Under UAE VAT Law, it is specified that all tax registered individuals and businesses in the UAE should maintain their records in a way that enables the FTA to validate the data submitted for tax returns. It is required to maintain the records for a minimum of 5 years after the tax period, and records relating to real estate should be retained for at least 15 years from the end of the tax period to which they relate.
What records must be kept?
Records of all supplies and Imports of Goods and Services.
All Tax Invoices and alternative documents related to receiving Goods or Services.
All Tax Credit Notes and alternative documents received.
All Tax Invoices and alternative documents issued.
All Tax Credit Notes and alternative documents issued.
Records of Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for the same.
Records of Goods and Services purchased and for which the Input Tax was not deducted.
Records of exported Goods and Services.
Records of adjustments or corrections made to accounts or Tax Invoices.
Even though businesses in UAE have done record-keeping and maintained accounts and records for their internal reference in the past, VAT Law requires accounts and records to be mandatorily maintained.
The failure of the person conducting Business to keep the required records and other information specified in the law would attract penalty for the taxable person.
The Federal Tax Authority introduced a Special Refund Scheme to reimburse VAT paid on goods and services for official participants in Expo 2020. All official participants regardless of their VAT registration status must obtain a “Certificate of Entitlement” from the Expo Bureau to be eligible for the VAT refund. The application to recover VAT incurred can be made by one of the following methods:
Where the Official Participant is not registered for UAE VAT, the refund applications can be made through the Bureau by submitting a special refund application to the Bureau.
Where the Official Participant is registered for VAT, it may reclaim VAT via its UAE VAT return.
What VAT is reclaimable
The Official Participants of Expo 2020 can reclaim VAT incurred on the import and acquisition of the following five categories of Goods or Services without the need to use them for making taxable supplies:
VAT incurred by the Official Participant on Goods and Services in direct connection with the construction, installation, alteration, decoration, and dismantlement of their exhibition space.
VAT incurred by the Official Participant on Goods and Services in direct connection with the works and activities of organizing and operating the Official Participant’s exhibition space and any presentations and events within the Expo 2020 site
VAT incurred by the Official Participant on Goods and Services relating to the actual operations of the Official Participant, provided that the value of each Good or Service for which the Office of the Official Participant makes a claim is not less than AED 200.
VAT incurred by the Official Participant in connection with all operations, services and activities provided for the purpose of participation in Expo 2020 Dubai, whether located within or outside the boundaries of the Expo 2020 Dubai site; and
VAT incurred on import of Goods for personal use of the Official Participant’s Section Commissioner-General, Section Staff and the Beneficiaries.
It should be noted that to be eligible to reclaim VAT on expenses under categories (1) and/or (2) (or expenses which relate to multiple categories including (1) or (2)), the Official Participant must be in possession of a Certificate of Entitlement issued by the Bureau. Where expenses do not relate to categories (1) and (2), and are covered by categories 3, 4 or 5 then a Certificate of Entitlement is not required to apply for a refund.
Eligibility Criteria for the Certificate of Entitlement
· The applicant must be an Official Participant of the Expo 2020 in Dubai, holding a valid Expo 2020 licence number.
· Not more than 20% of the exhibition space or presentation is, has been, or is intended to be used for non-official or commercial purposes.
OECD announced a new two-pillar plan towards international tax reforms during the recent virtual G20 Tourism Ministers Meeting on 1st July 2021. This comes after 130 countries and jurisdictions agreed to sign up for a global corporate minimum tax rate proposal that the G-7 presented in June. The two-pillar plan – the outcome of negotiations coordinated by the OECD for much of the last decade – aims to ensure that large Multinational Enterprises (MNEs) pay tax where they operate and earn profits while adding much-needed certainty and stability to the international tax system. The world has taken a big step toward sweeping changes to global taxation as 130 countries endorsed setting a minimum rate for corporations along with rules. This deal would probably come into effect in 2023.
UAE has welcomed the statement issued by the Organization for Economic Cooperation and Development and the G20 (G20/OECD) on the Inclusive Framework on Base Erosion and Profit Shifting. This will enhance the Nation’s efforts to strengthen ties with various world countries regarding financial and economic cooperation. The UAE is one of the 130 member countries that have joined the consensus.
