GCC Indirect Tax Weekly Digest

UAE developments

 FTA publishes press release highlighting two years of VAT in the UAE 

 The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a press release highlighting the current state of affairs and key statistics two years following the implementation of Value Added Tax (VAT) in the UAE.

The press release covers a wide range of areas, including the FTA’s
efforts to continuously develop systems to make processes more efficient,
partnerships with the private sector, initiatives to raise awareness across
industries, and efforts to enhance cooperation between parties involved in the
VAT system.

In addition, the press release provides a statistical overview of the
current state of the VAT system, which was introduced on 1 January 2018. Key
statistics include the following:

• 312,000 businesses registered for VAT in the UAE
• 445 private and 19 public clarifications provided by the FTA, with 271% growth in private clarifications in 2019 over 2018
• AED 28.7 million processed under the foreign business visitor refund scheme
• 454 tax agents registered

The press release also highlights recent FTA initiatives, including private sector partnerships (the Business Consultancy Group and the Advisory Committee for Excise Goods Price Listing).

As part of the press release, the FTA called on businesses to ensure that they are in compliance with the VAT legislation and highlighted examples of common errors discovered by the FTA. As the VAT regime matures, the FTA will undoubtedly expect higher levels of compliance from businesses.

For more information about VAT in the UAE, and how Deloitte can assist your business with achieving compliance with the legislation, reviewing and redesigning existing processes, and ensuring readiness for FTA tax audits, please email any of the contacts below or your usual Deloitte contact.

FTA publishes updated Input Tax Apportionment Special Methods guide 

The FTA has published an updated version of its Input Tax Apportionment Special Methods guide.

Any taxable person making a mixture of taxable and exempt supplies
is required to apportion their input tax so that input tax recovery is
restricted to the proportion relating to supplies on which VAT is recoverable.
The standard method for input tax apportionment is described in Article
55(6)-(10) of the UAE VAT Regulations.

However, as this method is not appropriate for every business, the
FTA introduced several special methods, of which certain methods are only
available to businesses in specific industries. The guide has been available on
the FTA website since December 2018 and describes each special method and the types of businesses it is available to, as well as guidance on the process of
applying for a special input tax apportionment method.

The new version of the guide has been amended as follows:

• Calculations supporting special method applications are now required to be submitted for a minimum period of 12 months preceding the application, where applicable
• Appendix 2, which provides an example of input tax apportionment, has been amended to include more line items and thereby more examples of the manner in which the FTA expects certain costs to be treated
• Appendix 3 has been added. It includes common errors the FTA has observed in the special method request applications it has so far received

The input tax apportionment process is complex, and affected businesses should ensure that they use the correct method and calculations.

Bahrain developments

NBR publishes VAT Public Clarification on proportional deduction ratio for input
VAT

The Bahrain National Bureau for Revenue (NBR) has published a new Value Added Tax (VAT) Public Clarification on the proportional deduction ratio for
input VAT.

 The Public Clarification sets out the NBR’s position on how financial institutions should calculate their income on margin transactions in order to determine their proportional input VAT deduction ratio.

 Financial institutions which use the standard apportionment method set out in the VAT General Guide should use the ‘absolute value’ of supplies arising on margin transactions carried out by the institution. The ‘absolute value’ is the amount of profit (if the transaction resulted in a profit), or the amount of any loss converted into a positive amount (if the transaction resulted in a loss).

 The absolute value should be used to compute the value of supplies on margin transactions from 1 January 2019, or the effective date of VAT registration if this was later. Financial institutions are not required to submit amended VAT returns for previous periods; however, when computing the proportional adjustment ratio based on the actual value of supplies made for 2019, the value of margin transactions included in the supplies used in the ratio should be their absolute value.

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.