FTA publishes Public Clarification and two new Cabinet Decisions
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a new Value Added Tax (VAT) Public Clarification on tax invoice requirements, and the Cabinet Decisions on the introduction of the Tourist Refund Scheme and marking tobacco and tobacco products.
The new Public Clarification is relevant to all businesses making a taxable supply and provides further clarity over the issuance of tax invoices.
The new Cabinet Decisions introduce the framework for the introduction of the Tourist Refund Scheme for VAT, and set out the previously announced tax stamps regime for certain excise goods.
In this alert:
- VAT Public Clarification VATP006 on tax invoices
- Cabinet Decision No. (41) of 2018 on Introducing the Tax Refunds for Tourist Scheme
- Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products
VAT Public Clarification VATP006 on tax invoices
VAT Public Clarification VATP006 addresses the application of Article 59 of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree Law No. (8) of 2017 on Value Added Tax (Executive Regulations), which sets out the requirements for when a tax invoice must be issued and the particulars that must be included.
This publication is important as the tax invoice process is relevant to all businesses making taxable supplies, and tax invoices received must be compliant with the UAE’s VAT legislation to enable input tax recovery on the VAT return. In this regard, it is important to note the emphasis on the word ‘must’ – these requirements are mandatory rather than optional.
Failure to comply with the stated requirements can have a number of implications for the business, ranging from commercial (upset customers that may not be entitled to a Tax Credit for VAT incurred) to the imposition of penalties for the failure to issue and deliver compliant tax invoices. There could be many other flow on consequences, hence the importance of ‘getting it right’.
The Public Clarification includes the following key points:
- Whenever a taxable supply is made, a tax invoice must be issued and delivered to the recipient (if the conditions for a simplified tax invoice are met, then a simplified tax invoice can be issued and delivered instead).
- It is not acceptable to offer only an option of providing an invoice (and thus not provide one if the customer does not request one). A tax invoice must be provided in all circumstances where a taxable supply is made.
- A simplified tax invoice does not have to show the net value (the value before tax) for each line item.
- A full tax invoice must show the tax value and net value for each line item; however the gross value (the total including tax) does not have to be shown for each line item.
- If a tax invoice is issued in a foreign currency, it must show the tax amount converted to AED and the approved exchange rate used for the conversion.
- Rounding on tax invoices must be to the nearest Fils on a line item basis.
For more information about the requirements for when a tax invoice must be issued in the UAE and the details that must be included, please contact one of the contacts listed below, or your usual Deloitte contact.
Cabinet Decision No. (41) of 2018 on Introducing the Tax Refunds for Tourist Scheme
Cabinet Decision No. (41) of 2018 on Introducing the Tax Refunds for Tourist Scheme provides details on the mechanism of the Tourist Refund Scheme (TRS) and its implementation, and was issued on 24 July 2018.
The FTA has previously announced that, consistent with the stated effective date referred to below, the TRS will come into effect by November 2018 and retailers can register to be included in the scheme from 10 September 2018.
The Cabinet Decision contains the following key points:
- The Chairman of the FTA will issue a decision announcing the official date the TRS will come into effect no later than 1 January 2019.
- For a person to be eligible to obtain a refund under the TRS, the following must apply:
- conditions in Article 68(2) of the Executive Regulations must be met;
- the goods must be purchased from a retailer participating in the TRS;
- the purchase or export of the goods must follow the requirements of a decision issued by the Chairman; and
- the goods have not been excluded from the TRS by the FTA.
- The Retailer will need to provide the tourist with the necessary documentation for a refund claim under the TRS, along with a valid tax invoice as per Article 59 of the Executive Regulations.
- The tourist electing to claim a refund, is required to request a tax refund directly from the Operator of the TRS. The refund cannot be obtained from the retailer.
- The Operator is allowed to charge the tourist an administration fee that may not exceed the limit approved.
- The tourist may be required to present goods for validation and inspection in order to validate the claim.
- If the Operator has correctly issued a tax refund to a tourist, it can then obtain a reimbursement of the tax amount directly from the Retailer who sold the goods to the tourist.
- If the Retailer correctly reimburses the tax amount to the Operator, the Retailer can treat the tax amount as a reduction of output tax in the tax period in which the refund was paid to the tourist. This is expected to be reported in the dedicated box on the VAT return.
- It would appear that the FTA will need to issue further regulations and/or guidance on the practicalities and documentation required for the operation of the TRS, so that this stage it is important that potentially affected Retailers keep aware of these developments.
For more information about the tourist refund scheme, please contact your usual Deloitte contact, or any of the contacts mentioned at the bottom of this alert.
Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products
Cabinet Decision No. (42) of 2018 on Marking Tobacco and Tobacco Products sets out the rules for applying a digital or physical stamp, seal, or mark which has been approved by the FTA on tobacco/tobacco products, and came into effect on 24 July 2018.
The purpose of applying these marks is to track whether or not excise tax has been paid on the affected goods. Such marks are commonly referred to as “tax stamps”.
The Cabinet Decision indicates the following:
- The producer of tobacco/tobacco products will be required place marks on them, in a manner and location on the products as specified by the FTA.
- The marks must be applied to the tobacco/tobacco products at either the production facility within the UAE immediately after packaging if produced in the UAE, or a location outside the UAE prior to import if produced outside the UAE.
- An importer or producer in the UAE will be required to submit a request to the FTA indicating the quantity of tobacco/tobacco products which they want to apply marks to, and will be required to purchase marks from the entity determined by the FTA.
- Only an ‘authorized supplier’ is allowed to supply marks, and it is prohibited for any other person to trade, swap, sell, or otherwise supply marks.
- The fee payable for the purchase of marks will be authorized by the FTA and paid by the importer or producer before the marks are issued.
- The importer and producer in the UAE, or a Specified Person within the supply chain must keep records of the movement of all tobacco/tobacco products into and within the UAE while the goods are in their possession. This allows the “track and trace” of all marked goods throughout the supply chain within the UAE.
There has been a significant amount of new material published by the FTA in recent months, adding detail and insight into the FTA’s interpretation of the UAE VAT Law. It is imperative that businesses ensure they keep up to date with these developments and ensure they are efficiently adopted into existing VAT processes.