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TAX

Tax Alert - September 2020

30 Sep 2020

UAE Updates

Indirect Tax

  • VAT and Excise Tax

1. FTA issues information bulletin for Higher Education Sector

As a part of the information campaign for 2020 to raise awareness about taxes, the FTA has released an information specifically for the higher education sector.

The bulletin confirms the following:

  1. Higher education institutions making only zero-rated and/or standard-rated supplies may recover input tax in full, except where recovery is specifically blocked like entertainment or motor vehicles that are available for personal use.
  2. Higher education institutions providing exempt supplies like transportation of students from home to a higher education institute and vice versa are eligible to only recover a portion of the input tax incurred.
  3. Higher education institutions may zero-rate educational services supplied in accordance with a curriculum recognised by the competent federal or local government entity, provided the institution is either owned by the federal or local government or receives more than 50% of its annual funding directly from the federal or local government.
  4. The supply of electronic devices, application/registration fee, food and beverages, field trips that are not directly related to the curriculum, rental of grounds or conference halls and other supplies, are also subject to 5% VAT.
  5. Tax invoices are required for all standard-rated and zero-rated supplies.

The bulletin can be accessed by clicking here [PDF] [181 KB].

 

2. Guide on Refund for UAE Nationals Building New Residence has been updated

The FTA has updated the guide on refunds provided to UAE Nationals for building new residences. The following has been added/ amended in the guide:

  1. Definition of ‘Residences’ has been added to include recoverability on a second house with cooking, washroom, and sleeping facilities built on the same plot.
  2. Deadlines – The FTA may accept applications submitted 6 months after the completion date. In this case, the date of completion of the new residence may be considered as the date on which the relevant event has ended, and this can be evidenced by official certified documents. A relevant event could be a legal dispute related to the new residence, reasons such as military service or illness that prevented the UAE National from submitting a complete refund claim on time or pending technical issues which require further work for the new residence to be completed and be ready for occupancy.
  3. The refund request must be submitted through the e-services portal instead of the VAT refund form via email;
  4. Retention Payments: Input VAT on retention can be recovered within 6 months from the date of making the payment, and subject to provision of proof thereof, for example, a receipt.

The guide can be accessed by clicking here [PDF] [493 KB].

 

3. Press Release: FTA launches smart application to detect non-compliant products

As part of its ongoing efforts to cease the trade of illegal and counterfeit products that damage public health, the FTA has launched a smart application that can be used to check the legality of trademarked tobacco products by scanning the digital tax stamps placed on cigarette packages and tobacco products included in the ‘Marking Tobacco and Tobacco Products Scheme’.

Users can install the application, known as ‘FTA DTS’, on their smart phones via the Apple Store and Google Play.

The press release can be accessed by clicking here.

 

 

  • International Tax 

1. Amended Economic Substance Regulations

On 10 August 2020, the UAE Cabinet of Ministers issued Cabinet Resolution No. 57, along with the updated guidance through Ministerial Decision No. 100 of 2020 dated 19 August 2020, (the “Amended ESR”), which repeals and supersedes the Cabinet of Ministers Resolution No. 31 of 2019 (“Original ESR”).

The Original ESR was issued on 30 April 2019 requiring UAE onshore and free zone companies and certain other business forms that carry out “Relevant Activities” to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).

The Amended ESR applies retrospectively from 1 January 2019. For the highlights of changes in the ESR law, please click here.

The Ministry of Finance has also updated the information contained in its website regarding Amended ESR.

 

2. Common Reporting Standards (‘CRS’)

On 3 August 2020, the Ministry of Finance (“MoF”) issued updated guidance notes for the Common Reporting Standards (“CRS”) to provide information in relation to the implementation of Automatic Exchange of Information (“AEoI”) for tax purposes, replacing any previous issued guidance. The updated guidance includes additional information about the following key areas: 

  • UAE tax residency; and
  • Fines and sanctions  

 

UAE Tax Residency Certificates

A Reporting Financial Institution may consider the self-certification provided by the Account Holder or Controller Person regarding their “UAE Tax Residency” as reasonable, , unless the Reporting Financial Institution knows or has reason to know that the self-certification or documentary evidence is incorrect or unreliable. 

Enhanced Due Diligence: With regards to new individual accounts, the Reporting Financial Institutions should carry out Enhanced Due Diligence procedures with respect to validity of UAE residency visas with a term of five (5) years or more. 

 

Fines and sanctions 

As per the updated guidance notes the following potential fines and sanctions shall be imposed by the regulatory authority:-  

Provision of false certification: A fine of 20,000 Dirhams shall be imposed if the self-certification contains any inaccurate or incorrect information.  

No valid or validated self-certification: A fine of 1,000 Dirhams shall be imposed on any Financial Institution who opens a New Account without obtaining a valid self-certification and/or failing to validate such self–certification. 

GCC Updates

Indirect Tax

  • Bahrain

1. NBR publishes guide on ‘VAT Economic Activity’

The NBR has released a guide on Economic Activity classifying the activities which are treated as ‘Economic Activity’ for the purpose of VAT, regardless of if they are a legal person. It mentions important indicators and requirements that determine if an activity can be considered as Economic.

It further explains if activities related to the following are ‘Economic’:

  1. Employees;
  2. Contract Staff;
  3. Board Members;
  4. Holding and Dormant Companies; and
  5. Joint Ventures

 

2. NBR publishes guide on Transfer of a Going Concern (‘TOGC’)

The NBR has published a detailed guide clarifying the conditions required to be met to categorise transfer of a business as a going concern.

The transfer will be out of scope for VAT if the following conditions are met:

  1. There must be a transfer of whole or an independent part of a business;
  2. The transfer must be made to a taxable person;
  3. The transferee must be liable for VAT registration as a result of the transfer;
  4. The recipient intends to continue the business which was transferred; and
  5. The Transferor and the Transferee must independently notify the NBR of the transaction within 30 days of the sale / transfer.

The guide also mentions certain other considerations related to the transfer of the business along with input tax recovery related to the transfer, transfer of a business within/ outside a VAT group and the VAT treatment of capital assets under TOGC.

 

Direct Tax

  • KSA

1. GAZT launches e-service for Tax Residency Certificates

The General of Authority of Zakat and Tax (“GAZT”) recently launched an e-service in its portal which allows KSA resident companies to request for residency certificates. This is beneficial for KSA resident companies that would like to take advantage of the double tax treaty benefits that may, among other benefits, reduce or eliminate foreign withholding taxes and exempt capital gains on the sale of shares and other foreign assets from foreign taxation.  A KSA branch of a foreign company are not eligible for the residency certificate.

Further details of the procedures for applying a residency certificate can be accessed by clicking here.

How GT can Assist

Connect with our Tax Leaders, should you need any assistance with regards to the above information and updates.

UAE

  • Steve Kitching - Tax Advisory Partner (steve.kitching@ae.gt.com)
  • Steven Ireland - Director of International Tax (steven.ireland@ae.gt.com)

KSA

Bahrain

  • Jatin Karia - Tax Advisory Senior Partner (jatin.karia@bh.gt.com)

Oman

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