Now, VAT for UAE ads on Facebook. Facebook announced a 5 per cent value added tax (VAT) for UAE advertisers

Dubai: Social media giant Facebook has announced all advertisements on its platform in the UAE will now be subject to a value added tax (VAT).

This means any individual or entity looking to advertise on Facebook will have to factor in an additional five per cent VAT on its services.

The move by Facebook follows the larger implementation of VAT in the UAE since January 1 2019.

Meanwhile, Facebook Business issued UAE users a notice to this effect.

“Due to an implementation of a value-added tax (VAT) in the United Arab Emirates, Facebook is now required to charge VAT on the sale of ads in UAE. All advertisers with a 'sold to' of United Arab Emirates that have not provided a tax registration number will be charged VAT at 5% on advertising services.

If you haven't already, here is how to update your account:

1. Go to Account settings
2. Add or confirm your state
3. Add your 15-digit tax registration number
4. It is important that you provide a valid tax registration number. We are legally required to verify this number with the UAE tax authority. Invalid tax registration numbers will be disregarded and as a result, you will be charged a 5% VAT on the purchase of ads.

For additional information, you can visit Facebook's 'help content'.

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Tax refund scheme for tourists received 2.38m applications in its first year More than 12,000 retail stores across UAE connected to tax refund scheme

Abu Dhabi: The Federal Tax Authority (FTA) on Tuesday announced that it had processed a total of 2.83 million applications through its electronic system for the tax refunds for tourists scheme.

According to the FTA, the average daily number of applications doubled to 7,730 requests per day in only its second month. The FTA also revealed that over 12,000 retail stores across the UAE were signed up to their electronic tax refund scheme for tourists.

“All evidence point to a dramatic increase in customer satisfaction with the electronic system for the Tax Refunds for Tourists Scheme, which is available at 12 ports of entry, including six airports, two maritime ports, and four land border crossings,” said Khalid Ali Al Bustani, director general of the FTA.

“Tourists have hailed the system’s speed, where a request for refund is processed seamlessly and in under two minutes,” he added.

Al Bustani also said that the number of self-service kiosks for tax refunds grew by 55.2 per cent since the end of July to a total of 45.

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Time for UAE’s real estate sector to be taxed Developers must bear such a cost depending on the number of units they bring to market

It is time to tax real estate. Taxing the sector is the most straightforward way to curb its supply. Being once a main driver for economic growth in the UAE, it has now turned into a drag on the economy and its diversification efforts.

Here’s why.

The real estate sector has been developed for two main purposes. The first is to turn the various emirates into metropolises, which will allow the country to grow its other sectors and attract residents who will contribute to its economic journey and success. The second is to attract investors.

Investors are being targeted through a range of real estate projects that align with various investing budgets. As for residents, they are targeted through the growth in the number of rental units entering the market every year.

Flat-lining growth

Today though, the market is over-saturated with large-scale development projects and rental units, with real economic growth generated by the real estate sector flattening out in recent years. Expectedly, and given the apparent oversupply in the market, this may as well drop into negative territory in coming years, offsetting any real economic growth from other sectors.

While many would speculate that this is the end of the real estate boom, a more balanced view is that this is rather a market correction.

Such a correction though must not be undermined by allowing a further surge in the supply before a robust evaluation can be undertaken to better understand where the market is today in terms of supply and demand. This must include units that are available for sale as well as units that are available for rent. With the proximity between a few of the emirates, and the convergence of their real estate markets, such a study will need to be conducted at a federal level in addition to studies on a state level.

Balancing out

For a balanced real estate market that will not undermine the UAE’s economic growth, there is no doubt that the real estate committee recently established in Dubai to balance supply and demand is an overdue step in the right direction. Nonetheless, such a step will, sooner rather than latter, need to be taken up a notch from an emirate-level initiative and mandate to a federal-level one.

Parallel to that, the UAE’s government will need to look at options to limit supply in the market as a whole.

One recommended approach would be to introduce a progressive real estate tax. The tax will need to be imposed on real estate developers, on per unit basis, for all units entering the market as a result of their planned projects. The rate must increase as developers pile up unsold and unleased units.

Whether those developers choose to pass the tax on to investors/renters, or not, is a separate matter. However, the presence of numerous developers will probably discourage them from doing so as to not lose market share.

More importantly, the proposed approach will ensure that such a tax does not impact individuals who are building their own houses or purchasing them. It will also mean that the tax will have a smaller impact on developers with better manage supply compared to developers drowning the market with it.

