Tax Alert - August 2020

In the August edition of our Tax Alert, you can explore the latest developments released by the FTA on E-Commerce and Export of Services, positive updates for KSA taxpayers, insights to Oman’s release of the Executive Regulations for Excise Tax, updates from Dubai Customs, and additional updates released by the KSA tax authorities.

UAE Updates

 Indirect Tax

• VAT Updates

1. VAT Guide VAT GEC1 - E-Commerce

The FTA has released a guide clarifying the VAT treatment on ‘E-commerce’ clarifying some of the important issues as summarised below:

1. The place of supply for all goods supplied through e-commerce platforms will be in the UAE if the goods are located in the UAE when supplied.
2. For a supply of service to be classified as an ‘electronic service’ the following conditions should be fulfilled:
   1. the service in question must be one of the services mentioned in the list of services in the law; and
   2. the service must be automatically delivered over the internet, an electronic network, or an electronic marketplace with minimal human intervention
3. The place of supply of electronic services can be apportioned to the extent to which the use and enjoyment of services are in the UAE or outside the UAE. The use and enjoyment must be determined by the location of the recipient. The supplier should give priority to the factors which give the most precise information regarding the actual place where the electronic services will be used and enjoyed.
4. Electronic services, when provided to a customer outside the UAE and where use and enjoyment are outside UAE, it should be considered as outside the scope of UAE VAT. However, the guide goes on further to clarify that the agency/ commission fees may be zero-rated where the supply meets the conditions of export of services
5. Where a non-registered person makes an import in the UAE through an agent, the agent should declare their TRN on the customs import declaration and account for VAT under the Reverse Charge Mechanism (‘RCM’). Since the agent is not the owner of the goods, he will not be eligible to recover the import VAT paid. However, the agent can issue a statement as per Article 50(7) of the VAT Executive Regulations, which is treated as a de facto tax invoice for VAT purposes.
6. The VAT treatment when goods are supplied through agents (electronic platforms, portals, gateway, or marketplaces), the liability to record the VAT on actual supply and the commission charged (if any) will be based on if the arrangement is that of a disclosed or an undisclosed agent.

 The guide can be accessed by clicking here [PDF] [437 KB].

2. VAT Public Clarification (VATP019) – Zero Rating Export of Services

Following the changes in the VAT Executive Regulations as per Cabinet Decision 46 of 2020, the FTA has issued the Public Clarification (VATP019) to provide more clarity on the zero-rating provisions for export of services.

As per Article 31(1)(a) of the VAT Executive Regulations, export of services will be zero-rated if the following conditions are satisfied:

1. The recipient of services should not have a place of residence in an Implementing State; and
2. The recipient of services should be outside the UAE at the time of performance of service.

The FTA has clarified the above-mentioned conditions by issuing Public Clarification VATP019:

Condition 1: Place of residence of the recipient

- The first condition of the export of services is that the recipient of services should not have a place of residence in the UAE.

- Further, the FTA has clarified that where a recipient has multiple establishments in different countries, one of them being in the UAE, the place of residence of the recipient shall be considered to be of that country in which the recipient’s place of establishment or fixed establishment most closely related to the supply is located.

To which establishment is more closely related to the supply, the following factors should be taken into consideration:

• Which establishment is the contractual recipient of the supply;
• Which establishment is actually benefitting from the supply;
• Which establishment will receive the invoice and make payment for the supply;
• Which establishment will provide instruction to the supplier; and
• Whether the services are related to business being carried on by the recipient through an establishment in a particular country.

Condition 2: Location of the recipient

- The second condition of the export of services is that the recipient of services should be outside the UAE at the time services are performed. The definition of ‘Outside the State’ (i.e. Outside the UAE) has recently been amended by the Cabinet Decision (No. 46 of 2020) to make it narrower.

- Previously, as per Article 31(2) of the VAT Executive Regulations, a recipient of services was considered to be outside the UAE if ‘..they only have a short-term presence in the UAE of less than a month or the presence is not effectively connected with the supply..’. The provision has now been amended to replace the word “or” with the word “and”.

This means both the conditions should be satisfied for a recipient to be considered outside the UAE to qualify for zero-rating. Consequently, any short term physical presence of the recipient but connected with the supply may take away the ability of zero-rating of supply or any long-term presence of the recipient will also remove any possibility of zero-rating supply, even if the long term presence has no connection with the supply.

It has also been clarified that the physical presence of the recipient during the period(s) of performance of services need to be considered and not before or after the service performance. Further, in the case of the recipient having multiple establishments, the physical presence of the recipient which is more closely related to the supply needs to be considered only.

