Pankaj S Jain - askpankaj.com · • Official and commercial evidence of Export (or customs...

16th September 2019Dubai South HQ

By:Pankaj S JainAskPankaj DWC-LLC

About Us

Based in Dubai South

Team:• Chartered

Accountants• Lawyers• Masters Degree• U.K. Tax Experts

Experience:• 30+ years combined• Big Four: PwC, KPMG,

Deloitte• Industry: Kohler, Coca-

Cola, HDFC Bank, Choueiri Group

• Advisory & Tax Litigation• India, U.A.E. & Europe Clients:

Advising & assisting leading companies:

Dubai Abu Dhabi Ajman Sharjah

Fujairah

Proud to serve leading companies in U.A.E.

Agenda

• Are you required to register for VAT?

• Don’t forget to de-register on time, else face penalties

• To be or Not to be: Understanding the scope of VAT

• Understanding the 'zero' in zero-rated supplies

• The 'value' in Value Added Tax - not just your profits?

• The curious case of 'correct' tax invoices

• Are you really VAT-free in Free Zones?

• Now you know: your VAT liabilities on purchases

• VAT is not alone - Custom Laws and VAT

Session - 1

• Optimise your VAT costs: understanding input VAT credits

• How 'exempt' supplies impact your input VAT credits

• Expo 2020: the refundable VAT costs

• Business Visitors: Don't forget to claim the VAT refund

• Unexciting yet most important: Understanding VAT returns

• Oops! - Common VAT mistakes and how to correct them

• Be Alert - VAT Audits and compliances

Session - 2

Registration and Deregistration

Last 12 months – Rolling Period Today Next 30 days Not VAT Registered

Cannot Register

Optional to Register$

Mandatory Registration

Mandatory De-registration

Optional to De-register

Cannot De-register*

187,500

0

375,000

TU

RN

OV

ER

(AE

D)

187,500

0

375,000

VAT Registered

$ - Option to register also available where taxable expenses > 187,500 * - Mandatory De-registration if you stop making taxable supplies

Registration and Deregistration

T U R N O V E R ( A E D )

• Taxable Supplies• Includes Zero-rated Supplies/Exports• Option to seek exception from registration

(but still mandatory to apply for registration)

• Purchases subject to Reverse Charge Mechanism (import of goods and services)

• Supply of Capital Assets

• Outside the scope suppliesExcl

ud

esIn

clu

des

Effects of De-registration

• Goods and Services owned at thedate of Tax De-registration• Deemed Supply

• If input VAT credit was recoveredfor the related Goods and Services

• VAT needs to be paid on De-registration

• Need for detailed accounting andrecord keeping

• Cannot use the TRN• change of stationary

• accounting software

Scope of VAT

TRANSACTION

NOT A SUPPLY SUPPLY

TAXABLE

STANDARD RATED

ZERO RATEDDEEMED SUPPLY

EXEMPTOUTSIDE THE SCOPE OF VAT

Source: FTA Awareness Slides

Components of Supply

Supply of Manpower

Group Co.A(TRN – 123)

Employee

Group Co.B(TRN – 678)

•Employee on Co.A visa•Salary paid

through Co.AWPS

- Co.Arecovers the salary cost from Co.B

• Co.A and Co.B are not in a same tax group

• Arrangement amounts to supply of manpower service by Co.A to Co.B

• Co.A is required to issue invoices to Co.B

• Tax Group is a solution?

• Salary re-charge

• VAT implications on the recovery from employees

• Phone

• Food subsidy

• Car rentals

• Insurance premium for employees’ family

Goods and Services

Outside the Scope of VAT - Vouchers

Etisalat

Consumer

Carrefour

Supply of Services

Supply of Vouchers by Carrefour is outside the scope of VAT

AED 200 is VAT Inclusive

Etisalat is required to issue Tax Invoice at the time of issuance or supply of the voucher

Kuwait

Saudi Arabia

BahrainQatar

Oman

United Arab Emirates(UAE)

U.A.E. Company

Physical Delivery

Invoice

Customer -France

Supplier –India

Outside the Scope of VAT - Goods

Outside the Scope of VAT

Outside the Scope of VAT

Kuwait

Saudi Arabia

BahrainQatar

Oman


U.A.E. Company

Physical Delivery

Invoice

Customer -France

Supplier –India

Outside the Scope of VAT - Services

Covered under RCM*

Export of Service*

*Certain exceptions apply

Deemed Supply - Free Samples & Commercial Gifts

No Scenario Description Tax Implication

1 Standard free samples of new

products for business promotion

The provision of AED 500 per recipient

and annual tax threshold of AED 2,000

as explained above will apply.