UAE is actively participating in various initiatives and discussions to improve the transparency of the international tax environment and the coherence of the global tax system. The successful implementation of economic substance and transparency rules proves the Nation’s ability to adapt its practices to meet international standards. This remarks a new beginning for the Nation to expand global parallel connections and secure global tax stability.
Following the enactment of the UAE Federal Law No. 19 of 2018 on Foreign Direct Investment, The Ministry of Economy announced 100 percent foreign ownership of onshore companies in the UAE, which came into effect by 1 June 2021. It means foreigners of any nationality can now own 100 percent of their business in the country. And UAE is becoming a more investment-friendly destination.
BACKGROUND:
Currently, foreign investors can hold up to 49% of the share-capital in an onshore company, while the remaining 51% must be held by a UAE national or a company wholly owned by UAE nationals.
MAJOR HIGHLIGHTS:
The major change occurred is that Investors no longer need to be concerned with negotiating or entering into agreements with UAE sponsors, to hold 51 percent of a new company’s issued share capital.
The amendment is applicable to new and existing companies.
As of June 1, 2021, the 51% – 49% rule is no longer required.
It is applicable to onshore limited liability companies (LLCs) as well as onshore branches and representative offices of foreign companies.
Existing companies are granted a grace period of one year, from the date the Decree comes into effect, to implement any changes.
The amendment also included the offer of 10-year visas for investors and citizenship for talented individuals.
The economic activities to be involved in the business are specifically mentioned by the cabinet as a Positive List and those excluded as negative list like defence, oil and gas and certain other activities.
The amendment decree is a welcome development for sure and is a milestone that will have a great impact on the UAE economy. It increases the competitiveness and open up as an investment hub for the international entrepreneurs. Through this amendment UAE is focusing on a long-term growth that will encourage more foreign investment into the country, increased ease of doing business, and lower start-up costs. The country is expecting an immense growth in the investment in modern technologies and an increased contribution to research and development.
Business set up fee and license renewal fees for the private sector in Abu Dhabi Emirate have been reduced to AED 1000, i.e., a reduction of more than 90 per cent. The announcement was made by the Abu Dhabi Department of Economic Development (ADDED), in collaboration with multiple government entities, including the Abu Dhabi Chamber of Commerce and Industry.
From July 27, 2021, onwards, the new fee structure will take effect, and it remarks a significant reduction from the existing business setup fee. The new fees include six activities within the business license and will cover all fees from Abu Dhabi Government entities such as ADDED, the Department of Municipalities and Transport, membership fees for Abu Dhabi Chamber, CoC (Certificate of Conformity) issuance fee, and fees required by Abu Dhabi regulating entities dependent on the type of business.
The decision to slash the fees is expected to enhance the ‘ease of doing business in the emirate and increase Abu Dhabi’s competitiveness regionally and internationally. It will create a boost in the emirate’s business climate while encouraging innovation and growth. It’ll also support the Abu Dhabi Government’s efforts to create a conducive business environment for the private sectors, including SMEs of all sizes.
Note: The federal charges for business setup and license renewal still apply. This announcement pertains to business setup/license renewal fees only. Incorporating a new company will require investors to bear costs for Office spaces, Immigration and labor card, Visa etc.
Through the ages, governments everywhere have grappled with different ways to design and implement taxes. But the recent announcement by the G7 Finance Ministers is significant in that governments are coming together to coordinate and synchronise their systems of corporate taxation.
The proposals involve fundamental changes to international tax rules – they will mean allocating more taxing rights of the largest and most profitable multinational enterprises to where their customers are; and implementing an internationally-agreed minimum effective corporate tax rate for large multinational enterprises (MNEs) wherever they operate. While the agreement is the first step in a long process before it can become a reality.
The G20, as expected, endorsed the OECD Inclusive Framework political agreement on the key components of international tax reform under Pillar One (reallocation of profits to markets) and Pillar Two (global minimum tax). The G20 has urged the OECD Inclusive Framework to address remaining issues and policy design elements, and prepare a detailed implementation plan, by the next G20 Finance Ministers meeting on 15-16 October 2021.
