Authority’s (FTA) dialogue with larger corporations will eventually trickle down to smaller traders, among whom the value-added tax (VAT) process has sometimes been problematic, according to according to Abdulla Al Gurg, the CEO of the Easa Saleh Al Gurg Group (ESAG).

According to Al Gurg, ESAG – which is the exclusive UAE agent for the British American Tobacco Company and its subsidiaries – is one of the most significant sources of revenue from VAT and excise tax in the country.

Despite some concerns that were expressed ahead of the implementation of VAT, Al Gurg said he believes the process was overall handled smoothly.

“I respect them [the FTA] and admire their hard work creating something from nothing,” he said. “It must have been a huge challenge to take it from the point of just being an instruction to the point of actual being a thing that we live by.”

Al Gurg added that “everything has a process, and I think it couldn’t have been better”.

“I admire the approach and willingness of discussion they had with us,” he added.

“You don’t get a lot of government entities that are very open in dialogue.”

Trickle-down effect

Although he said that some – particularly smaller companies – have faced difficulties with the VAT process, he is confident that the FTA’s willingness to address them with larger companies will have a trickle-down effect on the economy.

“I’m not saying there are no problems, but when there is a problem, it is handled and taken care of,” he said. “Maybe the small traders don’t feel that way. It’s a very different experience

“But if they are willing to change for us, the effects will ripple through,” he added. “It just needs a bit more patience.”

In June, the government announced that it collected AED 27 billion in VAT last year, far exceeding its target of AED 12 billion.

IMF says VAT should be doubled to 10% in Saudi Arabia

Date: 09 Sep, 2019

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External URL: https://www.khaleejtimes.com/business/global/imf-says-vat-should-be-doubled-to-10-in-saudi-arabia

The International Monetary Fund (IMF) has suggested that the value-added tax (VAT) should be doubled from five percent to 10 percent in Saudi Arabia in consultation with the other Gulf countries.

Analysts expect the hike in VAT rate will come only after 2021 once Kuwait and Oman will also be ready to implement it and as a customs union, the increase makes sense across the GCC countries.

“The introduction of the VAT in January 2018 was a landmark achievement, with revenue collections exceeding expectations. The reduction in the registration threshold at the beginning of 2019 has also gone smoothly. Staff suggested that consideration be given to raising the VAT rate from 5 to 10 percent, in consultation with the GCC,” IMF said in a report prepared its staff after consultation with the authorities in the Kingdom.

The UAE and Saudi Arabia introduced the five percent value-added tax from January 2018 with both the countries surpassing their tax collection targets.

Thaddeus Best, an analyst at Moody’s Sovereign Risk Group, said as a customs union, it is logical that GCC countries would seek to keep their VAT rates harmonised in order to prevent tax arbitrage opportunities emerging within the GCC.

“However, as the hesitant implementation of five percent VAT across the GCC since 2018 shows, there is some scope for VAT differentials to be tolerated, so long as they are relatively small and temporary, as it is currently the case in the GCC with only three out the six countries having implemented the measure so far. Nevertheless, we think it is unlikely that Saudi Arabia, the UAE and Bahrain would raise VAT rates further until the remaining GCC sovereigns have finalised their VAT frameworks,” Best told Khaleej Times.

VAT receipts set to boost Ras Al Khaimah surplus in 2019, says Fitch

Date: 06 Sep, 2019

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External URL: https://www.arabianbusiness.com/politics-economics/426118-vat-receipts-set-to-boost-ras-al-khaimah-surplus-in-2019-says-fitch

Fitch Ratings has affirmed Ras Al Khaimah’s long-term foreign-currency issuer default rating (IDR) at ‘A’ with a stable outlook, saying the emirate has a low and declining government debt burden and high GDP per capita.

The ratings are also supported by the benefits of RAK’s membership of the UAE, while the emirate’s small size and weaknesses in the policy framework weigh on the ratings, Fitch said in a statement.

“The emirate derives substantial support from its membership of the UAE… Close integration within the UAE has allowed the emirate to focus on its development strategy and build a relatively diversified economy dominated by manufacturing and services,” it added.

Fitch said it expects the debt of the government and its state-owned enterprises to fall to below 20 percent of GDP in 2019 from 33 percent in 2015.

It added that the debt will fall further to close to 17 percent of GDP in 2020 as the government uses VAT receipts for the early repayment of AED678 million of private placements.

Fitch noted that the government’s fiscal surplus increased to 2.6 percent of GDP in 2018 from 1.4 percent in 2017, buoyed by the recovery of mining and quarrying activities and receipts from the sale of the government’s 41 percent stake in Union Cement Company.

Fitch also forecast a fiscal surplus of 2.7 percent of GDP in 2019, largely underpinned by RAK’s receipt of close to two years’ worth of VAT, amounting to over 2 percent of GDP.

VAT was introduced in the UAE in 2018 and collected at the federal level, but an agreement on the share to be remitted to individual emirates was only reached in early 2019, which delayed the disbursement of the first year’s collection.

