GCC Indirect Tax Weekly Digest
July 8, 2018
UAE FTA expands list of VAT designated zones
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has expanded its list of designated zones for the purposes of Value Added Tax (VAT). In addition to the existing designated zones, the following free zones have been granted designated zone status effective from 18 June 2018:
- Al Ain International Airport Free Zone
- Al Butain International Airport Free Zone
- International Humanitarian City
Designated zones are areas within the UAE which are treated as being outside the state for certain transactions for the purposes of VAT.
The VAT rules which apply to designated zone transactions are complex. It is critical that businesses within a designated zone, or which transact with businesses within designated zones, are fully aware of these rules. Operations should be reviewed immediately to identify potential impacts of the designated zone expansion on existing transactions. This may mean that you should review the transaction mapping in respect of transactions undertaken if your operations are in one of the new designated zones, or in respect of transactions with entities that are now in any of them.
FTA updates e-Services website for customs clearance companies
The UAE FTA issued a press release stating that it has updated its e-Services website with features to simplify procedures for customs clearance companies operating under its approval.
The new features are intended to streamline registration procedures for customs clearance companies and also make it easier for them to submit tax returns.
There are currently 86 customs clearance companies which have been approved by the FTA. This should assist those companies, and potentially any that deal with them, but does mean that you should review any transactions that may be affected to ensure that they are being treated appropriately under the new treatment. The timing of the changes will also be important.
FTA publishes Public Clarification on the VAT treatment of labour accommodation
The UAE FTA has published a new Public Clarification on the VAT treatment of labour accommodation. Please refer to Deloitte’s alert on this subject for a summary and analysis of the Public Clarification.
The Public Clarification sets out the rules for determining whether a supply of labour accommodation is considered to be a supply of a residential building (which would be zero-rated on the first supply and exempt thereafter), or a supply of serviced accommodation (and thus standard rated).
One factor that will determine whether a supply of labour accommodation is standard rated or exempt is the type of service(s) provided with the accommodation:
If the services provided with the accommodation are:
Then the VAT liability of the accommodation will be:
Incidental services only which are basic and necessary to providing the supply of the residential building, and will not cause the supply to be considered a serviced accommodation.
Exempt (or zero-rated if it is the first supply within 3 years of completion)
Services that go “above and beyond” what is considered incidental.
The Public Clarification also discusses the FTA’s views on the differences between a single composite supply and a mixed supply. In the case of a single composite supply, the entire consideration is subject to the VAT treatment of the principal component; in a mixed supply, each component must be valued and a VAT treatment applied to it.
It is important to note that in a single composite supply, all components must be supplied by a single supplier. If the components come from multiple suppliers, it will not be treated as a single composite supply, and the tax treatment of each component must be individually evaluated.
It is also important to note that, as with any such guides or clarifications, the FTA are not able to address all possible permutations of the transactions under consideration, so it is still important for business to review what they do, how they treat it, and what the VAT consequences are, as there are still a number of areas where there may still be a bit of uncertainty.
Please note that this digest is for information purposes only and should not be construed as an 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.