2 Price discounts during a

commercial negotiation process

Output VAT is payable on the price at

which the supply of goods is invoiced

3 Quantity discount wherein an

additional quantity maybe

added for the same price

Output VAT is payable on the price at

which the supply of goods is invoiced

4 Defective Goods Replacement Where the replacement is made on a

one to one basis, there should be no

further tax implication.

5 Defective goods replacement

with penalty in form of

additional quantity of cards

supplied

The tax treatment of the penalty paid in

form of additional cards will need to

examined.

Principle: VAT is payable even if Goods aresupplied without consideration.

Exception: No VAT payable when-• Input VAT credit not taken in respect of

goods which are subsequently suppliedfree of cost

• Goods supplied as samples/ commercialgifts and value of supply• for each recipient within 12-month

period does not exceed AED 500,and

• Total value of such supplies within12-month period does not exceedAED 40,000

However, any free supplies under awarranty obligation will not be subject tothe rules of free or deemed supply.

Based on the nature of business, following scenarios and VAT implications arise for free supply

Deemed Supply vis-à-vis Single Supply

Supermarket

Restaurants

Vehicles

Carry-bags

Cutlery

Tool-box

Deemed Supply (Art.11 of DL):• Supply of whole/part of assets without

consideration- VAT payable on market value- Certain Exceptions apply

Is VAT payable on carry-bags, cutlery etc?Can supplier take VAT credit on such items?

Single or Mixed Supply?• Single price• One principal component• Ancillary/incidental elements to better

enjoy the principal component

Zero Rated Supplies

Certain investment grade precious metals

Newly constructed residential properties, that are supplied for the first time within 3 years of their construction

Supplies of certain sea, air and land means of transportation (such as aircrafts and ships)

Exports of goods and services to outside the GCC

International transportation

Supply of certain education services, and supply of relevant goods and services

Supply of certain Healthcare services, and supply of relevant goods and services

Saudi Arabia


International Transportation – Zero rating1. Transport of goods or passengers

• from UAE to outside• From outside to UAE

2. Local transportation of goods or passengers• within UAE as part of

international transport in (1) above

3. Transport related services for (1)

4. Goods supplied for use/consumption/sale on an aircraft/ship

5. Services supplied during the transportation services (scope?)

6. Insurance or arranging of insurance

7. Arranging of transport

Transport-related Services: • shipment, • packaging and securing, • preparation of Customs documents, • container management, • loading, unloading, • storing and moving of Goods, or • any another closely related services

or • services that are necessary to

conduct the transportation services

Supplier

Physical Delivery/Service performed

Invoice

United Arab Emirates

(UAE)

Customer in Africa

(shown in Africa only as illustration; could be located anywhere

outside GCC)

KSA Customer

Oman Customer

Export of Goods outside U.A.E.• Supply of goods from mainland U.A.E. to customers outside U.A.E.• Physically exported or are put into a customs suspension regime - within 90

days of the date of the supply• Official and commercial evidence of Export (or customs suspension) is

obtained

VAT Not Applicable (Zero-rated)

• “Official evidence” means Export documents issued by the local Emirate Customs Department in respect of Goods leaving the State.

• “Commercial evidence” shall include any the following:

1) Airway bill2) Bill of lading3) Consignment note4) Certificate of shipment

Proof of Exports – “Official Evidence”

I. If the following conditions are met:

a) services are supplied to a Non-resident

recipient

b) the recipient is outside U.A.E. at the time

the services are performed

- scope of ‘outside the U.A.E.’?

c) the services are not supplied directly in

connection with

- real estate situated in U.A.E.