Fitch added that GDP growth will slow slightly to 2.5 percent in 2019 from 2.8 percent in 2018 as the momentum from the rebound after the Qatar embargo fades and UAE-wide growth is expected to remain muted while the development of RAK’s container port could also spur new investment in the free zones and the broader economy.

However, the continuation of the housing market slump in Dubai has led to a reduction in building permits and mortgages issued in RAK and could also weigh on tourism, Fitch said.

Decreasing hotel occupancy rates were seen during the first half of 2019 although they remain high.

“The government is making progress on developing the emirate as a tourist destination, and a doubling of hotel capacity by 2023 is in the pipeline. A further escalation of tensions between Iran and the US and its regional allies could also have repercussions for RAK,” Fitch noted.

VAT registration call for BD 18,750–500,000 generating entities

Date: 03 Sep, 2019

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External URL: https://www.nbr.gov.bh/releases/57

The National Bureau for Revenue (NBR) highlighted that the VAT registration process is open for entities generating or expected to generate between BD 18,750 and BD 500,000 in annual vatable supplies.

Concerned entities that wish to register early for VAT with the NBR will have the option of choosing the date to start implementing VAT until the end of the grace period.  The NBR stressed that collaboration and raising awareness on technical and procedural aspects of VAT are of utmost importance to ensuring the success of the VAT application process.

The NBR noted the positive cooperation provided by businesses regarding the proper application of VAT, adding that more than 4500 entities have registered for VAT since its launch within the Kingdom on 1 January 2019.

 

For further information, please contact the Call Center on 80008001 or email vat@nbr.gov.bh, in addition to leveraging the information available on NBR’s website (www.nbr.gov.bh), Twitter, Instagram and YouTube channel.

How to make 'recovery of cost' under VAT

Date: 27 Aug, 2019

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External URL: https://www.khaleejtimes.com/business/how-to-make-recovery-of-cost-under-vat

Taxability of ‘recharges’, typically applicability of VAT is a subject matter of debate and interpretation across the VAT jurisdictions. The term ‘recharge’ also commonly known as ‘recovery of cost’ is generally not defined in the legal statues but has gained significant importance from a VAT determination viewpoint, purely because it is not clear whether a recharge in itself involves any supply of goods or services attracting VAT.

A recharge happens when there are three entities involved. For example, Entity B incurs costs charged by Entity A which are then recharged by Entity B to Entity C. In each of the supplies, the VAT treatment could potentially change, depending on nature of the transaction, relationship between the entities and whether recharge is at cost or with a mark-up.

The challenge in determining the VAT liability for recharges are multi-fold.

First, it needs to be determined whether the costs that are recharged were incurred for customer’s direct benefit or were they, in fact consumed by the supplier and later recharged to the customer.

Second, it needs to be determined whether the recharge in itself constitutes an independent supply or is it ancillary to the principal / main supply. Also, it is equally important to ascertain whether the person reimbursing the amount is acting in the capacity of an agent (i.e. recovering payment made on behalf of another person) or recovering the expenses incurred as a principal.

FTA begins procedures on updated excise goods

Date: 24 Aug, 2019

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External URL: http://www.wam.ae/en/details/1395302781424

The Federal Tax Authority, FTA, has begun carrying out procedures related to implementing the latest Cabinet Decision on Excise Goods, Excise Tax Rates, and the Method of Calculating the Excise Price, issued in August 2019, which expanded the scope of excise goods to include electronic smoking devices and liquids, and sweetened drinks.

The new Decision goes into effect on 1st January 2020, adding these products to the list of Excise Goods, which included tobacco and tobacco products, energy drinks, and carbonated drinks – products that have been subject to Excise Tax since 1st October 2017.

In a press statement issued today, the Authority asserted that the new Decision is part of the government’s continuous efforts to promote healthy lifestyles in the UAE community and curb the spread of diseases stemming from consumption of harmful goods. These measures align with the UAE Vision 2021, which seeks to ensure the UAE is among the best countries in the world across all sectors.

As part of the first phase of implementing the Cabinet Decision, the FTA called on producers, importers, and stockpilers of sweetened drinks with added sugar to abide by the Decision and start registering for excise tax purposes, noting that Excise Tax is an indirect tax that is imposed on certain products deemed harmful in an effort to curb their consumption.

The Authority revealed that it has updated the electronic registration system for excise goods to allow for adding the new products included in the amended Cabinet Decision.

An entirely new registration procedure was put in place as of 18th August 2019, and the FTA called on all concerned businesses – including producers, importers, and stockpilers of Excise Goods – to take the initiative and register said goods in the new system.

Transfer of a Business as a Going Concern - VATP015

Date: 22 Aug, 2019

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External URL: http://www.allaboutvat.com/wp-content/uploads/Summary-VATP-015-Transfer-of-a-Business-as-a-Going-Concern-21Aug2019.pdf

In accordance with Article 7(2) of the Federal Decree-Law No. (8) of 2017 on Value Added Tax (the “Decree-Law”), the transfer of whole or an  independent part of a business from a person to a taxable person for the purposes of continuing the business that was transferred is not considered to be a supply for VAT purposes.

As a consequence of not being a “supply” for VAT purposes, such transfer of  a business, commonly known as a “transfer of business as a going concern” or a “TOGC”, is not subject to VAT. This rule has a compulsory application.

