We are pleased to share with you our first edition of the PwC GCC VAT Newsletter. We intend to make this a regular publication aimed at keeping our readers informed on the latest VAT developments in the GCC Region. We hope you find this useful and also welcome your comments and feedback.
The FTA has published a certain number of guides throughout the month of March. These guides intend to help the Taxpayers in getting a better understanding of the UAE VAT system. Such documents are easily accessible online through the FTA portal. It is to be noted that the contents of these guides are not legally binding but give an overview of the FTA’s interpretation and practical application of the UAE VAT legislation. Guides can be subject to change by the FTA anytime (as applicable). Other than the guides, FTA has launched its E-Learning modules which are designed to assist businesses in learning and understanding the UAE VAT system.
The FTA has released a summary guide on the use of using GIBAN for the payment of any tax that may be due to the FTA. GIBAN is a unique IBAN number that is given to Taxpayers. Taxpayers can make payment through fund transfers using approved UAE financial institutions which recognise GIBAN. GIBAN transfer is a payment alternative to e-Dirham.
Fund transfer through GIBAN can be used for the settlement of any outstanding VAT and Excise Tax payable, including penalties imposed by the FTA. Such facility will not only expedite the payment process, but also reduce the administrative burden for businesses.
The FTA has released a Taxable Person Guide for Value Added Tax in UAE.
This guide provides an overview of the VAT rules and procedures to follow so at to be compliant with all the UAE VAT requirements.
The guide explains various key aspects of VAT including VAT registration, types of supplies, place and date of supply, reverse charge mechanism, import of goods, recoverability of input VAT, VAT compliance requirements (i.e. VAT returns, payments, documentations and records keeping) and VAT audit.
The FTA has released a VAT guide for the real estate sector in the UAE. This guide includes the common transactions which may happen within the industry and provides further guidance with various practical examples. Such guidance is useful for Taxpayers who operate in the real estate industry including developers, landlords, owners associations and providers of construction services.
Further guidance on various VAT implications have been explained including notably the definition of “bare land”, the qualification of labour camps for VAT purposes, the VAT treatment of retention payments and the application of the VAT transitional rules to transactions spanning over 2018.
The recoverability of input tax incurred on costs used for mixed developments (e.g. a building with both commercial and residential units) has also been elaborated further in this guide. In addition, the eligibility of VAT registration for Owners Associations (“OAs”) and its VAT implications have been explained further.
The FTA has released a guidance by way of decision tree on the UAE VAT transitional provisions for supplies of goods and services which spanned over the transitional period. (i.e. before and after 1st January 2018). This Quick reference document also covers the principles applicable where contracts state that prices are ‘VAT inclusive’ or ‘VAT exclusive’ and the impact on the agreed price.
On 20th March 2018 the FTA issued the Decision No.(2) of 2018 on Tax Invoices. This decision specifically covers the issuance of tax invoices by financial institutions holding a banking license issued by a competent UAE authority.
This decision includes the following concessions in respect of the issuance of tax invoices:
As mentioned above these concessions are solely applicable to financial institutions holding a banking license issued by a competent UAE authority.
This decision is effective from 1st January 2018.
The Cabinet Decision No. (55) of 2017 on Charities That May Recover Input Tax has been published on FTA portal.
The charities listed in annex to the Cabinet Decision may recover input tax paid on their expenses with the exception of the following:
The recovery procedure is to be set by the FTA.
This Cabinet Decision is effective from 1st January 2018. The executive decisions to implement this Cabinet Decision shall be issued by the Minister of Finance.
The GAZT has released a new guide on Employee Benefits in KSA. This guide is intended for all establishments and their employees or persons acting in a manner similar to employees and business owners. The importance of this guide is to provide further clarification with regard to the tax treatment of staff entitlements and benefits.
This guide covers the following areas:
Currently, the guide is only available in Arabic:
A Royal decree has been issued earlier this year whereby an exemption was granted to the Saudi Nationals in respect of VAT on the first purchase of residential home. It was unclear whether the VAT exemption threshold of SAR 850,000 was applicable to the principal amount (i.e. purchase value) or to the VAT amount at stake.
GAZT has clarified on its website that the VAT exemption threshold of SAR 850,000 is applicable to the principal value of the residential property. The update is as follows:
“Residential rent is exempt; Residential sale is standard rated unless not considered economic activity (it is out of scope if sold by someone who was using is for personal dwelling by himself or a relative). However, residential sales amounting to no more than SAR 850,000 of first dwellings to Saudi citizens are exempt from VAT.”
The GAZT have published a list of required attachments/ documents for eligible persons to use when registering for VAT in KSA. The required attachments/ documents have been listed into the following categories:
The release of the required attachments/ documents, provides the eligible persons who intends to register for VAT with better guidance on the various type of documentations required for VAT registration purposes. Nonetheless, the eligible person would still be required to prepare for additional supporting documents in order to substantiate its taxable supplies upon request by the GAZT.
On 22nd March, the Ministry of Finance in Saudi Arabia issues a Circular that clarifies the treatment of VAT on contracts concluded between VAT registered suppliers and government bodies before, on or after 1st January 2018. The circular emphasizes that the VAT treatment depends on the terms of the signed contract/proposal and provides guidance for government bodies and public institutions on how to account for VAT under the KSA budget requirement.
Following the submission of the first batch of KSA VAT returns, some Taxpayers have received inquiries from GAZT requesting supporting documentation and evidence to support VAT return information that had been submitted, such as the following:
On the basis that the responsibility to account for VAT rests with the suppliers, it is advisable that all the VAT-registered businesses should record and retain sufficient supporting documents to substantiate the supplies that they make in the event of VAT inquiries from GAZT, particularly for transactions which are zero-rated.
Tax and Legal Services Leader, PwC Middle East
Tel: +971 (0)4 304 3100