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VAT Administrative Exceptions

A VAT Administrative Exception is a mechanism which provides registrants with concessions / exceptions allowed by the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“Law”) or Cabinet Decision No 52 of 2017 on the Executive Regulations of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“Executive Regulations”) if difficult circumstances prevent them from following certain procedural aspects of the Law or the Executive Regulations. However, VAT and Excise Tax registration exceptions are not covered under this process. The registrant must submit the VAT Administrative Exception Request by email to specialexceptions@tax.gov.ae by himself or through a registered Tax Agent or an appointed Legal Representative.
Applicants are required to submit the below information along with the form: the category for which you are seeking a VAT Administrative Exception;a detailed description of why you are making a VAT Administrative Exception Request as per the criteria outlined above; andany documentary proof to support the factual and legal grounds on which the request is based (e.g. sample invoices, contracts, payment slips or other). This is based on the category of the Exception.      
VAT Administrative Exceptions are grouped into the following categories and are relevant to VAT only:   
Tax InvoicesTax Credit Notes Length of the Tax PeriodStaggerExtension of time for the export of goods      


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Economic Substance Regulations (ESR)

UAE Cabinet issued the Cabinet of Ministers Resolution No.31 of 2019 for Economic Substance Regulations issued Subject On 30 April 2019. The Regulations apply to all UAE onshore and free zone companies that carry on a "Relevant Activity". It is yet to be confirmed whether the Regulations will also apply to sole proprietorship and branches, but we expect entities incorporated under offshore (free zone) companies regulations that carry on a “Relevant Activity” to be within the scope of the Regulations.
The following are considered as “Relevant Activities” under the Regulations:
Banking BusinessesInsurance Businesses Investment Fund Management Businesses Lease-Finance Businesses Headquarter Businesses Shipping Businesses Holding Company Businesses Intellectual Property Businesses Distribution and Service Center Businesses 
The UAE economic substance regulations apply to Licensees with a financial year commencing on or after 1 January 2019.A Licensee that is directly or indirectly owned 51% or more by the UAE government is exempt from this regulations. In this respect, the “UAE government” includes the UAE Federal Government, as well as governments of any Emirate of the UAE.

To satisfy the economic substance requirements in relation to a Relevant Activity, a Relevant Entity must:
Conduct the relevant “core income generating activities” (CIGA) in the UAE;Be “directed and managed” in the UAE; andWith reference to the level of activities performed in the UAE:                   - Have adequate number of qualified full-time employees in the UAE
                   - Incur an adequate amount of operating expenditure in the UAE
                   - Have adequate physical assets in the UAE.

A Relevant Entity that only undertakes a Holding Company Business will be subject to less stringent economic substance requirements. Additional requirements apply if a Relevant Entity carries out “high risk IP related activities”. If a Relevant Entity carries out more than one Relevant Activity, the economic substance requirements must be met for each of the Relevant Activities.

Failure to comply with the Economic Substance Regulations in UAE (ESR UAE) can let you face Penal Consequences in nature of administrative fines and other consequences such as:
Financial Penalty ranging from AED 10,000 to AED 50,000 (in first year of non-compliance)Suspension of LicenseRevocation of LicenseNon-Renewal of License


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COVID-19 Alert!

The 2019–20 coronavirus pandemic is an ongoing pandemic of coronavirus disease 2019 (COVID-19). The outbreak started in December 2019. The World Health Organization (WHO) declared the outbreak to be a Public Health Emergency of International Concern. Nearly 209 countries with more than 1.5 million confirmed cases recorded so far.
The pandemic has led to severe global socioeconomic disruption,the postponement or cancellation of sporting, religious, and cultural events, and widespread fears of supply shortages resulting in panic buying. Schools and universities have closed either on a nationwide or local basis affecting approximately 91.3 percent of the world's population.
Considering this crisis situation, VATBOX decided to follow the Ministry of Health and Prevention - UAE's declaration to fight against the pandemic - #StayHome #SaveLives
In roder to avoid the direct contact and human gathering we decided to serve you through our online platform. Please visit our Digital Tax Clinic -(https://www.vatboxuae.com/taxClinic.php) to send all your Tax , Accounting and Auditing requests and queries your to our expertise of team.
#JoinHandsToBeatThePandemic


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Value Added Tax and Designated Zones

Cabinet Decision No. (43) of 2019 on Amending the List of Designated Zones Annexed to the Cabinet Decision No. (59) of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax (effective 4 July 2019).

