GCC Indirect Tax Weekly Digest
September 10, 2019
FTA issues new Cabinet Decision on Excise Tax expansion
Last week, the UAE Federal Tax Authority (FTA) issued Cabinet Decision No (52) of 2019 to announce that Excise Tax will be levied on sweetened drinks, liquids used in electronic smoking devices and tools, as well as electronic smoking devices.
Excise Tax will be applicable at the rate of 50% on the higher of the price published by the FTA and the designated retail sales price less tax included on sweetened drinks.
Sweetened drinks will include any products with added sugar or other sweeteners, whether in the form of a beverage, liquid, concentrate, powders, extracts or any product that may be converted into a drink. However, beverages which contain at least 75% milk or milk substitutes, baby formula, baby food, beverages consumed for special dietary needs, as well as beverages consumed for medical uses will not fall under the scope of excise tax.
Liquids used in electronic smoking devices and tools, as well as the devices and tools themselves, will be subject to Excise Tax at the rate of 100% regardless of whether or not the liquids contain nicotine or tobacco.
Please note that this Cabinet Decision will not come into effect until a separate decision is issued to set a date of implementation. Article 17 the Cabinet Decision appears to state that the new rules could come into effect before 1 January 2020.
Deloitte has also issued a separate Excise Tax alert to provide further details on the impacts of the expansion of Excise Tax. Access the full details here.
GAZT issues new Guideline on Excise Goods in Arabic
The Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) has issued a new Excise Tax Guidelines on Excise Goods. This guideline provides more guidance to excise taxable persons in the Kingdom following the announcement of the expansion of Excise Tax to cover additional products (sweetened drinks and electronic smoking devices). The guidelines is currently only available in Arabic.
Specifically, it provides guidance on the following topics:
- When Excise Tax is applicable on the import, production, and possession of Excise goods;
- The definition of Excise goods by reference to the HS code used on import;
- Categories of Excise goods;
- Events which are considered excise taxable; and
- Examples of Excise taxable and non-taxable products.
The guide is important for any business in the KSA which is required to be registered for Excise Tax or which deals in Excise goods – either the existing categories of Excise Goods and for businesses which may be required to register for Excise Tax as a result of the new products to be included within the scope of the tax from 1 December 2019. In particular, businesses which expect to have an existing stock on hand of sweetened drinks on 1 December should review their obligations to account for tax as of 1 December in order to avoid being subject to penalties.
NBR releases a VAT Public Clarification on Directors’ Fees
The Bahrain National Bureau for Revenue (NBR) released a VAT Public Clarification on Directors’ Fees to clarify the VAT liability of fees earned by board members or directors in carrying out their duties as board members of a company, governmental organization, institution or similar body.
The NBR states that when board members or directors are carrying out core duties in their capacity as board members or directors, such activities are not considered to be independent from the entities concerned. Consequently, a board member is not regarded as carrying on an economic activity in relation to that activity and remuneration for services as a board member is outside the scope of VAT.
Core duties are those that are required to be carried out under the Commercial Companies Law (Decree Law No. (21) for the year 2001 and its amendments in Decree No. (50) for the year 2014, Decree No. (27) for the year 2015, Decree No. (1) for the year 2018). However, given that these may be amended from time to time, board members should frequently review their activities to ensure that these align with the core duties as required by the relevant legislation.
For any other functions that fall outside the core duties, these would be treated as an independent economic activity which may trigger an obligation to register for VAT if the amount exceeds the mandatory registration threshold in Bahrain.
The NBR also differentiates the above from a third party who provides professional directorship services as part of its business and in consideration for a fee or similar payment. For example, where a third party i.e. a trust or company service provider, law firm or accounting firm, offers a service whereby it acts or arranges for another person to act as a board member, this will be considered to be acting independently and therefore be subject to VAT.
Interestingly, the approach taken by the NBR in Bahrain relating to independent Directors appears to be aligning with the policy approach of the GAZT in KSA. This is distinct from the UAE position, which considers Director’s services to be an economic activity subject to VAT at the standard rate of 5%. Accordingly, individuals or businesses who are involved in acting as board members should review their current activities to determine the VAT treatment of their services and whether VAT registration is required.
VAT registration process is now open for entities with BD 18,750 to BD 500,000 of annual taxable supplies
NBR has issued a press release to announce that the VAT registration process is now open for entities generating or expected to generate between BD 18,750 and BD 500,000 in annual vatable supplies. This final phase of VAT registrations in Bahrain will take the mandatory registration threshold to the same value as that applicable in KSA and the UAE by 1 January 2020.
It further states that entities that wish to register early for VAT with the NBR will also have the option of choosing their preferred date to start implementing VAT, for dates up to the end of the grace period.
As such, businesses with annual taxable supplies between BD 18,750 to BD 500,000 should start considering the requirement to register for VAT and VAT compliance within its internal operations.
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.