To determine whether a Person has exceeded the Mandatory Registration Threshold and the Voluntary Registration Threshold, the following shall be calculated:
The threshold limit for mandatory registration is AED 375,000. A person shall be liable to register when his total taxable supplies and import exceeds the Mandatory Registration Threshold over the previous 12-month period, or when it is likely to exceed in the next thirty (30) days. Article (7) Executive Regulation (VAT) & Article (13) Federal Decree-Law (VAT).
The threshold limit for voluntary registration is AED 187,500. A person shall be eligible to voluntarily register when his total taxable supplies and imports or the expenses (which are subject to Tax) exceeds the Voluntary Registration Threshold during the previous 12-month period, or if it is likely to exceed in the next thirty (30) days. Article (8) Executive Regulation (VAT) & Article (17) Federal Decree-Law (VAT).
No, Business under one single license cannot have separate Tax Registration Number (TRN). Article (14) of Federal Decree-Law (VAT).
It is not mandatory for related parties to register as a tax group. However the government has retained the right to assess related parties based on their economic, financial and regulatory practices in business and register them as a tax group if their relation is proved. Article (14) of Federal Decree-Law (VAT)
Yes, only a registered taxable person can exercise the option to supply goods under Reverse Charge Mechanism as notified under Cabinet Decision No. (25) of 2018. The said notification is only applicable for trade of Gold and Diamonds between Registrants in the UAE.
Authority may except a Taxable Person from mandatory Tax Registration, upon his request, if his supplies are only subject to zero rate. Thus, Dealers of Gold Bars (investment precious metals) can apply for Registration Exception if their supplies are restricted to Zero Rate supplies. Article (15) Federal Decree-Law (VAT).
As per the Cabinet Decision No (59) of 2017, there are a select list of free zones which have been identified as designated zones. It is to be noted that out of the many free Zones in UAE only 20 have been notified as designated Zones. Registration of units in Free Zones (which are not notified as designated zones) will be treated like any other entity in UAE and the mandatory Registration threshold will get applicable on it. However VAT Registration of a unit in a designated zone will be dependent on the place of supply of the goods and services supplied by the unit. If the place of supply of any supply made by the designated zone unit is within UAE (State) then, the said unit will (subject to mandatory registration conditions) most likely have to register under Federal Decree-Law (VAT)
The standard rate of 5% shall be imposed on any supply or Import of Jewellery. Further, supply of investment precious metals is zero-rated. Article (3) Federal Decree-Law (VAT) & Article (36) Executive Regulation (VAT).
The phrase “investment precious metals” means gold, silver and platinum that meet the following standards:
Yes, VAT is applicable on Advance money received from customers. Date of supply shall get triggered on the date of receipt of payment. Article (25) of Federal Decree-Law (VAT)
VAT is applicable on free supplies of samples and commercial gifts, subject to a condition that supply below a limit of AED 500 per recipient in last 12-month period shall be considered for exception for charging VAT. Commercial gifts have not been defined by the VAT Legislation. In general parlance, any Gift given to customers like lucky draw gifts, complementary gifts to customers etc. could be understood as commercial Gifts. Gifts to self, friends, family, employees, etc. may be understood as Non-commercial Gifts. The Exception limit of AED 500 is not applicable for Non-commercial Gifts. Article (5) Executive Regulation (VAT).
VAT is not applicable on supply of Gift vouchers, unless the Consideration received for Gift Voucher exceeds its advertised monetary value. Further in a situation where, the consideration received exceeds its advertised monetary value on the voucher then the stated difference shall be the value for supply for voucher. For e.g. Where a gift voucher of AED 500 is sold for AED 400, then no VAT is applicable on sale of such voucher. However where a gift voucher of AED 500 is sold for AED 650, then VAT shall be applicable on the differential value (i.e. AED 150) as on the date of supply of voucher. Article (7) & Article (40) Federal Decree-Law (VAT).
Yes, VAT is applicable on jewellery utilized for personal use. Such supplies shall be considered as deemed supplies. Such deemed supplies are subject to general exception of AED 2000 worth of Output tax on deemed supplies for each Person for a 12-month period. Article (11) Federal Decree-Law (VAT) & Article (5) Executive Regulation (VAT).
