The Federal Tax Authority (FTA) recently published a report that highlights some of the successes of the UAE’s two-year-old VAT system and the more recently introduced Excise Tax. Of particular note is the news that the number of VAT registered businesses has increased to around 312,000 and that the tax revenue from Excise Tax and VAT contributed 5.5% of the country’s total public revenue last year.
Looking ahead, the FTA is committed to providing clear and simple procedures for managing, collecting, and implementing taxes, honing the tax IT system, and ensuring higher rates of customer satisfaction in 2020.
In addition to these announcements there have been a number of public clarifications and updates, which we have summarised below.
Input tax can be recovered in the period in which the taxpayer receives the tax invoice and forms an intention to pay for the supply within six months of the agreed payment date, or in the subsequent VAT period.
The FTA has clarified that if the intention to make the payment is formed in a tax period that is later than the tax period in which the tax invoice is received, the input tax should be recovered in the later tax period or in the period subsequent to that.
If the taxpayer fails to recover input tax in the correct tax period, it will be necessary to file a voluntary disclosure to claim the tax.
Under special rules introduced for Expo 2020, participants are entitled to claim VAT paid on certain categories of goods and services that are directly connected with the construction, installation, and alteration of the exhibition spaces and activities directly related to organising and operating exhibition spaces.
The FTA has now extended this relief to allow participants to claim a refund of VAT on operational costs related to Expo 2020, regardless of whether the costs are incurred within or outside the boundaries of the Expo site.
With effect from 1 December 2019, the scope of Excise Tax has been expanded to include sweetened drinks, electronic smoking devices, and liquids used in electronic smoking devices.
This has created significant compliance obligations for importers, manufacturers, and ‘stockpilers’ of the newly excisable goods. Stockpilers are defined as any person who holds an ‘excess in quantity’ of excisable goods on the date the tax was introduced. The law provides methods for determining whether there is an excess in quantity and the check is required on a product-by-product basis. In any cases, where the threshold is breached, the stockpiler is required to declare tax on the excess.
The FTA has conducted seminars to create awareness of the new levy and has issued guidance and clarifications to assist taxpayers. This has been well received but there are still a number of areas of uncertainty and complexity.
The Excise Tax return for the first tax period for the newly excisable goods was due to be filed on 15 January 2020.
Brian Conn
brian.conn@bdo.ae
Amrita Chandwani
amrita.chandwani@bdo.ae