GCC Indirect Tax Weekly Digest
January 28, 2019
UAE FTA publications
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published new Value Added Tax (VAT) Public Clarifications on bank interest and dividends, and on donations, grants and sponsorships.
Public Clarification on bank interest and dividends
VATP010 discusses the VAT implications of bank deposit generated interest income and dividend income earned by VAT-registered persons.
The Public Clarification states that passively earned income generated from bank deposits and dividend income received by merely holding shares in a company do not constitute consideration for a supply. Thus, these forms of income are outside the scope of VAT and do not need to be reported on the VAT return.
A company holding a bank deposit is not considered to be making a supply to the bank, and as such the interest is earned ‘passively’ and is out of scope of VAT. This contrasts with interest earned from extending loans or credit, which are exempt supplies.
Dividend income received by shareholders of a company is out of scope of VAT as the shareholder is not making a supply to the company, and the dividend income is not consideration for a supply. However, management fees charged by a holding company to its subsidiaries would be subject to VAT.
Public Clarification on donations, grants and sponsorships
VATP011 addresses the VAT treatment of donations, grants or sponsorships received by taxable persons from third parties, and whether these are to be treated as consideration for a taxable supply.
The document states that the VAT treatment of such payments depends on whether the party making the payment receives any benefit in return. If any benefit is received, a VAT liability will arise, whereas if no benefit is received, the payment will be out of scope of VAT as it would not be consideration for a supply.
Examples of such benefits include providing promotional space to a business in return for its donation, displaying a sponsor’s logo, or using a grant to conduct research which is used in the business of a grantor. Such cases would make the donation, grant, or sponsorship consideration for a supply, and consequently subject to VAT.
Where donations, sponsorships, and grants are given in the form of goods, deemed supply provisions may apply.
The new Public Clarifications make it clear that certain transactions must be carefully assessed to determine if a taxable supply is made in return for consideration, in order to apply the correct VAT treatment and avoid the risk of penalties.
NBR provides updates during workshop
The Bahrain National Bureau for Revenue (NBR) held a meeting for professional services firms on 21 January 2019. During the meeting, the NBR provided clarification and assurances on a number of issues, including:
- The NBR gave assurances that there will be no penalties imposed on taxpayers for not charging VAT in cases where the Tax Registration Certificate has been received after 1 January 2019, but the effective VAT date of registration was 1 January 2019.
- VAT group registration may be applied from 1 February 2019.
- The practical aspects of the deferral of import VAT were being worked through; details will be provided in due course.
- Industry specific VAT guides will be released shortly on the NBR website, covering Financial Services, Real Estate, Oil and Gas, and the Digital Economy. Guides will also be available on the specific topics of Imports and Exports, Non-Resident and Group Registration. A possible guidance on unincorporated JVs was also discussed.
- Currently some non-residents are struggling to register for VAT in Bahrain as a local Company Registration number (“CR”) is required. The NBR is aware of the issue, and details of a solution will be provided in the Non-Resident Registration guide (to be published).
- A list of 1,400 Government Services which are not subject to VAT has previously been released. The NBR confirmed this list will be expanded to include additional services. However, no official list of “Government Entities” will be issued by the NBR for the purpose of interpreting the VAT law and regulations (for example, the transitional provisions).
- Import VAT is currently being charged on all movements of goods into Bahrain, including goods in transit. The NBR is working with Bahrain Customs to correct where necessary.
- The IT solution for VAT return filling is being worked on by the NBR following pilot testing; details will be provided in due course.
It can be seen from the above that while there are a number of technical and practical matters yet to be resolved in respect of VAT, the NBR is actively seeking feedback and working to address concerns of taxpayers. If you have any questions in respect of the above, or VAT in Bahrain generally, please contact Michael Camburn or your usual Deloitte contact.
NBR and NHRA indicate that all registered medicine and approved health products to be zero-rated
The National Health Regulatory Authority (NHRA) has published a circular stating that VAT will not be applicable on medicine and health products from January 2019.
Meanwhile, the NBR has updated its website with links to the NHRA’s lists of registered medicine and approved health products under its listing of zero-rated healthcare goods. It would thus appear that all registered medicine and approved health products in the lists are zero-rated for VAT.
Businesses in the healthcare sector should familiarize themselves with the healthcare goods that are zero-rated, and ensure that they apply the correct VAT treatment to their supplies to avoid significant penalties for non-compliance.
Business promotions guideline published in English
The guide provides additional clarity on the VAT implications of common promotional activities carried out by taxable persons. It covers topics including the valuation of supplies, monetary and non-monetary consideration, expenses and other taxes, and consideration paid by third parties. It also details how to apply the Fair Market Value to supplies and the criteria for calculation.
The guide also expands upon topics addressed briefly in the VAT legislation, such as vouchers, and topics the legislation does not particularly address such as loyalty programs.
For more information on the VAT implications of promotional activities carried out by businesses in KSA, or any other issues relating to VAT in KSA, please contact Michael Camburn or your usual Deloitte contact.
New format for VAT registration certificates
GAZT has issued a press release in Arabic revealing a new format for VAT registration certificates. The press release stated that VAT registration certificates in the new format will be issued for businesses which are already registered to replace the old certificates, which are still valid.
Qatar excise tax update
The countdown began for stockpilers of Excisable Goods in Qatar in the race to submit the Transitional Excise Tax Returns by the deadline, before the end of January 2019. In an effort to raise public awareness on this new tax amongst those concerned, the Ministry of Finance has sent e-mails to potential taxpayers last week and also called attention of the public to the relevant tax compliance liabilities in local newspapers. Business with any quantity of Excisable Goods (most importantly carbonated drinks, energy drinks, tobacco products, alcohol) at the year-end of 2018 is liable to submit Transitional Excise Tax Return, those who held stock in excess of the value of 50,000 QAR should also engage a third party auditor to certify the stock level.
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.