GCC Indirect Tax Weekly Digest
October 22, 2018
UAE FTA publishes VAT guide on charities
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a new Value Added Tax (VAT) guide for charities operating in the UAE.
Federal Decree-Law No. (8) of 2017 on Value Added Tax (the Decree-Law) defines charities as “societies and associations of public welfare not aiming to make a profit that are listed within a Cabinet Decision issued at the suggestion of the Minister.”
The guide sets out the requirements to qualify as a ‘Designated Charity’ for VAT purposes, and guidance on the extent to which charities may recovery VAT on costs. We have summarized the main points below.
A major issue facing charities is whether the deemed supply rules in the UAE VAT legislation apply to charities. Under those rules, certain situations may result in a deemed supply, and therefore within the scope of VAT, eg.:
- A supply of goods or services that are used partly or wholly for non-business purposes on which input tax has been recovered; and
- A supply of goods or services for no consideration on which input tax has been recovered.
The FTA considers the definition of “business” for VAT purposes to be broad, and would therefore include charities utilizing goods and services within the terms of their charitable activities.
In this context, where the relevant goods or services remain the assets of the charity, the FTA considers that there should be no deemed supply.
However where the charity gives away goods for free on which it has recovered input tax, this may result in a deemed supply, with output tax to be accounted for.
The deemed supply rules apply only if the charity has recovered the input tax on the relevant goods and services, and if the total VAT due for all deemed supplies made by a charity over a 12 month period is greater than AED 2,000. This is likely to be the case for most charities.
Designated Charities may be able to recover VAT on non-taxable activities under a special VAT refund scheme.
There are four criteria which must all be satisfied for a charity to be treated as a Designated Charity:
- Approved by the Ministry of Community Development to carry out a charitable activity in the UAE, or
- established as a charity under Federal or Emirate Decree, or
- otherwise licenced to operate as a charity by an agency of the Federal or Emirate Governments uthorizat to grant such licences, with its objectives including for instance, advancing health, education, public welfare, religion, culture, science, and similar activities;
- Operated within the terms of any approval, licence or other uthorization which has been granted by the aforementioned bodies in respect of its charitable activities;
- Operated on a not-for-profit basis; and
- Funded primarily by means of grants or donation.
A Designated Charity must register for, and charge, VAT if required under the normal rules. It can only form or a join a tax group made up of other Designated Charities.
The first supply of a new building or part of a new building to a Designated Charity may be zero-rated for VAT if the following conditions are met:
- It is the first supply of the building;
- The building or part of the building being used by the charity was specifically designed to be used by a charity solely for its relevant charitable purpose (it must have been built specifically for that charity); and
- The “relevant charitable activity” is included in the definition listed in the guide.
VAT recovery by charities
Charities other than Designated Charities may recover VAT incurred in the course of making taxable supplies under the normal rules. VAT incurred in making exempt supplies, and blocked expenses such as business entertainment cannot be recovered by any charity.
Both charities and Designated Charities will need to apply an apportionment methodology where exempt supplies are made. Apportionment methodologies are outlined in the guide at Section 3.2 (charities) and Section 3.3 (Designated Charities).
KSA GAZT publishes general VAT guide
The Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) has issued the first version of its general VAT guide. The guide provides information to taxpayers on a wide variety of VAT obligations in KSA.
The guide covers topics such as VAT registration, charging VAT and issuing VAT invoices, deduction of VAT on purchases, filing returns, and interacting with GAZT on VAT matters and disputes.
The guide is aimed at a broader audience than GAZT’s industry-specific publications, and offers a good starting point for all taxpayers with respect to understanding VAT compliance obligations.
For more information about VAT in KSA, and the compliance obligations facing businesses, please contact Michael Camburn or your usual Deloitte contact.
Deloitte’s Indirect Tax practice in Oman held an interactive forum to discuss how VAT affects the financial services industry and what the likely issues businesses will face in preparation for entry into the VAT system.
Following the recent release of the FTA VAT Guide on Insurance in the UAE, Deloitte organized an interactive insurance roundtable for the Key industry players in the country. During the session, our insurance tax experts discussed how VAT affects the industry, and the issues businesses are still facing now that the FTA have released the Insurance VAT guide.
Due to popular demand, we have reached the maximum capacity for our upcoming VAT awareness seminar in Manama, Bahrain, however we are pleased to announce that a second session has been added to the agenda on Tuesday 30 October 2018.
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.