The public clarification has provided certain relevant examples as well to provide more clarity.

The updated regulations can be accessed by clicking here [PDF] [398 KB].

3. Press Release: Recovery of expenses related to COVID-19 

During a workshop conducted for tax agents, the FTA has clarified that expenses associated with COVID-19, such as the sterilisation of workplaces and testing of employees, are considered as general expenses.

Input VAT is recoverable on such expenses if the supplies made by the business are themselves taxable. However, if the business is making taxable and exempt supplies, the input VAT shall be partially refundable.  The FTA also indicated that input VAT cannot be recovered on the expenses of testing employees’ families unless the employee bears the costs.

The press release can be accessed by clicking here.

• Customs Updates

 1. Customs Notice No. (08/2020) - Printed Declaration Form

With the aim of meeting the objectives of the Dubai Paperless Strategy, Dubai Customs has announced the discontinuation of selling declaration forms from 17^th July 2020. Declarations are to be printed in black and white on regular white A4 paper using the same layout approved by Dubai Customs.

The new service for printing the customs declaration form will be available in the Mirsal electronic clearance system as of 17/07/2020. Printing declarations on pre-printed forms will be permissible until 25^th September 2020 to enable customers to exhaust their stock of printed forms.

The notice and the declaration form can be accessed by clicking here [PDF] [550 KB].

2. Customs Notice No. (13/2020) On the Economic Stimulus Package by the Government of Dubai  

Further to the Customs Notice No. 1/2020 issued on 15/03/2020 on Implementation of the Economic Stimulus Package by the Government of Dubai, the exemption period provided for in Article (2) of the Customs Notice No. 1/2020 in respect of relieving commercial vessels and traditional dhows registered in the country from berthing service fees for arrival and departure, as well as direct and indirect loading fees at Dubai Creek harbor and Hamriyah Port shall be extended till 30^th September 2020. 

The notice can be accessed by clicking here [PDF] [443 KB].

3. Customs Notice No. (14/2020) Electronic Certificate of Origin issued by Oman Chamber of Commerce & Industry

As a precautionary measure to curb the spread of COVID-19, the Dubai Customs has announced that electronically issued certificates of origin issued by the Oman Chamber of Commerce & Industry shall be accepted.

The notice can be accessed by clicking here [PDF] [848 KB].

GCC Updates

• Oman

1. Executive Regulations to Excise Tax Law released

The Official Gazette in Oman has announced the Ministerial Decision no: 51 of 2020 releasing the Executive Regulations to the Excise Tax law that came into effect on the 15^th of June 2020.

The Executive Regulations elucidate the registration/deregistration process, filing of VAT returns, penalties in case of non-compliance, records to be retained, tax payment, and refund procedures, etc. among other details.

• KSA

1. Contract Filing Obligations

Based on the Saudi Income Tax Law and the related By-Laws, please note that all entities and government bodies are required to provide GAZT with information relating to contracts exceeding the threshold value of SAR 100,000. Such information must be reported within three months of the date of contracts or amendments. In case of failure to notify, all contracting parties shall be jointly responsible for the tax payable on such contracts and any consequential penalties.

The details can be accessed by clicking here [PDF] [4.18 MB].

2. VAT Treatment on Collateral Securities 

The General Authority for Zakat and Tax (‘GAZT’) has released a circular explaining the VAT treatment of Provision of Collaterals (Liens and Mortgages).

The Circular clarifies that in case the transfer of collateral is temporary, the transfer is not considered as a supply of goods or services and thus, the VAT treatment will be out of scope. However, in case of a default, the transfer is no longer temporary and will be considered as a taxable supply. The borrower will have to issue a tax invoice and pay output VAT.

The notice can be accessed clicking here [PDF] [1.32 MB].

3. Saudi Customs extends Voluntary Disclosure Programme by another 3 months

Keeping in mind the disruptions caused by COVID-19, the Saudi Customs has extended the timeline to file voluntary disclosure for prior periods by 3 months until 30^th September 2020.

The extension is provided to encourage tax payers to correct errors committed in returns filed for prior periods.

4. GAZT extends Tax Amnesty Programme by another 3 months

In line with minimising the economic impact on the business, the GAZT has extended the fiscal stimulus package launched earlier this year by 3 months to 30^th September 2020. The extension is available for the following:

• Waiver from imposition of penalties;
• Speeding up refund processes;
• Providing installments plans to businesses;
• Deferred VAT payments on import; and
• No suspension of funds (extended till 31^st August)

The notice can be accessed by clicking here.