UAE FTA introduces a new mechanism, the RAQEEB Whistleblower Program for tackling tax violations and evasions.

• The new programme will provide a framework for the FTA to review, and process leads relating to tax non-compliances. It includes monetary rewards for informants to encourage members of society to report tax non-compliance.

• The FTA has released a guide to better understand the programme and procedures.

SCOPE

The leads covered under the Raqeeb Programme include suspected tax evasion (VAT and EXCISE TAX) and suspected non-compliances with tax procedures such as invalid tax invoices incorrect amounts mentioned on tax invoices. The programme does NOT cover Economic Substance Regulation (ESR) non-compliance.

The whistleblowing form cannot be submitted anonymously to ensure validation of the authenticity of the information received. However, confidentiality provisions have been put in place and the identity of the informant will remain confidential and protected by the FTA.

CONDITIONS FOR MONETARY REWARDS

• The information provided is credible and not obtained by FTA previously;
• The whistleblowing form is filled accurately and completely;
• The tax amounts collected from the reported business exceed AED 50,000;
• The reported person has exhausted all forms of objections and appeals.

It is pertinent to note that FTA employees and their relatives up to forth degree of consanguinity will not be eligible for monetary rewards. However, they will still be able to report non-compliances under this programme.

IMPACT OF THE NEW PROGRAMME

• The introduction of the Whistleblower program has a significant impact on businesses in UAE. Businesses should rectify any identified errors or omissions at the earliest voluntarily before any stakeholder reports the non-compliance to the FTA.

• Further, the businesses should have regular checks and reviews to ensure that they are in compliance with the VAT and Excise Tax laws.

• An inspection/ audit from FTA under the Whistleblower program may increase the possibility that any errors by the business will be treated as tax evasion, potentially resulting in higher penalties and imprisonment.

HERE ARE THE 10 ESSENTIALS TO KEEP IN MIND BEFORE FILING YOUR VAT RETURNS IN THE UAE !

Confusion or lack of knowledge when dealing with the United Arab Emirates’ Value Added Tax may result in incorrect filings and potentially expose your business to penalties.

As a business leader or entrepreneur, you must ensure your business is aligned with local regulations at all times.

To avoid facing any issues with the Federal Tax Authority (FTA), here are 10 key tips to take note of, as you present your VAT Returns

1. Three Calendar Months as the Standard Tax Period.

The standard tax period applicable to a taxable person shall be a period of three calendar months ending on the date that the Federal Tax Authority (FTA) determines. Such a period would be different for each entity.

2. Tax Returns Submission Date

A Tax Return must be submitted online to the FTA no later than the 28th day following the end of the Tax Period concerned (or by such other date as directed by the FTA). VAT payment must also be reflected in the FTA portal no later than the 28th day following the end of the Tax Period concerned. If the 28th of the month falls on a weekend or a national holiday, the deadline for filing the VAT Return or making a payment is extended to the next business day.

3. Emirate-specific VAT on Sales

The VAT on sales must be reported emirates-wise. That is, the standard-rated supplies are reported separately for Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah.

4. Zero-rated Supplies & Exempt Supplies

The zero-rated supplies and exempt supplies do not have any effect on the VAT Amount; they must both be reported to the authority through the periodical return submissions.

5. Maintaining Documentation for Exports Goods

Though the exports of goods get reported as zero-rated, the UAE VAT regulations stipulate that a business must maintain export documents issued by the local Emirate Customs Department in respect of Goods leaving the state. The commercial evidence shall include airway bill, bill of lading, consignment note, certificate of shipment, etc.

6. Import of Services Reporting

Import of services must also be reported under the reverse charge mechanism. This implies the VAT amount must be shown as both liability and an asset. The input VAT could be claimed as a credit only when all the compliance requirements set by the FTA are fulfilled.

7. Foreign Currency Transactions Reporting

The foreign currency transactions are to be reported in AED as per the UAE Central Bank Rate. The official website of the central bank of UAE provides the exchange rates against UAE Dirham for VAT-related obligations.

8. Recovering VAT on Input Expenses

VAT on input expenses can be rightfully recovered only if the invoice is fully compliant according to the requirements set by the regulations and the clarifications from the authorities. The compliance requirements are separately clarified for a simple tax invoice and a full tax invoice.

9. Recovering Input Tax & Conditions

Input tax must be recovered in the first tax period, provided two conditions satisfied:

• a) The tax invoice is received; and
• b) Consideration is paid or an intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment.

If the input tax is not recovered in the tax period under which both conditions are satisfied, the taxable person can only recover the input tax in the immediate next tax period. If tax input isn’t recovered during any of the first two taxation periods, then taxable entities are required in submitting a voluntary disclosure.

10. Keeping Records for 5 Years

The VAT Registered individual or business must keep the required records for a minimum of 5 years (15 years in case of real estate owners) after the end of the tax period to which those records relate. However, there could be specific cases where the FTA may require the person to retain the records for a further period.

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:

1. 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.
2. 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
3. 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.
4. 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
5. 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.

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.
• Advice on better compliance in UAE VAT law.