GCC Indirect Tax Weekly Digest
May 5, 2020
FTA publishes Public Clarification and updated guidance for the Real Estate sector
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a Value Added Tax (VAT) Public Clarification on changes in the permitted use of a building, and an updated version of its Real Estate VAT guide.
VAT Public Clarification VATP018 clarifies the VAT treatment of the sale of a building and the subsequent supply thereof by the purchaser and is relevant to any business involved in buying and selling property.
The Public Clarification addresses the VAT implications of situations where a building is sold to be used in a certain way (i.e. residential or non-residential), and subsequent to the date of supply, the purchaser changes the permitted use of the building.
VATP018 clarifies that a change in permitted use will not change the VAT treatment of the preceding sale, but will change the VAT treatment of any subsequent sale of the building by the purchaser per the new permitted use.
The updated Real Estate VAT guide includes a number of important revisions which are relevant for property developers, construction firms, and any other employers that provide residential accommodation to their employees. Key updates relate to the supply of employee accommodation, leasing bare land, Musataha agreements, and Management Entities.
FTA publishes updated Charities VAT guide
The FTA has published an updated version of its Charities VAT guide. The guide has been reworded in order to more clearly provide guidance on the VAT implications for charities in the UAE.
Additional details have been added to some sections. These include additional details on situations where deemed supply provisions will not apply, and criteria for charities to be considered ‘designated charities’, as well as the conditions for the management of a designated charity to be considered ‘fit and proper persons’.
Further, the guide emphasizes that charities must comply with all applicable anti-money laundering and anti-terrorism financing legislation and guidance issued by the UAE Central Bank.
NBR publishes manual on registration and refunds for Eligible Person.
The Bahrain National Bureau for Revenue (NBR) has published a manual on registration and refunds for Eligible Persons. ‘Eligible persons’ are defined in the manual as international entities in Bahrain including:
- Foreign Governments;
- Diplomatic Missions and Institutions;
- International Organizations; and
- Consular and Military Bodies.
The manual clarifies that Eligible Persons are obligated to register in order to request VAT refunds on their expenses incurred in Bahrain. The registration process, which is facilitated by the Ministry of Foreign Affairs in cooperation with the NBR, is detailed in the manual.
The refund period for transactions taking place between 1 February 2020 and 30 June 2020 will open on 1 July 2020 and close on 31 July 2020.
VAT Amnesty – T-Minus 2 Months
Just a reminder to our reader that there are now less than 8 weeks to the end of the VAT amnesty in KSA. The deadline for making good past errors, VAT registrations etc. is June 30. Please come and speak to us if you need more information or assistance in availing of this relief.
COVID-19 Indirect Tax management
Focus on: the Financial Services industry
Director, Indirect Tax
GCC Indirect Tax Financial Services industry leader
‘Margin based’ income (i.e. interest and the profit margin arising from financial products) earned by banks and other financial institutions is VAT exempt, whereas explicitly raised fees and commissions are generally subject to VAT. This increases the VAT compliance burden for the banking sector because, not only is it a challenge to assign the correct VAT liability to income streams, but also to determine the correct level of VAT to recover on costs incurred. Given that banks are complex organizations with multiple divisions and functions, the obligations imposed by VAT can be formidable.
Given the ongoing VAT compliance obligations and the FTA’s view that banks should agree special apportionment methods for VAT recovery purposes, as well as recent issues in terms of cash flow and liquidity driven by the current pandemic, it is a good idea for banks to undertake VAT liability reviews during this period in order to validate VAT treatments applied and identify any tax savings. Likewise, with respect to costs, banks should consider reviewing recovery and apportionment processes and ensure that tax has not been over-recovered. We are aware that a number of banks have already been subject to on-site VAT audits by the FTA and it is worth bearing in mind that the penalties imposed by the FTA for undisclosed tax underpayments are extremely high when compared to other countries.
The FTA has released various Public Clarifications and guidance with respect to financial services since VAT was introduced on 1 January 2018. Now is a good time to look again at positions taken and processes put in place for VAT recovery. Any opportunity to save tax by not having to charge it per the VAT law, should be taken.
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.