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UAE Central Bank has amended the application of VAT to capped fees
Another step closer to VAT implementation
The Central Bank has issued notice 157/2018 amending its earlier position on the application of VAT to fee caps.
The circular, which replaces Appendix 2 of the Central Bank Regulation 29/2011, lists the revised maximum limits for fees charged on retail customer service. Importantly, the Central Bank states that all fees set out are exclusive of United Arab Emirates (UAE) Value Added Tax (VAT).
The Central Bank also rescinds the previously released circular dated 28 December 2017, stating that banks and other financial service providers were not permitted to exceed or increase their existing fees structure because of VAT, further confirming the above position.
The effective date of the notice is 19 June 2018. Banks and finance companies are required to display the new fee caps on their websites.
Any business providing services subject to the Central Bank regulated fees should review the circular in order to understand the impact it will have on its operations. In particular, businesses should consider the impacts on pricing and to what extent VAT will be transferred to customers.
Businesses should also note the rules in the Executive Regulations concerning the published prices when communicating the amended fees to customers and make the required amendments in ERP systems to ensure prices are reflected and VAT is charged correctly. Finally, businesses that decide to pass on the VAT on their fees to customers should consider their communication strategies in relation to the way in which they draw the changes to their customers’ attention.
Banks to include customer TRNs on tax invoices as of 1 July 2018
UAE banks have previously obtained a temporary advance ruling form the Federal Tax Authority, applied for by the industry body UAE Bank Federation, allowing for more flexible rules on issuance of tax invoices. In accordance with the ruling, banks have not been required to issue tax invoices to non-VAT registered customers. When invoices have been issued to VAT registered customers, banks have been allowed to not include the customer’s tax registration number on the tax invoice, which otherwise is required under the Executive Regulations for the invoice to be considered a valid tax invoice.
The granting of the relief expires on 30 June 2018 and will not be extended. Therefore, banks are required to issue tax invoices to non-VAT registered customers with effect from 1 January 2019. Tax registration numbers of registered customers must be included on tax invoices from 1 July 2018.
Banks that have not currently taken action to collect the tax registration numbers of VAT registered customers should proceed to do so as soon as possible to reduce the risk of issuing invoices that would not be considered valid tax invoices. While it may not be possible to gather the necessary information from all customers and update systems in the short time allowed, businesses should take a proactive approach to minimize any non-compliance. Businesses that do not currently issue tax invoices to non-VAT registered customers should also begin to consider what system changes may be required to ensure that invoices can be issued from January 2019.