Designated Zones are:
1. Subject to strict control criteria;2. Required to have security procedures in place to control the movement of goods and people to and from the  Designated Zone;3. Required to have Customs procedures to control the movement of goods into and out of the Designated Zone4. Treated as being outside the territory of the UAE for VAT purposes for certain supplies of goods.
Although an area might be identified as a Designated Zone, it is not automatically treated as being outside the UAE for VAT purposes. There are several main criteria which must be met in order for a Designated Zone to be treated as outside the UAE for VAT purposes. These are as follows:1. The Designated Zone must be a specific fenced geographic area.2. The Designated Zone must have security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone.3. The Designated Zone must have internal procedures regarding the method of keeping, storing and processing of goods within the Designated Zone.4. The operator of the Designated Zone must comply with the procedures set out by the FTA.
A Designated Zone has areas that meet the above requirements, and areas that do not meet the requirements, it will be treated as being outside the UAE only to the extent that the requirements are met. In addition, should a Designated Zone change the manner of its operation or no longer meet any of the conditions imposed on it which led to it being specified as a Designated Zone by way of the Cabinet Decision, it shall be treated as though it is located within the territory of the UAE.
Businesses which are established, registered or which have a place of residence within the Designated Zone are deemed to have a place of residence in the UAE for VAT purposes. The effect of this is that where a business is operating in a Designated Zone, it itself will be onshore for VAT purposes, even though some of its supplies of goods may be outside the scope of UAE VAT.
Designated Zone businesses are considered to be established ‘onshore’ in the UAE for VAT purposes. This means that they have the same obligations as non-Designated Zone businesses and have to register, report and account for VAT under the normal rules. It also means they can join a tax group (VAT group) provided they meet the required conditions. However, in certain instances, an area of a Designated Zone will be effectively treated as ‘offshore’ for VAT purposes, i.e. as if it is outside of the territory of the UAE for the purposes of the tax.
Since UAE VAT only applies on supplies made in the UAE, the special treatment of Designated Zones will affect the VAT treatment of supplies made within Designated Zones.

The following flow chart describes the treatment of supply of goods or services in a designated zone:


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Value Added Tax and Imports

Imports are taxable under VAT. When a person registered under VAT in UAE imports goods or services, the importer has to pay VAT on imports on reverse charge basis. This is in addition to customs duty levied on imports. The scenarios of import can be divided as follows:1. Import by a person registered under VAT2. Import by a person not registered under VAT3. Goods trans-shipped via UAE to other GCC countries4. Goods imported to UAE and exported to other countries
All importers in UAE should register for VAT before 31 December 2017 if their taxable supplies made and imports received exceed AED 375,000 for the last 12 months. Registration for VAT purposes will mean that an importer can defer payment of VAT, so payment shall be due on submission of the return (28 days following the tax period in which the import happened). From 1 January 2018, import of goods that are subject to VAT into the UAE will be affected as follows:

If the Importer wants to pay the VAT on Import he can pay through one of the certified import clearance companies registered with the Federal Tax Authority (FTA) by  Submitting the customs declaration in the FTA e-services portal and also if the Importer wants to provide e-Gurantee he can apply  by , Submitting the customs declaration through the FTA e-services portal.

When a supply is made, usually, the supplier of goods or services is liable to collect and pay tax to the Federal Tax Authority (FTA). This is called forward charge. Under reverse charge, the recipient of the supply is liable to pay the tax on the supply to the Federal Tax Authority. In the case of imports, as the supplier is outside UAE and is hence, not registered in UAE, the liability to pay tax on the import is on the importer registered under VAT in UAE.

On imports, VAT rate of 5% will be applicable. The only exception is import of precious metals, on which VAT rate of 0% is applicable. The rate of VAT applicable on imports is kept same as the VAT rate applicable on domestic supplies, in order to ensure that imports are taxed equally as domestic supplies and the tax paid by the recipient of the supply on imports is eligible for input tax recovery.  The records of imports are required to be maintained for a minimum of 5 years from the end of the year to which the invoices pertain.


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Input VAT Recovery

Input tax is the tax paid by a person on purchases or inward supplies. This means that a person can reduce the value of input tax eligible for recovery from the tax payable and only pay the balance amount as tax.

A registered business can recover the VAT paid on purchase of goods and services used for business purposes subject to following conditions according to Article number 55 of Executive Regulations.The purchases should be used to make Taxable supplies of the business.Recipient receives and keeps the Tax Invoice - The recipient claiming input tax recovery on a supply should ensure that the Tax Invoice pertaining to the supply is received and kept in the records. The Tax Invoice should show the details of the supply related to the input tax recovery being claimed.Recipient pays or intend to pay the consideration for the supply - The recipient claiming input tax recovery should pay or intend to make the payment of consideration for the supply within 6 months after the agreed date of payment for the supply.There are certain supplies on which input tax recovery is not allowed:Supplies used to make exempt supplies - Certain supplies are declared as exempt in the VAT Law, such as supply of local passenger transport, supply of bare land, etc. A registered business cannot recover tax paid on purchase of inputs used to make these exempt supplies.Entertainment services provided to non-employees - Registered businesses cannot claim input tax recovery on entertainment services provided to non-employees. These non-employees can include customers, potential customers, officials, shareholders, owners or investors.Motor vehicles used for personal use - If a registered business has purchased, rented or leased motor vehicles for use in the business but it was used for personal use by a person in the business, then the tax paid on purchase, rent or lease of the motor vehicle cannot be recovered.Goods or services purchased for use by employees - Registered businesses cannot claim input tax recovery paid on goods and services purchased for use by employees, for which no charge is paid by the employees and it is for their personal benefit.Article 55 of the Executive Regulation provides a second opportunity to the taxable person to deduct the recoverable input tax in the immediate subsequent tax period if he missed out to claim the input tax in the first tax period in which the both conditions of claiming the Input VAT is satisfied. But if Input VAT was not recovered in the first two eligible tax periods, a taxable person may submit a voluntary disclosure to recover such Input VAT if required. And in such cases the provisions related to the Voluntary Disclosures like the time period within which the voluntary disclosures shall be submitted, penalty for submitting the Voluntary Disclosure are applicable.


