GCC Indirect Tax Weekly Digest

UAE developments 

FTA publishes Excise Tax Public Clarification on lost or deficient goods

The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published an Excise Tax Public Clarification (EXTP007) on Excise goods which are deficient or missing and the process for the destruction of Excise goods within a Designated Zone (DZ).

The Public Clarification provides insight into the FTA’s position on cases where relief from Excise Tax is available for deficient or missing Excise goods within an Excise DZ. 

By default, deficient or missing Excise goods within a DZ are considered to be released for consumption and therefore subject to Excise Tax. However, relief from Excise Tax is potentially available where:

• The warehouse keeper responsible for the Excise goods notifies the FTA within 30 days of discovering the deficiency or missing items; and
• The FTA accepts the deficiency or shortage to be due to a legitimate cause.

In order to notify the FTA, the taxable person who owns the goods must submit declaration EX203B (Lost and Damaged Declaration) on the FTA e-Services Portal, which will then be sent to the warehouse keeper for their approval and submission to the FTA. The Public Clarification details the information required to be included in the declaration and the possible responses from the FTA, and also provides an email address where additional supporting information can be provided to the FTA.

The Public Clarification notes that the FTA considers ‘legitimate cause’ to exist in cases of force majeure (circumstances beyond the warehouse keeper or taxable person’s control), natural wastage and shortage (e.g. expiration of goods or moisture loss due to evaporation), and wastage or shortage in the course of production (up to an allowable threshold). EXTP007 also lists the types of supporting documentation required in each of these cases.

In addition, the Public Clarification notes that where the destruction of deficient goods is required, the FTA may require inspection of the goods before approving their destruction.

FTA publishes VAT Public Clarification on gold making charges

The UAE FTA has published a Value Added Tax (VAT) Public Clarification (VATP029) on the consideration received by gold jewelers for ‘making charges’, which are the charges relating to the service component (e.g. production and design) of their supplies of gold jewellery.

As per Cabinet Decision No. 25 of 2018, suppliers must not charge VAT on supplies of gold, diamonds and any products where the principal component is of gold or diamonds made to VAT-registered recipients in the UAE who intend to resell the goods or use them to produce or manufacture gold or diamond products as described above. Instead, the recipient is required to apply the domestic reverse charge on such purchases. The Cabinet Decision details the conditions which must be met for this to apply.

The new Public Clarification states that where the supply of gold and the accompanying service component are a single composite supply (i.e. the price of the gold itself and the service component are not separately charged or identified, the service component is inherent to the product, and the gold and service component are supplied by the same supplier), the full consideration for the product will be subject to the domestic reverse charge (subject to the conditions in the Cabinet Decision).

Where the gold and the service component are multiple supplies (i.e. the supplier charges separate consideration for the gold and service component, or identifies the prices of the gold and service component separately), the supplier is required to charge VAT on the service component. The recipient would not apply the domestic reverse charge on the service component (i.e. the domestic reverse charge would only be applicable on the consideration relating to the gold).

Although the domestic reverse charge provisions in the Cabinet Decision are applicable to gold and diamond products, the FTA states that VATP029 applies only to gold and products consisting mostly of gold. In addition, VATP029 does not apply to gold which is subject to zero-rating (e.g. exported or in the form of investment precious metal).

KSA developments

Customs duty rates have recently increased across the Kingdom 

The Kingdom of Saudi Arabia’s (KSA) Minister of Finance has issued the Ministerial Decree No. 59334 dated 10/11/1443 AH (corresponding to 9 June 2022), increasing the customs duty rates for 99 products, primarily focusing on foodstuffs, beverages, industrial and agricultural products. As communicated in the Ministerial Decision, this is aimed at stimulating and protecting local industries and agricultural products. 

The newly increased duty rates range from 5.5% to 25% and took effect from 12 June 2022. The full list of impacted commodities, currently available in Arabic, is available on the following link.

Additionally, it is worth noting that in June 2020, an increase in customs duty rates was implemented which had a widespread impact across various sectors of the economy with a general increase in customs duty rates. The full list of impacted commodities in 2020 is available on the following link.

For details about the products impacted and the potential business impact, please refer to Deloitte’s recent alert.

ZATCA publishes English version of tax amnesty guideline

The KSA Zakat, Tax, and Customs Authority (ZATCA) has published the English version of its guideline on the amnesty for tax penalties announced earlier this month. The guideline was previously published in Arabic.

All taxpayers can avail of the tax amnesty during the six months starting from 1 June until 30 November 2022. 

The taxes covered under the amnesty are VAT, Withholding tax, Excise, Income tax, and Real Estate Transaction Tax (RETT). Customs duties are not covered within the scope of the amnesty.

For details about the eligible penalties and procedure for availing the amnesty, please refer to Deloitte’s recent alert.

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.