GCC Indirect Tax Weekly Digest
December 31, 2018
Bahrain is expected to implement Value Added Tax (VAT) this week on Tuesday, 1 January 2019. A review of the list of goods and services not subject to VAT has been ordered by His Majesty the King. Meanwhile, the National Bureau for Taxation (NBT) has published the first supplementary guidance on the Bahrain VAT Law and Regulations (collectively the ‘Bahrain VAT legislation’).
Notwithstanding last week’s parliamentary debate on VAT and whether its introduction should be postponed, it would seem that VAT is set to go-live within 24 hours, barring any last minute changes.
His Majesty the King orders review of VAT mechanisms
According to a press release issued by the NBT, His Majesty King Hamad bin Isa Al Khalifa has ordered a review of the VAT treatment of basic commodities and services during the early implementation period.
The press release and the homepage of the NBT website maintain that VAT will be implemented on 1 January 2019.
NBT publishes VAT General Guide
The NBT has published the Bahrain VAT General Guide. The guide, which is not legally binding, sets out the general principles of VAT in Bahrain, providing an overview of the VAT rules and procedures as per the Bahrain VAT legislation, and guidance on determining the VAT treatment of supplies.
The comprehensive document covers a wide range of topics, including (but not limited to) VAT registration, transactions within the scope of VAT, place of supply, VAT treatment of supplies (with sector-specific issues addressed), tax invoices, input tax recovery, the tax return and payment process, record-keeping, and transitional rules.
Notably, the guide specifies that Bahrain does not currently recognize any other GCC member state as an implementing state for VAT purposes, and as such these states will be treated as non-implementing states until further notice, which critically means that exports of both goods and services need to be treated as if they were made to 3rd countries.
NBT publishes detailed VAT technical FAQ
The NBT has expanded the VAT technical FAQ section of its website and published a corresponding document which covers a wide range of issues taxpayers may face. The FAQ is intended to provide a simplified summary of some of the complex provisions of the Bahrain VAT legislation.
The FAQ contains detailed guidance on topics including VAT registration, tax return procedures, invoicing obligations, VAT recoverability, imports and exports, discounts, penalties, and sector specific issues.
Please note that the FAQ is not legally binding, and in the event of a discrepancy between it and the VAT legislation, the VAT legislation will take precedence.
NBT publishes list of VAT treatments for key industries
The NBT has published a list summarizing the VAT treatments of supplies in several key industries. The list, which is not legally binding, provides a breakdown of standard rated, zero-rated, exempt, and out of scope supplies for each industry.
The list covers the food, education, healthcare, financial services, construction, real estate, transportation services, and telecommunication services industries.
According to the list, the specific medicines and health products which are to be zero-rated will be disclosed by the National Health Regulatory Authority.
UAE FTA publications this week
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a new VAT Public Clarification, Decision, and guide. Further, it has updated its website with a section on the digital tax stamp requirement for tobacco products.
Special input tax apportionment methods guide
The FTA has published a new guide on special input tax apportionment methods. The guide is intended to provide clarity to businesses when submitting the Input Tax Apportionment Request Form to the FTA.
The guide sets out that any taxable person making a mixture of taxable and exempt supplies is required to apportion their input tax so that input tax recovery is restricted to the proportion relating to supplies on which VAT is recoverable.
The standard method for input tax apportionment is described in Article 55 of the UAE VAT Regulations.
However, as this method is not appropriate for every business, the FTA has introduced several special methods, of which certain methods are only available to businesses in specific industries. The new guide describes each special method and the types of businesses it is available to, as well as guidance on the process of applying for a special input tax apportionment method.
For a more detailed overview and analysis of the new guide, please refer to Deloitte’s alert that was sent separately from this email.
VAT Public Clarification VATP009 on date of supply for independent directors
VAT Public Clarification VATP009 on date of supply for independent directors addresses the issue of determining the date of supply for the Board fees paid to independent directors. The new document sets out the following:
Where the Board fees for independent directors are not known at the outset and are determined upon the conclusion of the annual general meeting (AGM), the date of supply is when the fees are known.
- If the Board fees are determined upon conclusion of the AGM and the independent director does not issue an invoice or receive payment prior to this, as per Article 25 of the UAE VAT Law, the date of supply will be when the services are completed. In this instance, the FTA considers the services to be completed only when the fees are known upon conclusion of the AGM, even if the services were physically completed earlier.
Where the Board fees are known at the outset, the rules are as follows:
- If there are periodic payments or consecutive invoices, the date of supply will be as per Article 26 of the UAE VAT Law. This will be the earliest of the:
o date of issuance of a tax invoice;
o date payment is due as shown on the tax invoice; or
o date of receipt of payment.