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TRN De-Registration

A registered taxable person is required to comply with the required rules and processes under VAT. Invoices have to be issued in the specified format, returns need to be filed on a timely basis and the tax due needs to be paid by the due date. The VAT Law provides registered taxable persons with the facility to cancel their VAT registration. 
Let us understand the circumstances in which a person can de-register under VAT and the process to be followed for the same.
The Registrant must apply to the Authority for de-registration in any of the followings occurrence:
1) Business No Longer Making taxable Supplies - The Registrant stops making supplies referred and does not expect to make any such supplies over the next 12-month period.2) Business Making Taxable Supplies but below Voluntary Threshold - The 12 months have elapsed since the date of registration, The value of supplies made, or taxable expenses incurred, by the Registrant over the previous 12-months is less than the Voluntary Registration Threshold and the taxable supplies or expenses, expected over the next 30 days, are not expected to exceed the Voluntary Registration Threshold.3) Business Making Taxable Supplies below Mandatory Threshold but Above Voluntary Threshold - After the 12 months have elapsed since the date of registration if you were registered on a voluntary basis, The Registrant still making Taxable Supplies but the value in the previous 12 months was less than the Mandatory Registration Threshold and the taxable supplies or expenses,expected over the next 30 days, are not expected to exceed the Mandatory Registration Threshold.
The date from which the Taxable Person is required or eligible to de-register depends on above basis of the de-registration:
If the de-registration application is reviewed and approved by the Authority, they may give a Last VAT Return Period for filing to the applicant. Then, the de-registration is effect from the last day of the Tax Period during which the Registrant has met the conditions for de-registration or from such other date determined by the Authority as the ending of Last VAT return period.
A Registrant shall not be de-registered unless he has paid all Tax and Administrative Penalties due and filed all Tax Returns as due.
De-registration does not exempt the Person from his obligations and liabilities that were applicable under the Decree-Law while he was still a Registrant.
The Administrative Penalty of AED 10,000 will be imposed by the Authority for the failure of the Registrant to submit a de-registration application within the time frame specified above in each basis of de-registration.


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VAT Registration with FTA

Abu Dhabi, November 29, 2017 – The Federal Tax Authority (FTA) has called on natural and legal persons exercising business in the UAE to expedite their registration process for Value Added Tax (VAT) to avoid the risk of missing the January 1, 2018, deadline.
Mandatory Turnover for Registration: This applies to businesses whose taxable supplies and imports of goods and services exceed AED 375,000 over the previous 12 months. Taxable supplies are identified as all supplies of goods and services made by a Person that are not exempt.
Voluntary Turnover for Registration: Taxable supplies and imports of goods and services exceeds AED 187,500 over the previous 12 months.
The FTA has urged businesses to provide accurate information and make sure they enter it properly into the application form. To complete the registration process, scanned documents must be attached, including the business or trade licence, passport/Emirates ID (for UAE residents) of the manager or owner of the business, and the authorised signatory (if the signatory is not the manager him/herself), as well as proof of authorisation for the manager or signatory (e.g. articles of association, power of attorney attested by notary, etc.).
Issuance of TRN: Issuing a Tax Registration Number (TRN) may require up to 20 working days or less. Therefore, and in order to ensure that the application is processed – and the TRN issued before January 1, 2018 – the FTA urges businesses to complete their registration to avoid the administrative penalty of AED 20,000, as well as additional penalties related to late payment of tax , according to the Cabinet Decision No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.
Documents Required for Registration:-1.Copy of Trade License2.Passport copy of the owner/ authorized partner who owns the license3.Copy of emirates ID of the owner/ authorized partner who owns the license4.Memorandum of Association (MOA) / Power of Attorney (POA)5.Contact Details of company (complete address & P.O Box)6.Concerned person contact details7.Bank Details including IBAN8.Income statement for the last 12 months (Signed & Stamped by the owner or the manager)9.Expected revenue and expense for the next 30 days after VAT implementation10.Are they exporting or importing?11.Are they dealing with any custom department? If yes. What is the custom code? With the Copy of Dubai Custom Code Certificate.


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