These responses to FAQs are simplified. In case you need more detailed information, we recommend that you seek professional advice or book Free Consultation.
Questions Related To Excise Tax
When will excise tax be charge from in the UAE?
Federal Decree-Law No. (7) of 2017 on Excise Tax has been issued and expresses that it comes in effective from 1 October 2017.
When will affected businesses be able to register to file excise tax returns and pay excise tax?
Organizations required to enlist for excise tax should apply to the FTA through an online system. Registrations for excise tax will open mid-September 2017.
Which goods will be liable to excise tax in the UAE?
The following goods will be liable to excise tax in the UAE at the accompanying rates of duty: ● Carbonated beverages – 50% ● Energy drinks – 100% ● Tobacco – 100%
What value will excise tax apply to?
Excise tax will be applied to the retail selling price of the merchandise, at the rate relevant to the excise good in question for example excise duty will apply at a rate of 100% to the retail selling cost of tobacco items. Detail information on identification of retail selling cost will be issued by Federal tax authority in due course.
Who will be required to register for excise tax purposes?
The following group of peoples will be required to register for excise tax: ● Producers of excise goods. ● Importers of excise goods. ● Stockpilers of excise goods. ● Warehouse keepers in charge for excise goods. Businesses that are required to pay excise tax will need to do the following: ● Register with the FTA; ● Submit excise tax returns on a monthly basis; and ● Pay the excise tax due on the same date as submitting a tax return.
What is a stockpiler?
A stockpiler is an individual or business that holds a stock of excise goods for business purposes and cannot verify that excise tax has previously been paid on those products. If a business isn't viewed as a stockpiler, it won't have to represent excise tax on goods claimed after the presentation of the duty that were bought before the introduction of excise tax.
When is excise tax due?
Excise tax is a tax on specific products that are intended for utilization in the UAE. Tax is due when goods are ‘released for consumption’ i.e. when they enter free flow in the UAE. Excise tax is due when: ● Excise goods are imported into the UAE; ● Excise goods are released for utilization in the UAE (e.g. manufactured and released from a designated zone/excise warehouse etc.); or ● Excise goods are acquired by a stockpiler, where tax has not previously been paid on those products. Excise tax is not a transaction-based tax, which means that goods do not need to be sold in order for the tax to be due.
What is a designated zone/excise warehouse?
A designated zone is the term used in the UAE to describe a predefined area that is considered outside the UAE for excise tax purposes. It is also common for such areas to be referred to as excise warehouses in excise tax jurisdictions. If excise goods are imported and immediately placed within a designated zone without being in free circulation, they will not be treated as imported into the UAE for the purposes of excise tax. Tax is not due on the excise goods until the point they leave the designated zone and enter free circulation in the UAE. For an area to be treated as a designated zone, it must be officially registered and approved by the Federal Tax Authority and a warehouse keeper must be appointed as responsible over the designated zone.
Will refunds of excise tax be available?
Unlike VAT, excise tax is paid once in the supply chain and businesses that have purchased excise goods cannot obtain a refund of the excise tax paid on those goods. There are a limited number of cases where a refund of excise tax will be available. Those cases are: ● When excise tax has been paid on an excise good, which is then produced in to a ‘new’ excise good, on which excise tax is again due; ● When excise tax has been paid on an excise good that is then exported outside the UAE; or ● When amounts have been paid to the Federal Tax Authority in error. In the above cases, a business registered for excise tax will be entitled to a refund of the excise tax paid. The refund will be granted by allowing a deduction of the refundable amount from the tax due in the next excise tax return period. There are also a limited number of cases where refunds will be available to individuals who are not registered for excise tax. Those cases are: ● Where excise tax has been paid by certain international governments, diplomatic missions and international organizations in the course of their official activities, where a reciprocal agreement is in place between the UAE and the entity’s home country; and ● Where excise tax has been paid in the UAE by a person who is registered for excise tax in another GCC country that is implementing excise tax and who has then exported the excise products out of the UAE and paid excise tax in that other GCC country. A refund request form will be available on the Federal Tax Authority website that can be used to request refunds.
Will excise tax be payable by travelers entering the UAE?
Travelers entering the UAE with excise goods for non-business purposes will not be required to register as an importer of excise goods. Travelers may need to pay the excise tax due on the goods depending on the value of the goods being imported. Where the value of the goods is below the threshold for exemption from Customs Duty as per the Customs Laws, no excise tax is due. Where the value of excise goods exceeds the value of the exemption for Customs Duty purposes, then excise tax will be due on the total value of the goods. Physical payment of excise tax will be required before or at the time of import. Further details on the channels that will be available for travelers or non-registered persons to pay the excise tax liability will be released by Federal Tax Authority in due course.