What will these changes mean for UAE?
For now, it is too early to say. What we know for sure is that the international rules for corporate taxation will change, and all jurisdictions will need to adjust their tax systems and rules. As for the revenue impact, it will depend on the parameters being set, the rules to be made, and crucially, how different governments and businesses respond to them.
UAE’s overall competitiveness has never been based on taxation alone. It’s about ensuring a conducive environment for businesses and entrepreneurs to thrive as an international hub. Trust, lifestyle and geography are ultimately what makes UAE an attractive place for substantial economic activities. UAE will be keen to be seen as part of the global system rather than a tax haven.
Thoughts:
Countries needs to support a multilateral consensus-based solution that is anchored on sound economic principles, promotes tax certainty, and ensures a level playing field across all jurisdictions.
However, the new rules should not inadvertently weaken the incentives for businesses to invest and innovate. Otherwise, countries will all be worse off, fighting over share of a shrinking revenue pie.
FTA has introduced a new guide on Automotive Sector in accordance with Article 73 of the Executive Regulation and provides general guidance in respect of the business activities within the automotive sector in the UAE.
The guide is applicable for supplies made by motor vehicle dealers in the UAE who deals with:
Supply of new cars.
Supply of used/ second-hand cars.
Leasing of cars.
Warranty Supplies.
Export and import of cars.
This is not a legally binding statement, but is intended to aid in understanding and applying the VAT.
Sale of Cars within the UAE
The sale of cars within the UAE is subjected to the standard rate of 5%. Sale of cars can be carried out by different types of agreements and in this guide the two most common types of agreements are discussed – Outright sales & Sales through hire purchase arrangements. The guide will explains the VAT implications in respect of the leasing of cars.
Key highlights of the Guide:
The guide contains clarifications and VAT implications upon the below mentioned scenarios:
Clarification on time of supply of Car Sales and Leased Cars.
Display prices for cars.
VAT treatment on Trade – ins of being two separate supplies.
Clarity on Profit Margin Scheme applicability.
Clarity on Salik reimbursement.
Various scenarios of Import and Export of Cars.
ACTIONS TO TAKE
We recommend all taxpayers who deals with the automotive sector to check out the newly released VAT guide and view the updated information in order to make informed decisions.
HOW MSATC CAN HELP?
Filing the required information.
Assist with timely and prompt advises through the process.
Mature smalll business owners calculating finance bills of their activity. Business people using calculator to work. Closeup hands of man and woman calculating bills and expenses.
The UAE Cabinet of Ministers issued Resolution No 49/2021 on 28th April 2021 to amend the administrative penalties of the Tax Law, which came into effect on 28th June 2021.
The Cabinet Decision makes a number of fundamental changes to the Administrative Penalties regime, including regarding the mechanism for calculating the penalties for late payment of taxes and for making errors in tax return, tax assessments or refund applications. The significant among them is that late payment penalties are reduced from 1% per day to 4% per month. It encourages taxpayers to voluntarily correct previous tax declarations, as well as encouraging them to pay due taxes before the tax audit or assessment by the UAE Federal Tax Authority (FTA).
REDETERMINATION OF ADMINISTRATIVE PENALTIES
Cabinet Decision No. 49 of 2021 also provides an opportunity for the businesses to redetermine the amounts of unpaid administrative penalties, which were imposed on taxable person under the old penalty regime. Accordingly, the administrative penalties imposed under the previous resolution will be obtaining 70% reduction which are imposed before the effective date of the new administrative penalties under certain conditions as below:
The penalties must have been imposed under Cabinet Decision No 40 of 2017 before 28th June 2021.
The registrant must pay all taxes due by 31st December 2021.
By 31st December 2021, the registrant must pay 30% of the total administrative penalties due and unpaid by the effective date of the New Resolution.
If the above conditions are met, then FTA will redetermine the administrative penalties payable by the registrant at the end of 2021 and hence shall not be required to pay the remaining 70%.
