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GCC Indirect Tax Newsletter - July 2021 - PwC in the Middle East

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July 06, 2021

The United Arab Emirates (UAE)

Value Added Tax

1. Public Clarification “TAXP001” on Amendments of the penalties regime and Public Clarification “TAXP002” on redetermination of administrative penalties

On 28 April 2021, the UAE Cabinet issued the Decision No. 51 of 2021 to amend certain provisions related to the request for waiver of penalties as stipulated under the Cabinet Decision No. 36 on the Executive Regulations of Federal Law No. 7 of 2017 on Tax Procedures.

On 25 and 27 May 2021, the Federal tax Authority (“FTA”) issued two Public Clarifications “TAXP001” “TAXP002” providing illustrative examples on the reduction and redetermination of penalties further to the Cabinet Resolution No. 49/2021 issued earlier last month to amend the provisions of Cabinet Resolution No. 40/2017 relating to administrative penalties imposed for violation of Tax Laws in the UAE.

1.1. Public Clarification “TAXP001” on Amendments of the penalties regime

This Public Clarification provides further details of the new penalty rates applied and discusses in more details practical examples of the amended penalty rates. Below is a summary of the explanations provided:

Late payment penalties [Violation 9 of the penalty schedule]

In cases of voluntary disclosure and tax assessment, the late payment penalties shall be imposed on the amount of unsettled tax as follows:

  • In case of voluntary disclosure(s), on the first day following the 20th business day from the submission date of the voluntary disclosure.
  • In case of tax assessment, on the first day following the 20th business day from the date of receipt of the tax assessment.

Fixed penalties for submission of incorrect tax returns [Violation 10 of the penalty schedule]

  • A fixed penalty of AED 1,000 for the first violation and AED 2,000 for any repeated instance.
  • As an exception to the above, if the tax difference is less than the fixed penalty, the fixed penalty shall be equal to the tax difference but not less than AED 500.
  • Importantly, the fixed penalty will not be imposed if the tax return is corrected prior to the due date for submission of the return.

Percentage based penalty upon submission of voluntary disclosure [Violation 11 of the penalty schedule]

The percentage based penalty is:

  • Imposed in case 1) the payable tax amount as per the submitted tax return or tax assessment is less than the tax amount required to be calculated as per the relevant tax legislation; or 2) the tax which the person is entitled to recover is calculated at a value higher than what they are entitled to as per the tax legislation.
  • Applicable on the difference between the tax declared and the tax due and the penalty rate varies depending on when the amendment of the previously submitted VAT return is performed. The percentage of the penalty ranges from 5% in case of submission of the voluntary disclosure within one (1) year from the due date of the tax return or tax assessment or refund application and may reach up to 40% in case of submission of the voluntary disclosure after the 4th year.

Mechanism to specify the date of imposition of certain penalties applied on a monthly basis

  • Monthly penalties are applicable for the purpose of imposing penalties on violations No. 4, 9, and 14 of Table 1 of the Resolution;

  • The date on which the penalty shall be imposed in the following month is determined as follows:

    • On the day of the month corresponding to the day of the month on which the penalty was originally imposed on. For example, if the date of imposition of the monthly penalty was 30 May, the corresponding day in the following month shall be 30 June.

    • On the first day of the following month if the current month does not have a corresponding date. For example, if the date of imposition of the monthly penalty was 30 January, the corresponding day in the following month shall be 1 March. 

Please refer to the VAT Public Clarification “TAXP001” for further details on the application of new penalties.

1.2. Public Clarification “TAXP002” on redetermination of administrative penalties

This Public Clarification provides further explanation on the application of the discount on penalties imposed before the effective date of the Cabinet Resolution 49/2021 i.e. 28 June 2021.

The FTA explained the conditions to benefit from this discount as follows:

  • The unsettled penalty was imposed based on the Cabinet Decision No. 40 of 2017 i.e. the old Cabinet Resolution on the Administrative Penalties for Violations of Tax Laws in the UAE;
  • The unsettled penalty was imposed in full before 28 June 2021; and
  • The taxable person has undertaken all of the following
    • Paid the total amounts of the payable tax by 31 December 2021 i.e. no payable tax remains outstanding to the FTA and the FTA have received the amounts by 31 December 2021 notwithstanding whether the tax amount is payable before or after 28 June 2021; and
    • Paid 30% of the total amounts of the unsettled administrative penalties imposed before 28 June 2021, no later than 31 December 2021.