- If 12 months have passed from the date of provision of services and none of the above have occurred, the date of supply will be at the end of the 12th month.
- If there are no periodic payments or consecutive invoices, the date of supply would be as per Article 25 of the UAE VAT Law. This will be the earliest of the:
o date of issuance of a tax invoice;
o date on which the provision of services was completed; or
o date of receipt of payment.
Decision No. (4) of 2018 on Tax Invoices
Decision No. (4) of 2018 on Tax Invoices sets out that a registrant making a supply of goods or services through a vending machine is not required to issue a tax invoice for the supply, subject to certain conditions.
If the registrant does not issue a tax invoice, they must keep sufficient records which contain:
- a description of the goods/services supplied,
- the total consideration and tax amount charged, and
- the date of supply.
The Decision applies retroactively from 1 January 2018. Please note that the Decision applies only to the tax invoice requirement, and does not change the date of supply or requirement to account for tax on the supply.
VAT refunds for business visitors user guide
The FTA has published the full version of the VAT refunds for business visitors user guide. Foreign businesses will be eligible to apply for a refund if they meet the following conditions:
- They have no place of establishment or fixed establishment in the UAE or a recognized implementing state;
- They are not a taxable person in the UAE;
- They are registered as an establishment in the jurisdiction in which they are established; and
- They are from a country that has VAT and which provides VAT refunds to UAE entities in similar circumstances.
Businesses resident in any Gulf Cooperation Council (GCC) state that is not considered an implementing state may submit a VAT refund application to reclaim VAT incurred in the UAE under this scheme.
A refund will not be available if any of the following applies:
- The foreign business makes supplies in the UAE (unless the recipient must account for VAT under the reverse charge mechanism)
- The input tax in respect of any goods or services is blocked and would not be recoverable by a taxable person in the UAE
- The foreign business is a non-resident tour operator
The period of each refund claim will be a calendar year. For claims in respect to the 2018 calendar year, refund applications can be made from 1 April 2019. For subsequent years, refund applications can be made from 1 March of the following year.
The guide further states that the minimum claim amount for each VAT claim is AED 2,000, and that the FTA will issue more detailed guidance about the application process in the future. Please note that tax invoices must be retained and submitted as part of the application process.
Digital tax stamp section added to website
The following timeline has been set for the new regime:
- 1 January 2019 – importers can order stamps to be sent to manufacturers for application to the packaging of cigarette products.
- 1 May 2019 – no cigarette products without a digital tax stamp may be imported in to the UAE; penalties may apply for non-compliance.
- 1 August 2019 – no cigarettes may be stored, held out for sale, imported or produced anywhere in the UAE unless they have a digital tax stamp with end-to-end traceability; penalties may apply for non-compliance.
The FTA has also specified who is required to register:
- Manufacturers – any UAE-based or overseas/international cigarette manufacturer that sells its products via importation into the UAE for either domestic sales or sales via UAE duty free outlets (airports and ports)
- Importers – any officially licensed importer of record who purchases cigarettes in bulk from domestic or international manufacturers and undertakes to on-sell and distribute within the UAE mainland or UAE duty free markets
- Distributors/supply chain agents/warehouse keepers – any official distributor that will be the recipient of formally imported goods for sales in domestic market or sales via UAE duty free outlets (airports and ports)
KSA GAZT publications this week
Capital assets guideline
This guideline provides additional clarity to taxpayers with respect to the treatment of capital assets from a VAT perspective. It addresses the definition of capital assets, the deduction of input tax on purchases of capital assets, adjustments to VAT recoverability arising from a change of use of the assets, as well as the deduction of input tax on capital asset purchases made before a taxpayer’s VAT registration in KSA comes into effect.
Given the often high value of capital asset purchases and the resulting VAT obligations, this guide should prove useful for companies making such purchases.
Professional services guideline
This guideline addresses the VAT implications of the provision of professional services. It covers the following topics: the place of supply of professional services, the due date of VAT on such services, common issues such as disbursements and expenses and later adjustments, the treatment of activities and forums held in KSA, financial consultation services, VAT implications on international contracts, and treatment of fees for services performed within a group of companies.
The Qatar Ministry of Finance (MoF) stated in a press release (inaccessible from some countries) that a decision has been issued to establish the General Tax Authority (GTA). The GTA has been established as a separate entity under the supervision of the MoF, and will be responsible for implementing tax laws, reviewing and assessing tax returns, and collecting taxes from liable entities. The press release further stated that VAT will not be implemented in the country 2019.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.