VAT is universal for ecommerce transactions Scope for exceptions and tax evasion are limited

In UAE e-commerce (electronic sales and purchases) is subject to the standard 5 per cent value added tax (VAT).

As a transitional provision, all goods coming from GCC member countries are subject to VAT until the implementing state provisions becomes operational.

Physical goods and electronic services such as software, e-games, e-subscriptions, mobile phone applications and e-content are subject to specific rules that regulate how VAT applies to them.

(a) Sales & purchase of goods or services through e-commerce within UAE is considered as domestic sales and are subject to standard 5 per cent VAT rate.

(b) Purchase of goods or services from outside UAE, is subject to standard 5 per cent VAT rate.

(i) If recipient of goods or services is in UAE and registered for VAT (as a taxable person), then in this case recipient of goods or services is expected to calculate the standard 5 per cent VAT using reverse charge mechanism, whereby the taxable recipient calculates the due VAT instead of the non-resident supplier.

(ii) If the recipient is the end consumer (i.e. not registered with tax authority for VAT), then standard 5 per cent VAT is charged and paid to the authority by the agent or logistic company. Agent (who supplies/imports) will be responsible for compliance of UAE VAT for all imports on behalf of not registered individual.

Alternatively, the non-resident supplier must register in UAE for VAT purposes, regardless of supply volume.

Compliance on import of goods is aligned and governed through customs automated process and difficult to by-pass the process.

Software, e-games etc

When it comes to services such as software, e-games, e-subscriptions, mobile phone applications and e-content, there are implementation challenges across the world and tax authorities are gauging the trend & increasing surveillance on tax offenders. These are getting controlled through payment gateway monitoring & licensing protocol, e-commerce IP Address monitoring for allowing access to the website in country or not.

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Federal Tax Authority records rise in tax registered businesses Some 539 applications valued at about Dh23.74m were approved until end-June 2019

Abu Dhabi: The Federal Tax Authority has revealed that the number of tax registered businesses has increased thanks to the growing awareness among business sectors, and the ease and flexibility of electronic tax procedures available through the Authority’s official website, which was developed during the year 2019.

Khalid Ali Al Bustani, Director General of the Federal Tax Authority (FTA), stressed that 2020 will witness further development to the online services, as part its efforts to manage, collect, and implement taxes.

Al Bustani added that the continuous development of FTA services aim to maintain the best quality standards in light of having a fully electronic tax system that is the first of its kind regionally. He noted that the number of businesses registered with the authority through individual registration or a tax group increased to about 312,000.

According to FTA statistics, the total number of refund requests received through the tax recovery mechanism for the construction of houses amounted to 2,366 applications until December 2019, 1474 of which were approved for citizens who recovered the tax they paid for building their homes with a total value of Dh84.07 million, while legal measures are being taken regarding other requests submitted to the authority.

Some 539 applications valued at about Dh23.74 million were approved until the end of June 2019, with a record semi-annual growth of 254.18 per cent in the value of the recovered tax and 173.5 per cent in the approved applications.

During the past six months, 935 new applications were approved at a value of about Dh60.33 million, and the monthly average number of approved applications were 154 applications, while the average value of the tax recovered for citizens about building their new homes amounted to Dh10.1 million.

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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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