Given the evident excess supply, which has exerted downward pressure on sale prices and rents, the UAE needs to look at the real estate sector from a federal rather than from a state level. Meanwhile, the UAE must seriously consider taxing real estate to control, not cease, its future supply, thus limiting its drag effect on the UAE’s economy. Real estate should no longer be considered a key economic driver. The last thought that I want to leave you with: What should the UAE’s government role be in the real estate market?

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Stop spreading rumours on UAE income tax, warns Ministry of Finance. Misinformation on new direct UAE taxes has been spreading recently on social media

Dubai: A senior official at the Ministry of Finance has refuted unverified news about a new income tax that will be imposed in the UAE.

This past week, social networking sites were flooded with queries from residents who were confused about the alleged upcoming introduction of direct taxes and plans to increase value added tax (VAT).

VAT was introduced in the UAE on 1 January 2018 at a rate of 5 per cent. The VAT aims to provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It also intends to help the government move towards its vision of reducing dependence on oil and other resources as a source of revenue.

The number of businesses that registered for VAT during the first year of implementation reached at least 296,000 companies and tax groups, while tax returns exceeded 650,000.

During the first year of VAT, the authority responded to more than 306,500 phone calls about the tax system, while another 147,000 were answered by e-mail. The total number of queries answered by the Federal tax Authority (FTA) exceeded 453,500.

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UAE’s tax authority urges tax registration for new excise duties Failure to register companies and stocks of taxable items to result in hefty fines in UAE

Dubai: Federal Tax Authority (FTA) on Tuesday urged all manufacturers and importers of items listed in the expanded list of excise duties to register with the Authority for tax compliance ahead of the date of implementation of new taxes.

The UAE introduced the excise tax October 2017 on goods, which are deemed harmful to public health or to the environment in order to reduce consumption and increase government revenues allocated to cover the costs of public services.

According to the previously enacted law, the excise tax rate ranged from 50 to 100 per cent on tobacco and its products, energy drinks and soft drinks.

Earlier this year the government added new items to the list of goods subject to excise such as electronic smoking devices and tools at 100 per cent and sweetened beverages at the rate of 50 per cent excise duties.

The new excise duties will be in addition to the customs duties. The retail prices of these items will be subject to 5 per cent VAT in addition to customs and excise duties.

“We want to make the implementation of excise tax with the newly expanded list a very efficient exercise for businesses and the tax authority. Thus, we urge businesses, both manufacturers and importers of taxable items to register with the tax authority to avoid fines,” said Khalid Ali Al Bustani, FTA’s director general.

FTA said excise duties on the expanded list will be effective as of December 1, 2019, in accordance with the Cabinet and Ministry of Finance decisions and full compliance on registration is mandatory.

The FTA called on importers, producers and stockpilers of electronic smoking devices, liquids used in such devices and sweetened drinks to register for excise tax system as soon as possible.

The authority said that registering for the tax will avoid all stakeholders any fines or obstacles that may arise from late or failed registration.

Minimum price

A minimum price Dh0.40 must be applied per individual cigarette; and a minimum price of Dh0.10 must be applied on water pipe tobacco, ready-to-use tobacco or similar product, according to a decision issued the Ministry of Finance. “We have noticed the use of cheap substitutes that could be more harmful to the health of the users of tobacco products and that is the reason a minimum unit price is set for such products,” said Al Bustani.

Compliance and penalties

FTA’s data base is linked directly to the customs department and the taxable items that falls under excise list have item codes that can be easily identified.

Currently there are 9,000 items that comes under excise list. Following the recent expansion of the list an additional 900 items have been added to the list and the FTA expects up to 4,000 new additions to the list.

Following the implementation of excise duties on the newly added items, importers will not be able clear any of the taxable items through customs if they are not registered with the FTA.

Currently there are 782 companies that are registered with FTA, the deadline for registration for companies is November 30, 2019, and January 15, 2020, is the deadline for registration of stocks.

While the failure to register for excise duties within the deadline will invite a penalty of Dh20,000 and failure to register excess existing stocks of taxable items as of December 1, 2019, ahead of January 15, 2020 could invite a penalty of Dh20,000.

The FTA is in the process of introducing digital tagging for all goods that comes under the purview of excise duties to avoid smuggling, the tax authority said it will also introduce a mobile application that will enable the customers to check the authenticity of the products they consume through a bar code reader.

New excise list and tax rates

Sweetened drinks to be taxed at 50 per cent

Electronic smoking devices and tools taxed at 100 per cent

Liquids used in electronic smoking devices taxed at 100 per cent.

