With the VAT regime coming to UAE in less than two weeks, we take a look at VAT transitional rules regarding contracts and early invoicing and payment.
Transitional Rules – Contracts
Where a contract is entered into prior to the effective date of the VAT law which concerns a supply made wholly or partly after the effective date of the VAT Law, VAT will be due on the supply taking place after the effective date of the VAT Law. If the contract does not mention VAT, the value of the supply stated in the contract shall be treated as inclusive of VAT. For example, the company selling the supply has to account for 5% VAT to the FTA on the value of the supply from the sum which is in the contract. Continue reading →
The date of supply for a transaction is the date on which taxes are levied on the goods and services.
Basic tax points for goods:
- Date of removal of goods (in case of supply of goods with transportation)
- Date on which goods made available to customer (in case of supply not involving transportation)
- Date of assembly/installation (supply of goods involving assembly or installation)
Basic tax point for services:
- Date on which the performance of service is complete
Special tax point: If any of the following events take place before the basic tax point, it will be considered a tax point for accounting for VAT:
- Payment is received
- Tax invoice is issued
Tax point for supply of continuous services: In case of continuous services over a period of several months or years, the time of supply will be the earlier of the receipt of payment or the issuance of the tax invoice.
The FTA has made an announcement regarding a complete list of Goods and Services which will be influenced by the new UAE VAT regime. Supplies in transportation, real estate and financial services industries will be mostly exempt from VAT, while government activities will be outside of scope of VAT Tax. Continue reading →
The place of supply is where a transaction is considered to have occurred for VAT purposes. It is determined differently for goods and for services.
Place of supply will determine whether a supply is made in the UAE or outside the UAE for VAT purposes:
- If the supply is treated as made outside the UAE: no UAE VAT will be charged
- If the supply is treated as made in the UAE: VAT may be charged
Goods: Basic rule – the place of supply is the location of goods when the supply takes place. Continue reading →
Reverse Charge is a mechanism under which the recipient of goods and services is required to pay VAT instead of the supplier, when the supplier is not a taxable entity in the member state where the supply has been made. It’s used because the VAT registered purchaser has to account for VAT in respect of supplies. It’s typically used for cross-border transactions to relieve a non-resident supplier from the requirement to register and account for VAT in the country of the purchaser. Reverse charging is meant to put local and international suppliers on equal footing. Continue reading →
Taxable supplies include:
Standard rated supplies – 5% VAT unless zero rated, exempt or out of scope.
Zero-rated supplies – not subject to VAT, right to an input tax deduction on the corresponding expenses. Examples:
- Export of goods and services to outside of GCC
- International air transport
- First sale of newly constructed residential property within 3 years
- Government funded education
- Preventive and basic healthcare
- Supply of crude oil or natural gas
Continue reading →
At the end of each tax period, a VAT registered business will either be due to pay tax to the FTA or get a refund depending on the amount of Input and Output tax incurred in that period.
Output VAT is the amount of tax you charge on the sales of your own goods and services both to ordinary customers and other entities if you’re registered for VAT. Input VAT is the amount of value added tax you’ve paid during the purchases of goods and services during a tax period. If the amount of Input VAT you’ve paid is lower than the amount of Output VAT you’ve charged, you’re due a net tax credit for the amount of the difference between those values. If the amount of Input VAT you’ve paid is larger than the amount of Output VAT you’ve charged, you’re due for a tax refund from the FTA. Continue reading →
VAT Liability – Export of Services
A supply of services shall be zero rated if all of the following conditions are met:
- The services are supplied to a recipient who does not have a place of residence in a GCC State and who is outside of UAE at the time the services are performed, and
- The services are not supplied directly in connection with: real estate situated in the UAE or any improvement to the real estate or moveable personal property situated in the UAE at the time the services are performed.
Services may also be zero rated where:
- The services are actually performed outside the GCC or are the arranging of services that are actually performed outside the GCC;
- The supply consists of the facilitation of outbound tour packages
For the purpose of this rule, “outside the UAE” includes a short term presence in the UAE (less than 1 month), or a presence that is not effectively connected with the supply. Continue reading →
With the introduction of VAT, the Federal Tax Authority (FTA) is implementing VAT Invoices. Two types of invoices are being introduced – regular and simplified. Before we take a look at what information should be displayed on each of them, let’s first consider what a VAT Invoice is:
- Written document which records the details of a taxable supply made
- Can only be issued by a VAT registered business
- Invoice must be issued within 14 calendar days of the date of supply
- Need to be kept for at least 5 years
The issuance of a valid tax invoice may dictate the time of supply, and therefore determine in which tax period the output tax should be accounted for. A VAT registered business must issue a tax invoice to the recipient of a domestic taxable supply of goods and services. In certain conditions, the customer may be able to issue a “self-billed” tax invoice on behalf of the supplier. The receipt of a valid tax invoice is the primary documentary evidence to support the recovery of VAT incurred by the purchaser. Continue reading →