- moveable personal assets situated in

U.A.E. at the time the Services are

performed

Export of Services

II. Services are actually performed outside

U.A.E. – What is the Scope?

III. Services are of arranging of services that

are actually performed outside U.A.E.

IV. Supply consists of the facilitation of

outbound tour packages

Local Transportation – Goods and Passenger

Passenger Transport - Exempt

Train, Tram, Mono-rail

Ferry, Abra

Taxi, Bus

Helicopter, Airplane

Goods Transport – Not Exempt

Goods/Food Home-Delivery

Local transportation of goods

* Pleasure/Sightseeing trips excluded

Valuation

• ‘Taxable supply’ refers to a supply (except exempt supply) of goods/services for a consideration by a person conducting business in U.A.E.

• ‘Consideration’ includes • all that is received or • expected to be received • for the supply of goods/services, • whether in money or other acceptable forms of payment

• VAT needs to be accounted for on accrual basis

Taxable Value: Consideration

Retailer Consumer

Finance Co.

AED 1,000 paid as sale price for sale of goods

AED 150 commission paid for offering 0% EMI to consumer

Consideration:All that is

- received or- expected to be received

for the supply of Goods or Services,whether in

- money or- other acceptable forms of payment.

Payment to the Finance Co. cannot betreated as a discount or price reduction oroutside the purview of consideration

Transactions under E-Commerce

Seller ‘A’

Amazon

Customer

1 - Marketplace agreement

between Seller ‘A’ and Amazon2 - Customer places the order worth

AED 1,050 on ‘A’ (through Amazon)

Customer pays the money to Amazon

3- ‘A’ supplies the goods to the Customer

(transportation arranged by Amazon)

4 - Amazon remits the money say,

AED 945 to Seller ‘A’ after deducting its commission.

Amazon issues invoice on ‘A’ for its commission and charges worth AED 105

VAT Implications• Seller ‘A’ is required to issue a tax invoice for AED 1,050 (1000 + 5%)• Seller ‘A’ can claim VAT input credit of Amazon’s invoice of AED 105 (100 +5%)

Disbursement and Re-imbursement

• “Reimbursement” - the recovery of expenses that the supplier incurs as a principal

• “Disbursement” – the recovery of payments made on behalf of another person

Supply of Manpower

Co.A – Manpower Supply Company

(TRN – 123)

Employee

Client - Co.B(TRN – 678)

•Employee on Co.Avisa•AED 50,000 salary

paid through Co.AWPS

- Co.A recovers the salary cost from Co.B

- AED 50,000 + AED 5,000 service fee

• Arrangement amounts to supply of manpower service by Co.A to Co.B

• Co.A is required to issue tax invoices to Co.Band charge VAT

• Should VAT be charged on 55,000 or 5,000?

Bad Debt reliefConditions

• Consideration was not paid in full/in-part for over 6 months

• Supplier has written off the value in the books of account

Tax Treatment

• The Supplier can reduce its output VAT liability in the tax period of write-off

• A notice to be sent to the Recipient of the consideration being written off

• The Recipient has to reverse the input tax credit taken earlier

Example:

Original Supply in Jan’18Amount AED 1000VAT @ 5% AED 50Total AED 1050

VAT ReturnO/P VAT AED 50

Nov’18 : VAT ReturnO/P VAT AED 3000(-) Adjustment AED (50)

AED 2950

BAD DEBT

Date of Supply

Earliest of the three



Earliest of the three – to the extent of 20%

For balance 80%

Pay VAT for Qtr(Jan-Mar) by 28th

April

Pay VAT for Qtr(Apr-Jun) by 28th Jul

Pay VAT for Qtr(Apr-Jun) by 28th Jul

- Pay VAT for Qtr(Jan-Mar) by 28th Apr- Pay VAT for Qtr(Apr-Jun) by 28th Jul

• For any contract that includes periodic payments or consecutive invoices, the Date ofSupply is the earliest of the following dates:

a. issuance of any Tax Invoice

b. payment is due as per the Tax Invoice

c. receipt of payment

*provided that it does not exceed one year from supply of Goods/Services

Time/Date of Supply – Special Rule

Tax Invoice (Art.59 of Executive Regulations)