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From November 1: UAE’s Federal Tax Authority to implement Phase 2 of digital tobacco tax. Tax stamp to be required on water pipe tobacco and electronically heated cigarette plugs

It hasn’t even been two decades since their launch, yet we’re already seeing many side-effects of e-cigarettes, cautions a doctor.

Abu Dhabi: The Federal Tax Authority (FTA) has completed its preparations to implement phase two of the "Marking Tobacco and Tobacco Products Scheme" to include Water Pipe Tobacco (known in Arabic as "Mu’assel"), as well as electrically-heated cigarette plugs, starting from November 1, 2019.

In a press statement issued on Sunday, the Authority asserted that phase two builds on the success of its predecessor, where the sale and possession of any type of cigarette that doesn’t bear the Digital Tax Stamps was banned across local markets starting from last August 2019.

Shisha pipes. "Mu’assel" is known as the flavoured tobacco used along with "shisha" or "hookah", a waterpipe in which of tobacco and flavourings or molasses sugar is smoked.

The scheme serves to protect consumers from commercial fraud and low-quality products, on top of combatting tax evasion, the Authority noted.

The FTA explained that all products marked with the Stamps and included under the Scheme are electronically monitored from the manufacturing facility and until they reach the end consumer to ensure that all Excise Taxes due on tobacco and tobacco products have been settled.

The Authority called on businesses that supply Water Pipe Tobacco and electronically heated cigarette plugs to comply with the Scheme in order to avoid any violations or interruption to their operations.

FTA Director General Khalid Ali Al Bustani asserted that the ‘Marking Tobacco and Tobacco Products Scheme’ – which the UAE was the first in the region to implement – has helped upgrade inspection and control procedures at customs ports and markets, rendering them more effective in preventing the sale of counterfeit products that have not met their tax requirements.

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From December 1, Dh0.40 to be charged as Excise tax on individual cigarettes sold in UAE The authority stressed that registering for the tax will avoid all stakeholders any fines

Abu Dhabi: As of December 1, 2019, a minimum excise tax of Dh0.40 (US $0.11) must be applied per individual cigarette; and a minimum excise tax of Dh 0.10 (US$0.027) must be applied per gram of water pipe tobacco, ready-to-use tobacco or similar product, according to a decision issued the Ministry of Finance.

The Federal Tax Authority (FTA) announced it will start implementing the excise tax on electronic smoking devices and tools and sweetened beverages as of December 1 2019.

The FTA called on importers, producers and stockpilers of electronic smoking devices, liquids used in such devices and sweetened drinks to register for excise tax system as soon as possible.

The authority stressed that registering for the tax will avoid all stakeholders any fines or obstacles that may arise from late or failed registration.

Earlier, the UAE introduced the excise tax from as of October 2017 on goods, which are deemed harmful to public health or to the environment in order to reduce consumption and increase government revenues allocated to cover the costs of public services.

According to the previously enacted law, the excise tax rate ranged from 50 to 100 per cent on tobacco and its products, energy drinks and soft drinks.

Liquids used in e-cigarette includes all liquids used in electronic smoking devices and tools and the like, whether or not they contain nicotine, according to the customs codes to be specified by a ministerial decree.

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Maintaining financial sustainability of Dubai is top priority: Department of Finance head No-fee-rise decision has no significant impact on Dubai as economy is diversified

Abdulrahman Saleh Al Saleh, Director General of the Government of Dubai's Department of Finance (DoF).

Dubai: There's no planned increase in government fees in Dubai as the emirate's public budget has seen continuous improvements in the past five years, a senior official said on Saturday.

Abdulrahman Saleh Al Saleh, Director General of the Government of Dubai's Department of Finance (DoF), said that there is no intention to raise fees in the Emirate.

He added that the decision, taken in March 2018, did not have a significant financial impact on Dubai as it has a diversified source of revenue.

Abdulrahman Saleh Al Saleh, Director General of the Government of Dubai's Department of Finance (DoF), said that the continuous improvement in the performance of Dubai’s public budget over the last five years has been driven by Vice President and Prime Minister of the UAE and Ruler of Dubai His Highness Sheikh Mohammed Bin Rashid Al Maktoum’s directives, to maintain the sustainability of Dubai’s financial system, stimulate greater entrepreneurship and investment through economic stimulus measures and further enhance Dubai’s competitiveness as a global investment hub.

Al Saleh said that capital expenditure on infrastructure projects in Dubai, especially projects related to Expo 2020, top the priorities of the public budget — as part of ensuring that key projects are completed as per schedule.

The budget surplus generated over the last few years through prudent financial policies was used to fund these projects as per the objectives of Dubai Plan 2021, while Expo 2020-related projects will be totaling Dh30 billion by 2021.