Reverse Charge Mechanism moves the responsibility for the reporting of a VAT transaction from the seller to the buyer of a good or service. When a transaction is subject to Reverse Charge, the recipient of the goods or services reports both their purchase (input VAT) and the supplier’s sale (output VAT) in their VAT return. These two declarations offset each other from a cash payment point of view, but the authorities have full visibility of the transactions.
Following are the items which are considered eligible for Business to Business (B2B) RCM scheme:
Following items are not considered eligible for Business to Business (B2B) RCM scheme:
Supply of asset without any consideration is within the scope deemed supply and the same is applicable to VAT. Accordingly, VAT is applicable on goods transferred between related parties without any consideration. Article (11) Federal Decree-Law (VAT)
Any supply made by a member of the Tax Group to another member of the same Tax Group may be disregarded. Thus Supplies within the Tax Group will not be considered as taxable supply. Article (12) Executive Regulation (VAT).
Value of supply without Consideration shall be as follows: Article (37) Federal Decree-Law (VAT)
Valuation of Pure Gold will be similar to the valuation provision prescribed above for supply with Consideration and supply without Consideration. Article (34) & Article (37) Federal Decree-Law (VAT).
VAT will be applied on repairing charges only. However if some gold is added while repairing goods, VAT shall be paid on additional gold used for repairing. Article (34) Federal Decree-Law (VAT)
Since the customer is exchanging one product to the other; VAT will be levied on full value of the ornaments. If the customer is unregistered, than jeweler will have to book a non-taxable purchase from the customer. Article (34) Federal Decree-Law (VAT)
Since original product is getting converted to different product, VAT will be levied on full value of mangalsutra. However, if it is termed as repairs only than VAT will be payable on additional gold value and labour charges. Article (34) Federal Decree-Law (VAT)
Supply of Jewellery along with packing material or complimentary bags is considered as single composite supply. In a typical transaction of sale of Jewellery, the Principal component of this transaction is Jewellery while packing material or complimentary bags are secondary components. Accordingly, VAT will only be charged on the Principal component (i.e. sale of Jewellery). Furthermore, supply of packing material & complimentary bags do not have to be mentioned on the invoice. Article (46) Executive Regulation (VAT)
VAT is calculated on the discounted price of the product. Both Cash Discount and Trade Discount are allowed as a deduction from Taxable value of supply. Article (39) Federal Decree-Law (VAT) & Article (28) Executive Regulation (VAT)
For a supply of goods, the place of supply is the location of the goods when the supply occurs. So, if the goods are located in the UAE during the supply, then they’re treated as supplied in the UAE and they are taxable under UAE VAT. If the goods are located outside the UAE during the supply, they’re treated as an out-of-scope supply. Special rules apply when there is a cross-border supply, a supply of water and energy, or a supply of real estate. Article (27) Federal Decree-Law (VAT)
Purchase of pure gold at an unfixed price (unfixed consideration) is a zero rated supply as it is considered an investment precious metal. Thus, there is no VAT incidence on the said transaction. Further, to substantiate this transaction, an invoice is to be raised when the Gold is booked at a certain unfixed price; on a later date when the price of gold is fixed, supplementary credit note or debit note to the original shall be raised for the differential amount considering the reduction or increase in value of supply, respectively.
Payment for Purchases / Expenses has to be made in full or in part for the supply in (6) six months from the date of supply to retain the right to claim the benefit of Recoverable Input Tax. Article (64) Federal Decree-Law (VAT)
Conditions for claiming recoverable input tax credit on purchase / Expenses:
Note : If it is not possible to determine the value as given above the value shall be determined based on alternate valuation rules stated in the Customs Legislation.
