GCC Indirect Tax Weekly Digest
March 18, 2020
Dubai Government announces economic stimulus package worth AED 1.5 billion including major temporary changes for trade and customs
The Dubai Government has announced an AED 1.5 billion economic stimulus package for the next three months, intended to ease the effects of current global economic trends arising from the COVID-19 virus.
The stimulus package includes easements related to Customs in the region, and as a result businesses in Dubai should in principle be entitled to the following for a three month period:
- A refund of 20% on the customs fees imposed on imported products sold locally in Dubai markets;
- The cancellation of the AED 50,000 bank guarantee or cash required to undertake customs clearance;
- Reduction of the fees imposed on submitting customs documents by up to 90%;
- Bank guarantees or cash paid by customs clearance companies will be refunded. Fees imposed on submitting customs documents of companies by clearance agents will be reduced by 90%;
- To boost trade, the requirement for providing a banking instrument while submitting customs-related grievances has been cancelled; and
- In addition, traditional wooden commercial vessels (or dhows) registered in the country will be exempted from mooring service fees for arrival and departure, as well as direct and indirect loading fees at Dubai Harbor and Hamriyah Port.
This initiative is to be warmly welcomed and should be of great benefit to importers as it is expected to ease the impacts of the ongoing economic situation caused by the spread of the COVID-19 virus. We strongly recommend that economic operators act now to take advantage of these new measures over the validity period of three months.
NBR publishes VAT Public Clarification on warranty repair services
The Bahrain National Bureau for Revenue (NBR) has published a new Value Added Tax (VAT) Public Clarification (VAT/PC/20/1) on warranty repair services.
The Public Clarification sets out the NBR’s position on the VAT treatment applicable to amounts charged by Bahraini dealers (i.e. suppliers of repair services) to manufacturers for repair services performed by a local dealer for customers covered under the manufacturer’s warranty. The Public Clarification addresses situations where the manufacturer sold the original goods to the dealer, which then sold the goods on to the customer.
Where goods are covered under the manufacturer’s warranty, and the dealer is contractually obligated to provide repair services on behalf of the manufacturer, both the supply of repair services to the customer and the recharge of the cost to the manufacturer by the dealer will be out of scope of VAT if the following conditions are satisfied:
- The warranty was included in the sales price of the goods from the manufacturer to the dealer and from the dealer to the customer; and
- Only the exact cost of repairs was recharged by the dealer to the manufacturer.
The NBR does not consider warranty repair services to be separate supplies if VAT was already paid on the original supply of the goods, i.e. where the warranty forms part of the supply both from the manufacturer to the dealer and from the dealer to the customer. However, if the local dealer charges a margin on the repair services when recharging the cost to the manufacturer, then VAT will be applicable on the margin at the standard rate of 5%.
If the warranty was not included in the original sales price of the goods, warranty repair services will be considered to be separate supplies for VAT purposes and will be subject to VAT at 5%.
In addition to the above, the Public Clarification addresses the VAT treatment applicable to third party warranty repair services, extended warranty periods, warranty repair services for goods sold prior to the implementation of VAT, and the recovery of VAT incurred by a dealer established in Bahrain for the provision of warranty repair services.
Dealers and manufacturers of goods sold in Bahrain with a warranty should familiarize themselves with the new Public Clarification and ensure that the correct VAT treatment is applied to their transactions.
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.