Al Saleh was speaking at a 'Meet the CEO' event organised by the Government of Dubai Media Office (GDMO) on Saturday.

'Meet the CEO' is a regular series of press events organised by GDMO for leaders of prominent Dubai organisations. Both local and international media attended the event.

Dubai’s sovereign debt reached US$32 billion in September 2019.

The emirate’s public debt to GDP ratio was below 27.9 per cent while the debt-service coverage ratio was only five per cent of the general budget.

Financing options

Al Saleh said that Dubai is able to service all its sovereign debts according to schedule. He also said that when needed, DoF explores various other financing options before tapping the debt market to fund infrastructure projects.

Such options include bonds, sukuk, export guarantee and securitisation.

Al Saleh noted that Dubai approaches the debt market only to finance infrastructure projects and not for operational expenditures.

Government fees: No increase

The head of DoF said that there is no intention to increase government fees since a decision to freeze the fees was issued in March 2018, adding that the decision did not have a significant financial impact on Dubai as it has diverse sources of revenue.

He stressed that Dubai is capable of meeting all its financial commitments without increasing fees.

Al Saleh further said that the Government of Dubai reduced some government fees in June 2018 to support the business sector. This reduction has not had any noticeable impact on the performance of the general budget.

He also said that the Department is continuing to work on the Dubai Government Service Costing Program, ‘Almas’, launched in October 2018, which seeks to enhance transparency and accuracy in costing government fees.

Draft cost model

He further said that the department is working on a draft cost model for each government entity and a centralised formula for government fees.

The first phase of this project includes the collection of data and the calculation of the cost of 1,400 government services, including Roads and Transport Authority (RTA), Dubai Customs, Dubai Municipality, Dubai Police and Dubai Economic Department.

At a later stage, the project will cover 5,500 services provided by 23 revenue-generating government entities.

Al Saleh said that DoF has completed the general policy pertaining to the relationship between public and private sectors, related to Law No. (22) of 2015 pertaining to public-private partnerships. It has also commenced work on a new framework for public-private partnerships and launched many innovative projects including Dubai Municipality’s Waste-to-Energy project in partnership with a private company, a 30-year project that is set to kick off in 2020. He also said that the Department will host a conference on public-private partnership in the first half of 2020.

Al Saleh further said that he expects the private sector to partner with the government on multi-billion joint projects over the next few years. DoF is currently working with various government entities to implement projects worth AED4 billion in sectors such as education, healthcare and energy. These include the AED3.5 billion Dubai Municipality’s Waste-to-Energy project.

The department will execute a number of initiatives in the period leading to 2021 as part of Dubai’s strategic plan for partnerships with the private sector. Al Saleh said the department is keen to encourage the private sector to get involved in projects to promote investments and improve the competitiveness of public-private sector joint projects.

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Dubai offers instant VAT refunds for Chinese tourists Chinese tourists can use We Tax Refund on the WeChat Mini Program to get

A group of the Chinese tourists who gathered at the Dubai World Trade Centre for a company meeting.

Dubai: Chinese tourists to Dubai can now benefit from instant VAT refund capabilities at Dubai Airports via the We Tax Refund on the WeChat Mini Program, launched by Chinese tech giant, Tencent, and international payments service provider, Planet.

With the support of Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism), the new integrated service provides a seamless and secure way for visitors to instantly claim back their tax on purchases they have made while visiting the emirate, and further supports the Department’s ongoing ‘China Readiness’ strategy to grow and maintain the emirate’s share in a key source market while enhancing holistic experiences of its Chinese guests. Visitors will receive their tax refunds instantly at the airport via the WeChat app in the local RMB currency and will receive a notification once the refund has been issued.

Issam Kazim, CEO of Dubai Corporation for Tourism and Commerce Marketing (DCTCM) said: “Our ongoing mandate is to provide seamless tourist experiences to all our visitors, and our support of key industry partners such as Tencent and Planet allows the city to offer increased ease of travel as we diversify our portfolio of critical touchpoints. Providing innovative and familiar payment solutions, as well as instant VAT refunds before visitors depart is uniquely tailored towards the needs and requirements of Chinese travellers and has been developed taking their valued feedback on board. With the dynamic ‘We Tax Refund’ platform, we hit yet another milestone within our ‘China Readiness’ strategy further strengthening awareness of the emirate as a ‘must-visit’ destination for Chinese travellers.”