Yes, a taxable person can recover the VAT assumed on credit card commission charges, if the same are used for the purpose of business. Article (58) Federal Decree-Law (VAT)
Yes, a taxable person can recover the VAT assumed on Electricity, Gas etc, if the same are used forperson the purpose of business. Article (58) Federal Decree-Law (VAT)
One of the primary consideration for claiming VAT credit is that the ‘Taxable Person’ (in our case the recipient) pays the Consideration for Supply. Thus in the absence of any other clarification, it may be inferred that VAT credit will not be available when the consideration for Purchases / Expenses is provided by any person other than the recipient. Article (55) Federal Decree-Law (VAT)
Any expense where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, are disallowed for the purpose of claiming VAT Credit, except in the cases where it is legally obligated by labour law, it is in the normal course of business or is considered a deemed supply. Article (53) Executive Regulation (VAT)
The phrase “entertainment services” shall mean hospitality of any kind, including the provision of accommodation, food and drinks which are not provided in a normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment.
Tax Invoice shall contain all of the following particulars:
A taxable person shall raise a credit note to account for Sales Return of goods. Article (62) Federal Decree-Law (VAT)
Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.
The time period for holding and maintaining any of the records is as follows: Executive Regulations – Federal Law No. (7) of 2017 on Tax Procedures
Without prejudice to the provisions related to record-keeping stated in any other law, the Taxable Person shall keep the following records:
The VAT legislation provides for issue of alternative documents other than Tax invoice to substantiate collection of VAT. Accordingly an ‘Advance Receipt’ Note shall be raised to record advance received.
The following declarations are to be requisitioned by the supplier from a Registrant Recipient in writing to avail the benefit of Reverse Charge Mechanism:
With respect to sales and other outputs, the following items will have to be reported in VAT 201 – Return:
With respect to purchases and other inputs, the following items will have to be reported in VAT 201 -Return:
If the tax payable amount of bills that were missed in the previous month is less than AED 10,000 then you can correct this error in the current VAT Return in which you have discovered the error. If the tax payable amount of bills that were missed in the previous month is more than AED 10,000 then you should make a ‘Voluntary Disclosure’.
The Taxable Person may include the missed Purchase / expense Bills in the Tax Return for the subsequent Tax Period. Article (55) Federal Decree-Law (VAT)
Every Taxable Person is required to file a VAT return summarizing the VAT due to the FTA for the tax period. When the input tax is greater than output tax on a VAT return, the Taxable Person is able to request a VAT refund after submission of the VAT return or at any later time when there is a credit owed to them. VAT 311 –Tax Refund form needs to be filed to claim refund of excess credit in the books of account
A taxable person has to file VAT 301 – Import Declaration Form for VAT Payment. The following details are required for filing Import Declaration Form
Following are some of the important penalties prescribed by Cabinet Resolution No. (40) of 2017
|Description of Violation||Administrative Penalty (AED)|
|Late Filing of Return||(1,000) for the first time.
(2,000) in case of repetition within (24) months.
|Short Filing of Return – The Voluntary Disclosure by the Person/Taxpayer of errors in the Tax Return, Tax Assessment or Refund Application beyond (20) business days||Two penalties are applied:
1. Fixed penalty of:
(3,000) for the first time.
(5,000) in case of repetition
2. Variant penalty of
(50%), (30%) or (5%) on the tax amount unpaid to the Authority contingent upon timing of voluntary disclosure in relation to tax audit
|Failure to display prices inclusive of Tax.||(15,000)|
|Failure to issue the Tax invoice or an alternative document||(5,000) for each tax invoice or alternative document.|
There is no monetary limit beyond which Audit will get applicable. However FTA Authorities will suo motu select cases for the purpose of audit. It is mandatory for the FTA to conduct regular audits to check the compliance of various businesses to the tax laws. These audits can be conducted at the office or at any other place of business of the concerned party, as per the choice of the FTA. The notice of the same must be issued to the person/business by the FTA at least five days in advance.1
Disclaimer: The views expressed in this FAQ are matters of opinion. Our answers outlined under this FAQ are based on our understanding of the FTA UAE law and regulations prevailing as of the date of this document. Our answers/ views shall only serve as a reference point and should not be quoted in whole or in part, disclosed or made available to external parties / authorities or referred to in any document, without our prior written consent.
Author of this article is an Practicing CA based out of Mumbai. He can be reached at [email protected]