1) “Tax Invoice” clearly displayed on the invoice

2) Name, address, and TRN of the supplier

3) Name, address (complete, or at least POBox), and TRN of the Recipient

4) A sequential Tax Invoice number or a uniquenumber

5) Date of issue of invoice

6) Date of supply, if different from date of issueof invoice

7) Description of the Goods or Services

8) For each Good or Service, the unit price, thequantity or volume supplied, the rate of Taxand the amount payable expressed in AED

9) Amount of any discount offered

10) Pre-tax amount payable in AED

11) Tax amount payable in AED

12) The rate of exchange, if othercurrency used

13) Statement on reverse charge by therecipient

Simplified Tax Invoice (only items marked with are required• Recipient is not registered; or• Invoice value is not exceeding AED

10,000

Tax

Invo

ice

Fo

rmat

Invo

ice

Val

ue

mo

re t

han

AED

10

,00

0 InvoiceTax

Sl No. Description UnitRate

Qty./Units

Discount (AED)

Value (AED)

1 Item - XXX - 1 1,000 100 10,000.00 90,000.00

2 Item - XXX - 2 500 50 - 25,000.00

VATRate

Total

3 Item - XXX - 3 2,000 150 21,275.25 278,872.75

393,872.75 19,693.64 413,566.39

5%

(AED)Value (AED)

100,000

25,000

300,000

5%

5%

VAT(AED)

4,500.00

1,250.00

13,943.64

94,500.00

26,250.00

292,816.39

Terms & Conditions:

Recipient DetailsNameAddress

PO BoxEmiratesTRN

Invoice No.Date of InvoiceDate of Supply

Other Details:LPO NumberLPO DateDelivery TermsSales Person

Supplier DetailsNameAddress

PO BoxEmiratesTRN

10

1. Invoice must be titled as Tax Invoice

2. Complete Supplier’s Details

3. Complete Recipient’s Details including address and Emirates

4. Invoice Number

5. Date of Invoice

6. Date of Supply, if different from Date of Invoice

7. Description

8. Quantity

9. Rate/Unit

10.Pre-VAT value

11.VAT Rate

12.VAT Amount

13.Total VAT

14.Total VAT inclusive value

Optional

1. Total Pre-VAT value2. Line-wise VAT inclusive

amount or Discount

13 14

8 9 11 127

1

2 3456

PenaltiesS.No Description of Violation Penalty (AED)

1 Failure to keep the required records and other information• 10,000 for the first time• 50,000 in case of repetition

2 Failure to submit a deregistration application within the timeframe • 10,000

3 Failure to inform FTA of any circumstance that requires the amendment of the information pertaining to tax records

• 5,000 for the first time• 15,000 in case of repetition

4 Failure to issue - the Tax invoice or an alternative document when making any

supply- a Tax Credit Note or an alternative document

• 5,000 for each tax invoice / tax credit note / alternative document

5 Failure to submit the Tax Return within the timeframe • 1,000 for the first time• 2,000 in case of repetition within (24)

month

6 Failure to pay tax within the timeframe • 2% - immediate• 4% - 7 days to one calendar month• 1% daily - after one calendar month

Questions & Answers

Thank You!

[email protected] / +971 50 243 0536

AskPankaj DWC-LLC / P S Jain Tax Consultants [Tax Agency]

Dubai South Business Center

Building A3, 3rd Floor

Dubai World Central

PO BOX 390667, Dubai, U.A.E.

DISCLAIMERThis material and the information contained herein is intended to provide general information on a particular subject(s) and is not an exhaustive treatment of such subject(s).It is not intended to constitute professional advice or services. You are requested to seek professional opinion in the context of your business.AskPankaj DWC-LLC shall not be responsible for any loss whatsoever sustained by any person who relies on this material as a professional advice.

©2019 AskPankaj DWC-LLC

Pankaj S Jain - askpankaj.com · • Official and commercial evidence of Export (or customs...

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