GCC Indirect Tax Digest
July 13, 2021
FTA publishes VAT guide on the automotive sector
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a Value Added Tax (VAT) guide on the automotive sector.
The guide provides details of the FTA’s interpretation of the application of the UAE VAT legislation on transactions relating to the automotive sector. This includes a summary of the basic rules relating to sales and leases of cars, sales of used cars and the application of the profit margin scheme, and rules relating to imports and exports of cars. In addition, the guide covers warranty claims, auctions, promotions and company cars.
Importantly, the FTA has clarified that the profit margin scheme does not apply to cars purchased prior to the implementation of VAT in the UAE, and imported cars where the import VAT has been recovered.
Further, the guide clarifies that SALIK is charged to the owner, rather than the driver, of a car, and therefore cannot be treated as a disbursement when on-charged by the owner to a customer (e.g. in the case of a hired vehicle).
In addition, the guide states that where cars are exported but billed to a local UAE party, the cars must be treated as local standard-rated sales to the UAE customer, followed by a zero-rated export by that customer.
Action to take
Businesses should review the guide to determine if they are applying the correct VAT treatment to automotive-related transactions. In particular, businesses involved with leasing vehicles should evaluate whether SALIK charges are being accounted for correctly and determine if voluntary disclosures are necessary in case of incorrect treatment being applied in the past.
In addition, exporters who have been zero-rating exports of cars which were billed to a UAE party should be aware that the FTA has begun reviewing these types of transactions as a result of the contents of the automotive guide, which comments on multiple sales for export. In some cases, businesses have been faced with large retrospective assessments as a result. This coincides with a general increase in FTA attention around whether the conditions and evidence requirements for export transactions have been met. Therefore, businesses should carefully review their compliance with the zero rating provisions in such cases and consider whether protective action is required.
ZATCA publishes circular on the real estate sector
The Kingdom of Saudi Arabia (KSA) Zakat, Tax and Customs Authority (ZATCA) has published a circular in Arabic relating to tax refunds for qualifying real estate developers.
The circular clarifies the refund mechanism and controls in place for licensed property developers to be able to claim a refund of the VAT incurred on the costs of property development activities.
This follows the recent update to the real estate VAT guide in Arabic, which relates to changes to the real estate VAT rules in KSA, including those relating to property and land sales in the KSA from 4 October 2020 and applying the Real Estate Transaction Tax (RETT).
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.