Where the above conditions are satisfied, the FTA will redetermine at the end of 2021 that the unsettled part of the administrative penalties, i.e. equivalent to 70% of the total amount of penalties imposed, shall no longer be required to be paid.

The FTA will link the redetermination process to the registered taxable person’s e-Services account who will be able to access the information relating to the process as of 28 June 2021.

Amending certain provisions related to requests for waiver of penalties

The Cabinet Decision No. 51 of 2021 amended certain provisions under Article 26 of the Cabinet Decision No. 36 on the Executive Regulations of Federal Law No. 7 of 2017 on Tax Procedures.

Article 26 stipulates the required conditions for a taxable person to request from the FTA a waiver or reduction of the administrative penalties imposed. The new Decision introduced the following changes on the qualifying conditions:

  • The requirement that the taxable person has not been subject to any administrative penalties in the 2 years preceding the application has been abolished.

  • The timeframe for submitting the application for reduction or exemption of penalties has been extended from 10 working days to 40 workings days.

The new Decision introduced a formal process to apply for the reduction or waiver which should be submitted through a form to be determined by the FTA.

Please refer to the VAT Public Clarification “TAXP002” for further details on the application of new penalties.

2. VAT Public Clarification “VATP026” on VAT registration of “Sole Establishments” 

This Public Clarification clarifies the VAT registration obligations of a person in respect of its sole establishments. Below is a summary of the explanations provided:

  • A natural person who owns a number of Sole Establishments should register for VAT as a natural person if the taxable supplies made or services provided exceed the mandatory VAT registration threshold.

  • A natural person can own a number of Sole Establishments which may undertake different lines of business, and in this case must obtain only one VAT registration to include all Sole Establishments under the one VAT registration, with the understanding that a Sole Establishment does not have a legal personality independent or different from its owner. It is not permissible to register each sole establishment separately for VAT.

  • All supplies and services provided by the registrant must be declared, including those for all his or her Sole Establishments, which will be considered collectively in order to determine whether the person has outstanding tax obligations.

Please refer to the VAT Public Clarification “VATP026” for further details on the VAT registration of Sole Establishments.

3. VAT Guide “VATGRH1” on VAT refund for UAE Nationals Building New Residences 

This guide provides the following updates and amendments on the earlier issued guide on the special VAT refund scheme for UAE Nationals building new residences.

Updates and amendments

  • Revised Section 2.2 to define ‘residence’. 

    • Residence” refers to any building (including townhouses and villas) used predominantly as a private home of a natural person, including fixtures and fittings belonging thereto and enjoyed therewith, which comprise at least of cooking and washroom/bathroom facilities in addition to sleeping quarters. 

  • Revised Section 3 on deadlines for application. 

    • The Refund Request must be sent to the FTA within 12 months from the date of completion of the newly built residence which is the earlier of the date:

- the residence becomes occupied; or,

- when it is certified as completed by a competent authority in the UAE (the Building Completion Certificate). 

  • Revised Section 4.6 on documents required to be submitted to the Verification Body. 

    • Copies of the construction contract (including addendums);

    • Copies of the consultancy agreement (including addendums);

    • Copies of variation orders;

    • Copies of invoices that include returned items; and

    • Copies of credit notes.

    • Lump-sum tax invoices and proof of payments provided by the contractor and the consultant to the owner; and

    • Relevant tax invoices and proof of payments (for example, receipts). 

  • Deleted former Section 5 and incorporated within Section 4. 

  • Revised Appendices.

Please refer to the VAT guide  “VATGRH1” for further details on the updates and amendments regarding the special VAT refund scheme for UAE Nationals building new residences.

4. VAT guide on VAT payment for Commercial Property Buyers

This user guide provides guidance for persons who are buying or selling a commercial property which is subject to VAT at 5% in the UAE to complete their VAT payment on the FTA’s eServices portal. 

The steps required to complete VAT payment include creating an e-service account and completing the VAT payment.

Please refer to the VAT guide “VAT Payment User Guide for Commercial Property Buyers” for further details on the steps to be taken for VAT payment of commercial property.

Excise Tax

Decision No. (1) of 2021 on the mechanism for calculating the average retail selling price of Excise goods in the UAE market

The FTA recently published Decision No. (1) of 2021 - with immediate effect - on the mechanism for calculating the average retail selling price of Excise goods in the UAE market.

The decision covers two main aspects: 1) the calculation of the average retail selling price of the Excise goods intended for retail sale in the UAE and 2) the value determination of Excise goods not intended for retail sale in the UAE.

