FAQ OVERVIEW
Frequently Asked Questions
If you have any concerns please read this collection of frequently asked questions before contacting us. If you are still unclear about something feel free to contact.
VAT
1. What is VAT?
Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
2. What is a residential building for VAT purposes?
A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:
Any place that is not a building fixed to the ground and can be moved without being damaged.
Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.
A serviced apartment for which services in addition to the supply of accommodation are provided.
Any building constructed or converted without lawful authority.
3. What is a commercial building for VAT purposes?
A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.
4. What is a supply in relation to real estate?
A supply of real estate may include the sale, lease or giving the right in any real estate.
5. Is a residential building subject to VAT?
The first supply of a new residential building within the first three years of it being constructed is zero-rated. All subsequent supplies are exempt, even if within the first three years.
6. Is commercial real estate subject to VAT?
All supplies of commercial properties are subject to VAT at 5%, and this includes all buildings or parts thereof that are not residential buildings.
7. What is the difference between VAT and Sales Tax?
A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.
Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.
8. Does the owner of real estate have to register for VAT?
The owners of residential buildings who only make exempt supplies do not have to register for VAT if they do not have any taxable business activities. Where owners have taxable business activities, they should consider their obligations further.
The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over the coming 30 days.
9. Can a real estate owner recover VAT paid in relation to real estate?
An owner of a residential building is not able to recover VAT in respect of expenses related to the exempt supply of the residential building.
An owner of a commercial building is generally able to recover VAT in respect of expenses related to the supply of the commercial building.
10. Will VAT be charged on the property I am renting?
The rent of a residential building will generally be exempt from VAT.
The rent of a commercial building will be subject to VAT at 5%
11. Why is the UAE implementing VAT?
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide the UAE with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
12. Why does the UAE need to coordinate VAT implementation with other GCC countries?
The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as such a collaborative approach is best for the region.
13. What is the standard rate of VAT in the UAE?
The standard rate of VAT in the UAE is 5%.
14. How does the government collect VAT?
Businesses are responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
15. Does VAT apply to all goods and services?
VAT, as a general consumption tax, is applied at 5% to all transactions of goods and services unless specifically exempt in Article 46 of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of 0% as per Article 45 of the Federal Decree-Law.
16. What measures does the government take to ensure that businesses do not use the VAT implementation as an excuse to increase prices?
VAT is intended to help improve the economic base of the country. Therefore, there are rules that require businesses to be clear about how much VAT you are paying for each transaction. Consumers should have the required information to decide whether to buy something or not.
17. How can one object to the decisions of the Authority?
Any person is able to object to a decision of the Federal Tax Authority.
As a first step, the person shall request the FTA to reconsider its decision. Such request of reconsideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.
If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before
objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.
As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision.
18. How do I include my Customs Registration in my records at the FTA?
Log into the FTA e-Services portal via E-SERVICES, and go to EDIT on the VAT section and enter your Customs Registration Number. This will automatically update your records.
19. I am not able to download or print my Tax Registration Certificate.
If you have been allocated a “Provisional TRN” and this has been communicated to you by email, you will receive the Tax Registration Certificate after the FTA has fully reviewed your application.
20. How is a mixed-use building (residential and commercial) treated for VAT purposes?
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply within the first three years of completion of construction or a subsequent supply.
The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.
Tax that cannot be directly attributed to exempt supplies or taxable supplies should be apportioned, and only the portion relating to the taxable supplies (at 0% and 5%) may be recovered
VAT Refunds at Airport
1. Can Tourist Refund Scheme claims be validated 24/7 at all locations?
Validation will be available 24/7 and refund desks will be open at major airports 24/7.
2. Who will provide the refund under the Tourist Refund Scheme at the airport?
You can find a list of cash refund points on planetpayment.ae. Planet will process credit or debit card refunds.
Corporate TAX
1. What is a “Business” or “Business Activity”?
The terms “Business” and “Business Activity” as defined in the Corporate Tax Law identify when the activities of certain persons give rise to a UAE CT liability by considering the person to be a taxable person.
“Business” means any economic activity, whether continuous or short term, conducted by any person. It is implied that a business is conducted with a profit motive, and that there is the existence of some system and organisation to the activity conducted. However, a business or business activity for UAE CT purposes does not lose its identity simply because it does not make a profit.
For the application of the Corporate Tax Law to companies and other juridical persons, all activities conducted and assets used or held will generally be considered activities conducted, and assets used or held, for the purposes of a “Business”.
Individuals can earn income from wages and salaries, investments or from practising a commercial, industrial or professional activity, either directly or as sole proprietor of a business. For natural persons, a Cabinet Decision will be issued in due course specifying further information on what would bring a natural person within the scope of UAE CT.