Summary

This Public Clarification discusses the conditions that have to be met for a  transfer to qualify as a transfer of a going concern under Article 7(2) of the
Decree-Law.

UAE Cabinet to expand list of excise taxable products in January 2020

Date: 21 Aug, 2019

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External URL: http://wam.ae/en/details/1395302780784

In a step to reduce consumption of unhealthy goods and modify consumers’ behaviour, the UAE Cabinet adopted a decision to expand the list of excise taxable products to include sweetened beverages, sugary drinks and electronic smoking devices, starting 1st January 2020.

According to a statement released by the Cabinet General Secretariat, “The decision comes to support the UAE government’s efforts to enhance public health and prevent chronic diseases directly linked to sugar and tobacco consumption.”

“A tax of 50 percent will be levied on any product with added sugar or other sweeteners, whether in form of a beverage, liquid, concentrate, powders, extracts or any product that may be converted into a drink,” the statement added.

“The decision also requires manufacturers to clearly identify the sugar content in order for consumers to make sensible healthy choices.

“A tax of 100 percent will be also levied on electronic smoking devices, whether or not they contain nicotine or tobacco, as well as the liquids used in electronic smoking devices. The decision aims at reducing the consumption of harmful products that put the health of people and environment at risk,” it continued.

“In 2017, the UAE Government started introducing excise tax on specific goods, which are typically harmful to human health or the environment,” the General Secretariat of the Cabinet concluded.

Expo 2020 will drive VAT in UAE by US$8bn

Date: 21 Aug, 2019

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External URL: https://www.intergameonline.com/coin-op/news/expo-2020-will-drive-vat-in-uae-by-us8bn

Dubai’s Expo 2020 will drive VAT revenues over $8bn this year, according to Rajiv Hira, chairman, RHMC Managing Consultants. However the large increases would not be sustained long-term.

Hira, in a newspaper interview in the Arabian Business, said that over 300,000 businesses and tax groups registered for VAT would provide the figures.

Nearly 200 countries are participating in the Expo 2020, reports the tax consultancy, with growth in retail, hospitality, aviation and shipping.

“Considering the distribution of $7.3bn (AED27bn) on account of VAT, it can be easily concluded too touch around $8bn although we will be observing an increase in capital spending at a faster and larger scale, whereas VAT collection will not increase in that speed.”

In another report, the VAT tax revenues are being split between central and local government, by the UAE Cabinet, at a ratio of 30-70 in favour of local government.

Around 25 million people are expected to visit Dubai for Expo 2020.

MoF announces amendment of the Cabinet Decision on excise goods, rates

Date: 21 Aug, 2019

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External URL: http://www.wam.ae/en/details/1395302781065

In order to direct efforts towards reducing the negative effects of harmful consumption patterns, the Ministry of Finance announced the details of the amendment of Cabinet Resolution No. (38) of 2017 regarding excise goods, excise tax rates and the formula to calculate the excise price.

In addition to the goods currently subject to excise tax (i.e. tobacco products, soft drinks and energy drinks), excise tax will also be imposed on e-cigarettes and the liquids used with them, as well as beverages sweetened with added sugar.

The decision to amend excise goods and the formula of calculating excise price is to achieve government directives in terms of rationalizing consumer behavior related to harmful products, which contributes to raising community members’ public health levels, and reducing the negative health consequences caused by these products. This decision is in line with the UAE’s commitment to implementing the GCC Unified Agreement for Excise Taxes and to complement efforts to achieve economic integration among the GCC countries.

Obaid bin Humaid Al Tayer, Minister of State for Financial Affairs, pointed out that these new amendments to the Cabinet’s decision on excise tax are part of the UAE’s keenness to reduce harmful consumer practices by establishing a legislative and procedural base that supports national efforts to curb unhealthy practices that cause chronic diseases.

He said: “These amendments comes in line with the government’s orientation that excise tax policy targets consumption patterns harmful to public health, in order to complement efforts to raise awareness about the damaging effects of consumables harmful to health. It contributes to strengthening the health system’s work in controlling prevalent diseases and reducing the cost of treating them, promoting community health, motivating individuals to spend effectively, reducing the negative impact of harmful substances on the environment, and encouraging producers to develop better alternatives.”

Pursuant to these amendments, effective 1 January 2020, a 100% excise tax on electronic smoking appliances and liquids used in these devices, and 50% excise tax on beverages and sugary drinks has been set. These goods were identified in addition to existing excise goods such as tobacco and tobacco products (100%), energy drinks (100%) and soft drinks (50%). The decision also specified the formula of calculating the excise and retail price, and the Federal Tax Authority (FTA) shall have the power to determine the procedures necessary to prove the classification of any product as an excise good.

At the same time, the Cabinet set the minimum standard price for tobacco products, which set the excise price of tobacco products not less than 0.4 dirhams per roll of cigarettes, and 0.1 dirhams per gram of hookah tobacco, ready-to-use tobacco and similar products. The Minister of Finance will issue a decision on the implementation date, which is set to be before 1 January 2020.