What if excise goods are unsold for a period after being released for consumption? Can payment of excise tax be delayed until the goods are sold?
Excise is not a transaction based tax; it is due at the point the goods are released for consumption in the UAE, regardless of whether they will remain unsold.
Will there be bad debt relief for excise goods?
Excise is not a transaction based tax so no relief will be available for suppliers that have sold excise goods to a customer and have not received payment from that customer. Excise tax is due based on the date the goods are released for consumption (i.e. enter free circulation) in the UAE, regardless of whether they are subject to an onward sale.
13. Will excise tax apply to goods released for utilization in a free zone?
Goods released for consumption in a free zone will be liable to excise tax. This includes any free zone that may likewise be registered as a designated zone. If goods are held out for retail sale, or intended for consumption within a free zone, excise tax will need to be paid by the importer or producer that ‘released’ the products.
Will test samples be subject to excise tax?
Samples of excise goods that are given away for free will also be subject to excise tax. Excise tax is not a transaction based tax so tax is due on the goods when they are released for consumption (i.e. enter free circulation) in the UAE, regardless of whether or not they are intended for sale.
VAT General Questions
What is VAT?
Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a sort of general consumption tax. In a country which has a Value Added Tax, it is applied on most supplies of goods and services that are bought and sold. Value Added Tax is one of the most common types of consumption tax found around the world. More than 150 nations have implemented Value Added Tax (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia. Value Added Tax (VAT) is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses gather and account for the tax, in a way acting as a tax collector on behalf of the government. A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net outcome is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
When will the VAT become effective and what will be the rates?
Value Added Tax is introduced across the UAE on 1 January 2018 at a standard rate of 5%.
How will the government collect VAT?
Businesses will be responsible for cautiously documenting their business income and costs and associated Value Added Tax charges. Registered organizations and traders will charge Value Added Tax to all of their customers at the prevailing rate and incur VAT on products / services that they buy from suppliers. The difference between these sums is recovered or paid to the government.
Will VAT spread on all products and services?
VAT, as a general consumption tax, will apply at 5% to all transactions of goods and services unless specifically exempted in Article (46) of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of Zero as per Article (45) of the Federal Decree-Law.
How do I include my Customs Registration in my records at the FTA?
Sign into the FTA e-Services portal via E-SERVICES, and go to EDIT on the VAT area and enter your Customs Registration Number. This will automatically update your records.
I am not able to download or print my Tax Registration Certificate…?
If you have been allocated a “Provisional TRN” and this has been communicated to you by email, you will receive the Tax Registration Certificate after the FTA has completely reviewed your application.
What is a residential building for VAT purposes?
A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include: ● Any structure that is not a building fixed to the ground and can be moved without being damaged. ● Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like. ● A serviced apartment for which services in addition to the supply of accommodation are provided. ● Any building constructed or converted without lawful authority.
What is a commercial building for VAT purposes?
A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.
What is a supply in relation to real estate?
A supply of real estate may include the sale, lease or giving the right in any real estate.
Is a residential building subject to VAT?
The first supply of a new residential building within the first three years of it being constructed shall be zero-rated. All subsequent supplies shall be exempt, even if within the first three years.
Is commercial real estate subject to VAT?
All supplies of commercial properties are liable to VAT at 5%, and this includes all buildings or parts thereof that are not residential buildings.
Does the owner of real estate have to register for VAT?
The owners of residential buildings do not have to register for VAT if they do not have any other business activities. Where owners have other business activities, they should consider their obligations further. The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 overcoming 30 days.
Can a real estate owner recover VAT paid in relation to real estate?
An owner of residential building will not be able to recover VAT in respect of expenses related the exempt supply of the residential buildings. An owner of a commercial building will generally be able to recover VAT in respect of expenses related to the supply of the building.
How a mixed-use building is (residential and commercial) treated for VAT?
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply or a subsequent supply. The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%. The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.
Will VAT be charged on the property I am renting?
The rent of residential building will generally be exempt from VAT. The rent of commercial building will be subject to VAT at 5%
Tax Refunds and Tax Complication
Would I be able to claim a refund if the payment is made by anyone or by credit card?
Yes, as long as the traveler exporting the products is present during the purchase, and it is the exporter's information that is completed for the VAT refund.
If in case the refund is above AED 10,000, can the traveler claim this at the airport terminal?
The traveler can get a refund in cash up to AED 10,000, for all the Tax Free Tags that sum up to that amount (or less). When they pass that sum, the rest of the tags must be refunded by credit or debit card only.
What occurs if there is no money refund counter at the border point?
The refund will be made with credit card, debit card or e-voucher where applicable.