The city continues to welcome an increased number of Chinese visitors with positive 12 per cent year-on-year growth and cementing 650,000 Chinese tourists within the first eight months of the year. This sustained growth from one of the emirate’s fastest growing source markets is driven by Dubai Tourism’s increased market penetration, unique in-city experiences, and citywide initiatives to highlight Dubai as a popular and easily accessible holiday destination for Chinese guests.

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New accounting rules provide no luxury of time Tougher norms require banks to immediately make it known in their books

The International Financial Reporting Standards (IFRS) issued by the IFRS Foundation and International Accounting Standards Board (IASB) create a global framework for the preparation of financial statements of corporate entities.

IFRS 9 has drastically altered how entities treat their assets, liabilities and profit and loss items. Banks and therefore borrowers will be affected, to an extent that has not been understood by the business community. This column discusses its broad implications and how borrowers will be touched by it.

The most significant difference between the old IAS 39 standards and IFRS 9 is that the latter is forward-looking as opposed to being “past based”. What is at the core of IFRS 9 that will affect borrowers?

Fact vs. forecast

What is germane is that banks will now use a concept called “expected credit loss” (ECL), for every account, using numerous parameters, including qualitative judgements. And will make provisions (for doubtful loans) on a forward-looking, ECL-basis, rather than when loans actually go bad.

It is incontestable that a forward-looking model is fraught with uncertainty as plenty of judgement is required. The historic one is based on fact.

IFRS 9 calls for three stages of the performance of any credit. Banks will need to take increasing provisions on their loans, over these. Movement from Stage 1 (ECL from an account over the next 12 months from evaluation or origination point) to Stages 2 and 3 (3 means a loan is “credit impaired”) reflects progressive deterioration in credit quality.

The ECL is determined by a formula, an essential component of which is the “probability of default” (“PD”, determined by historical data etc.). The complexity of this is not relevant.

No time cushion

Suffice it to say that PD will sharply rise with a default, causing ECL to disproportionately surge. Therefore, when even a small default occurs (e.g., a 30-day delay of a small repayment) the bank has to take a provision on the account. Under the old regime, banks could live with delays and latitude in sweeping defaults under the carpet.

No longer. Provisions balloon in stage 2 and are a disaster in stage 3.

There are additional complications. There are a few characteristics of a transaction or credit facility that significantly increase ECL and therefore provision requirements.

First is the transaction structure, comprising several elements. One is the transaction duration — the longer it is, the bigger the impact on ECL in the event of a default. The ECL (therefore provisions) is far higher in case of a two-year loan than a 90-day one.

Second and tied to this is the frequency of repayments of a loan — the higher the frequency, the lower the ECL implication and vice versa. Another is the importance of the sector being lent to. Banks now have to discriminate between sectors and risk-rate each, based on how durable and predictable each is.

Will banks view sectors differently?

The second characteristic is collateral against each credit. Banks now have to be more discerning about various types of collateral and have to rate its quality as well, based on several parameters. Therefore, the scramble for real estate security over the past 3 years is likely to hit a wall, if it hasn’t already.

Third, banks now have to calculate ECL on undrawn but committed credit lines as well, where banks are obligated to keep lines open for a specified time; and not merely on amounts already borrowed. The average borrower need not worry — almost all lines here are uncommitted.

And now, for the icing on the cake.

The UAE Central Bank has set out its own regulations, overlaying IFRS 9, like other regulators elsewhere, resulting in more stringency, and therefore higher provisions (even on current portfolios) for banks. Some examples are: from now on the account classification (at the central bank) of a borrower decided by one lender will affect other lenders.

A downgrade will force others to rework their ECLs. Reports of the Etihad Credit Bureau will now be taken cognisance of.

Multiple boxes to tick

The net widens to include unavailability or inadequacy of financial statements of borrowers; qualified accounts; significant contingent liabilities (most auditors do not even report these!); pending, potentially damaging litigation; key staff leaving the borrower; non-cooperation of a customer in providing information etc, — any of these can spike the ECL.

The canvas is clear, and stark. Lenders will now tightly structure transactions, keep borrowers on tight leashes, monitor all aspects of businesses and use a dizzying array of judgemental tools to evaluate potential risk.

Provisioning will rise and therefore the cost of credit. Credit will be even more judiciously granted, pricing will rise.

For corporates, this is going to be a whole new world, requiring less accounting jugglery, more honesty and transparency, discipline etc. As such, the ECL, not relationships, will drive relationships!

Borrowers will need to rework banking and financing strategies and transform, quickly. The new reality is here. A word of advice to owners and management — wake up and change. If you don’t know how, seek help, you will need it …

Vikram Venkataraman is Managing Director at Vianta Advisors.

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