On 28th June 2021, the Federal Tax Authority (FTA), has introduced a new dashboard for viewing the calculations relating to the re-determination of the administrative penalties in accordance with the same provision. Here, the taxpayer can view the total unpaid administrative penalties imposed before and after 28th June 2021.
UPDATES ON ‘MY PAYMENT’ PAGE
A new feature of the FTA’s ‘My Payment’ page is that the registrants can see the amount of their outstanding balance related to taxes and the amount related to administrative penalties.
Now, the taxpayer can view the following on the updated ‘My Payment’ page:
Tax Payable – The outstanding tax payable.
Late Registration Penalty – This is the outstanding late registration penalty.
Other penalties – The outstanding penalties other than late registration penalty.
Net payable amount – Total outstanding taxes and penalties
Total Credit – The total amount of credit the registrants have with the FTA.
Here are a few highlights from FTA’s workshop:
A person who was in a refund position as of 28 June 2021 but previously subject to administrative penalties will have the settlement automated in the system and shall not be subject to re-determination except for the excess unpaid penalties as on June 28, 2021
A person can pay 30% of the total penalties as of 28 June 2021 in instalments, and they are not obligated to pay it all at once. However, to benefit from redetermination, the payment of 30% must be made before 31st December 2021.
If a voluntary disclosure is made after 28 June 2021, the penalty will be calculated and applied based on Cabinet Decision No. (49) of 2021 and not as per the old penalty regime, even if it is to correct errors from past years.
ACTIONS TO TAKE
We recommend all taxpayers to review their new dashboards and make informed decisions by viewing the updated information. Also note that, in order to qualify for a redetermination, the tax payable amount mentioned in ‘My Payment’ page must be paid in full by 31 December 2021.
HOW MSATC CAN HELP?
Determine the amount of penalty due and suggest the action plan.
The UAE Cabinet of Ministers issued Decision No. 49/2021 amending provisions of Cabinet Decision No. 40/2017 regulating tax penalties, on 28th April 2021, the effective date being sixty days from the issuance date.
LET’S REVIEW THE HIGHLIGHTS:
Late payment penalties reduced from 1% per day to 4% per month.
300% cap still applies.
New starting date for calculating late payment penalties.
Reductions for prior penalties to be made.
LATE TAX PAYMENT PENALTIES
The most notable of the new amendments is that is that the late payment penalties have been reduced from 1% per day to 4% per month.
The new calculation of late payment penalties, (with a cap of 300%) will be as follows:
2% of the unpaid tax due on the day following the due date for payment.
4% monthly penalty due after one month from the payment due date.
PENALTIES ON VOLUNTARY DISCLOSURE
Fixed Penalties for submitting VD’s for incorrect VAT and Excise Returns has also been reduced to AED 1,000 for First VD and AED 2,000 for subsequent VD’s.
Further reductions or waivers also allowed in specific cases.
Also, the percentage based penalties for difference in Tax Amounts resulting from VD’s has also been reduced.
DUE DATE FOR LATE PAYMENT PENALTY CALCULATION
The new Decision states that the due date for the purposes of calculating late payment penalties shall be:
In the case of voluntary declaration, 20 business days from the date of its submission.
In the case of tax assessment, 20 business days from the date of its receipt.
DISCOUNTS FOR PREVIOUS PENALTIES
The Federal Tax Authority shall define the administrative penalties imposed prior to the effective date thereof that have not been paid, so that they are equal to 30% of the total unpaid penalties, where the following conditions are met:
Any of the administrative penalties stipulated in Cabinet Resolution No. (40) of 2017 was imposed on the Registrant and has not been fully paid.
The registrant has paid the following:
The due and payable tax up to 31 December 2021 at most; and
30% of the total payable administrative penalties unpaid until the effective date hereof up to 31 December 2021 at most.
HOW CAN MSATC HELP?
Check the consequences of delay/late payments or errors in the VAT Returns.
Ensure applicability of various provisions under the UAE VAT law.
Advice on the probable liability to the Authorities.
Suggest the best course of action in case of any liability to FTA.