Is there any extra cost to get a refund on a credit card or my bank?
There would be a standard money exchange rate that would be applied to convert amount into the cardholder's currency (where cash isn't AED).
Is there any charge for a refund in cash?
There is no charge for a refund in cash, but in case, if a visitor wishes to exchange the refund from AED into another currency, the Cash Refund Agent's advertised exchange rates would be applied.
Would one be able to claim the refund before getting to the point of exit from UAE?
Is a cash refund accessible on both the airside and landside at airports?
Where available, a money refund will only be given at the airside.
How long will it take for a credit card refund?
Card refunds are generally prepared via Planet within 10 days, excluding the bank's or credit card company's own handling times.
Who does the traveler need to contact if there is a postponement in the refund?
Travelers are encouraged to follow their refund by scanning the QR code on the Tax Free Tag utilizing a smartphone, and that will take them to specific tracking page to see further information.
Refunds and Claims of Tax on Airport
Can claims be validated 24/7 at all locations?
Validation will be accessible by 24/7 and refund desks will be open at significant airport terminals on 24/7.
Registration, Licensing and Payment of VAT
Would restaurants be able to register?
Yes, if a restaurant sells products that are eligible under Tax plan, they can register.
E-Commerce and VAT Related Issues
Can one reclaim VAT if ordering on an e-commerce website?
Yes, the receipt should be issued on the date the products are gathered in person by the tourist at a physical store, and the Tax Free Tag issued and joined to it around the same time. If the payment is online, the invoice must clearly define that it is an advance / deposit / booking fee and while collecting the products the actual sales invoice is issued on the day. Otherwise it is not possible to purchase online and claim tax free refunds.
VAT For Businesses
Who can or will be able to register for VAT?
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Besides, a business may choose to register for VAT voluntarily if their supplies and imports are less than the required registration threshold, but exceed the voluntary registration threshold of AED 187,500. Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to enlist for Value Added Tax.
What are the VAT-related responsibilities of organizations?
All organizations in the UAE Should record their financial transactions and ensure that their financial records are up to date and accurate. Organizations that meet the minimum annual turnover requirement (as prove by their financial records) will be required to register for Value Added Tax. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case Federal Tax Authority need to establish whether they should be registered or not. VAT-registered businesses generally: • Must charge VAT on taxable goods or services they supply; • May reclaim any VAT they’ve paid on business-related goods or services; • Keep a range of business records which will allow the government to check that they have got things right If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online. If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.
What does a business need to do to prepare for VAT?
To fully comply with VAT, we believe that businesses may need to make some changes to their core operations, their financial management and bookkeeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT now and make every effort to align their business model to government reporting and compliance requirements. We will provide businesses with guidance on how to fully comply with VAT once the legislation is issued. The final responsibility and accountability to comply with law is on the business.
When are registered businesses required to file VAT returns?
Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be: • Quarterly for businesses with an annual turnover below AED 150m • Monthly for businesses with an annual turnover of AED 150m or more. • The Tax returns shall be filed online using eservices.
What sort of records are required for businesses to maintain, and for how extent?
Businesses are required to keep records which will empower the Federal Tax Authority to recognize the details of the business activities and review transactions. The documents which are required and the time period for keeping them is clarified in Federal Law no. (7) Of 2017 on Federal Tax procedures and the Cabinet Decision No. (36) Of 2017 on the Executive Regulation of the Federal Law No (7) of 2017 on Tax Procedures.
How long must a taxable person retain VAT invoices for?
Any taxable person must retain VAT invoices issued and received for at least 5 years.
How should a business determine the place of supply?
The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes. For a supply of products, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies). For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).
Can businesses offset customs duty against VAT payments?
VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.
How will real estate be treated?
The VAT treatment of real estate will depend on whether it is a commercial or residential property. Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).
What sectors will be zero rated?
VAT will be charged at 0% in respect of the following main categories of supplies: Exports of goods and services to outside the GCC; International transportation, and related supplies; Supplies of certain sea, air and land means of transportation (such as aircrafts and ships); Certain investment grade precious metals (e.g. gold, silver, of 99% purity); Newly constructed residential properties that are supplied for the first time within 3 years of their construction; Supply of certain education services, and supply of relevant goods and services; Supply of certain Healthcare services, and supply of relevant goods and services.
What sectors will be exempt?
The following categories of supplies will be exempt from VAT: The supply of some financial services (clarified in VAT legislation); Residential properties; Bare land; and Local passenger transport
What are the cases that would lead to the imposition of penalties?
Penalties will be imposed for non-compliance. Examples of actions and omissions that may give raise to penalties include: A person failing to register when required to do so; A person failing to submit a tax return or make a payment within the required period; A person failing to keep the records required under the issued tax legislation; Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.
How will insurance be dealt with?
For the most part, insurance (vehicle, medical, etc.) will be taxable. Life insurance, however, will be treated as an exempt financial service.
How will financial services be dealt with?
It is expected that fee based financial services will be taxed but margin based items are likely to be exempt.
By what method will Islamic finance be dealt with?
Islamic finance items are predictable with the principles of sharia and consequently often operate uniquely from financial products that are common globally.
How rapidly will refunds be released?
Refunds will be made after the receipt of the application and subject to verification checks, with a specific focus on avoiding misrepresentation.
Will it be conceivable to issue cash receipts rather of VAT invoices?
A supplier enlisted or required to be registered for VAT must issue a valid VAT receipt for the supply. To be considered as a legitimate VAT receipt, the document must pursue a particular format as referenced in the legislation. In specific circumstances the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.
Will there be any VAT that organizations are not permitted to claim?
VAT won't be deductible in regards of expenses caused for making non-taxable supplies. Moreover, input tax can't be deducted if it is caused in regards of certain expenses for example entertainment expenses e.g. employee entertainment.
Under which conditions will organizations be permitted to guarantee VAT incurred on expenses?
VAT on expenses that were caused by a business can be deducted in the following situations: ● The business must be a taxable individual (the end consumer cannot claim any input tax refund). ● VAT should have been charged effectively (i.e. unduly charged VAT isn't recoverable). ● The business must hold documentation demonstrating the VAT paid (e.g. valid tax invoice). ● The goods or services acquired are utilized or intended to be used for making taxable supplies. ● VAT input tax refund can be claimed only on the amount paid or expected to be paid before the expiration of 6 months after the agreed date for the payment of the supply.
Will non-residents be required to register for VAT?
Non-residents that make taxable supplies in the UAE will be required to enroll for VAT except if there is any other UAE resident individual who is in charge for accounting for VAT on these supplies. This avoidance may apply, for example, where a UAE business is required to represent for VAT under a reverse charge system in regard of a purchase from a non-resident.
Will Businesses have to report on their business in every one of the Emirates?
Organizations should need to complete additional reports on their VAT returns to report revenues earned in every Emirate.
Will the goods exempt from customs duties also be exempt from VAT?
Not necessarily. Some products that are imported may be exempt from customs duties but liable to VAT.
VAT For Tourists and Visitors
Should tourists also pay VAT?
Yes, tourists will pay VAT at the point of sale. Nevertheless, Federal Tax Authority have set the VAT rate purposely low so that VAT is a limited burden on everyone.
Information about Store Process
Should traveler expected to have the original passport?
The preference (for better customer & merchant experience) is that the traveler presents their original passport/ GCC ID at point of purchase. Nonetheless, a clear copy would be enough for the passport / GCC ID number and tourist details. For validation at the point of exit, the original passport or GCC ID must be presented.
If the traveler has bought products and lost the receipt, would he be able to get back to the merchant to issue a new Tax Free Tag?
No, as the purchase invoice is required (the Tax Free Tag is attached to the purchase invoice).
If the traveler does not have their passport information on them at the time of purchase, can the tax refund form be issued?
No, as a minimum, the original or copy of the passport or GCC ID details are needed.
What if the traveler purchases the items and then requests for the purchase to be added to an current Tax Free Tag? What if he asks on the next day?
The traveler can consolidate up to 8 receipts on the same day of purchase from the same store group.
Is there any refund for services i.e. watch repair etc. (What if a part has to be purchased for repair)
Is it important to issue a Tax Free Tag for a traveler to get a refund?
Yes, a Tax Free Tag must be attached to each receipt to obtain a tax refund.
Is there any maximum sum the traveler can spend?
How does the traveler realize which shops offer Tax Free shopping?
Search for stores showing the Planet Tax Free and FTA logo, or ask in store.
How much amount does a traveler need to spend to qualify for Tax Free shopping?
The minimum purchase amount is AED 250 for every Tax Free Tag. This can be comprised of more than one purchase within the same shop group around the same time.
How much amount is the refund?
The refund is 85% of the VAT less 4.80 AED per Tax Free Tag.
What is Tax?
Tax is a way through which governments raise income to pay for public services. Government income from taxation are commonly used to pay for things such as public hospitals, schools and universities, defense and other significant parts of day by day life. There are different kinds of taxes: ● A direct tax is gathered by government from the individual on whom it is forced (e.g., income tax, corporate tax). ● An indirect tax is gathered for government by a delegate (e.g. a retail store) from the individual that ultimately pays the tax (e.g., VAT, Sales Tax).