Excise Taxable Persons are encouraged to review their pricing policy in line with the new Decision to ensure Excise Tax compliance and drive efficiency in the supply chain.

Further details can be found in the following link: https://www.pwc.com/m1/en/services/tax/me-tax-legal-news/2021/uae-new-mechanisms-calculate-average-retail-selling-price-excise-goods.html

The Kingdom of Saudi Arabia (KSA)

Value Added Tax

General update: Merger of the General Authority of Zakat and Tax with the General Authority of Customs 

The Saudi Council of Ministers in May 2021 approved the merger of the General Authority of Zakat and Tax (GAZT) and the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA). 

The Council of Ministers’ decision was published in the official gazette along with the regulations of the new ZATCA. The regulations address the scope of work of the new merged authority. The effective date of the regulations is 14 May 2021.

Please access this link for more information on this merger. 

Legislative update: Final guidelines of the controls, requirements, technical specifications and procedural rules for implementing the provisions of the E-Invoicing Regulation

On 28 May 2021, the ZATCA has published the e-invoicing resolution setting out the controls, requirements, technical specifications and procedural rules covering the generation and integration phases which includes VAT invoices, debit and credit notes. A detailed set of requirements and guidelines were also published.

The generation phase will be mandated from 4th of December 2021 and the integration will be implemented in phases starting from 1st of January 2023.

Please access the PwC news alert here for more information.

Technical update: VAT refund for non-resident eligible persons

Subject to certain conditions, non-resident persons that are not registered for VAT purposes in the GCC VAT Implementing States (currently KSA, UAE, Bahrain and Oman) and not engaged in any economic activities therein, may file a claim for VAT refund.

Foreign businesses who meet the following conditions are eligible to apply for a VAT refund in the KSA:

  • The person is established in a country with a transaction tax system similar to VAT and that person is registered for that tax; 

  • The country of non-resident person allows a similar mechanism to provide refunds of tax to residents of the KSA who are charged tax in that country.

The deadline for submitting VAT refund applications for KSA is within 6 months from the end of the calendar year in which the VAT was paid (i.e. for the calendar year ended 31 December 2020, the deadline is 30 June 2021). 

While the Saudi  tax authorities has not yet provided detailed guidance on the refund mechanism, businesses should take steps to preserve their entitlement for a refund of VAT incurred during the year by way of filing a formal application within the set timeline.

Please access the PwC news alert here for more information. 

End of the Transitional Period for VAT rate increase

Further to VAT rate increase from 5% to 15% announcement effective the 1st of July 2020, the Zakat, Tax and Customs Authority (“ZATCA”) in Saudi Arabia has announced transitional rules governing supplies that are made during the transitional period for the VAT rate increase i.e. from 11 May 2020 to 30 June 2021. The transitional rules would not be applicable starting from the 1st of July 2021 onward and the VAT rate to be applied going forward should be 15% applicable to all supplies made (except where it is zero-rated or exempt by law).

Please access the PwC news alert here for more information.

The Kingdom of Bahrain (Bahrain)

Value Added Tax

NBR has published the VAT Transportation Guide in Arabic

The National Bureau for Revenue (NBR) has now released the VAT Transportation Guide in Arabic. This guide had previously been published in English.

The VAT Transportation Guide in Arabic can be accessed through the link below:

https://www.nbr.gov.bh/guidelines_and_publications

Excise Tax

NBR has published the Excise Tax prices on the Excise Goods

The NBR has released a list of the Excise Goods subject to Excise Tax with their corresponding Excise Price (the tax base on which Excise Tax will be imposed). 

The Excise Tax price list can be found through the link below:

https://www.nbr.gov.bh/publications/view/excise_goods_list

 

The Sultanate of Oman (Oman)

Non-legislative update

Value Added Tax

Simplified tax invoice 

Referring to Article 146 of the Oman VAT Executive Regulations (‘Executive Regulations’), businesses may issue simplified tax invoice (instead of a full tax invoice in terms of Article 143 read with Article 144 of the Executive Regulations) after obtaining the approval of the Oman Tax Authority (OTA), subject to the fulfilment of the following conditions:

  1. The nature of the supplies does not require the issuance of immediate Tax Invoices in accordance with Article (144) of the Executive Regulations.

  2. The value of supplies excluding Tax should be less than five hundred (500) Omani Rial.

On 15 April 2021, the OTA issued a notice allowing businesses to issue simplified tax invoices from 16 April 2021, subject to the fulfillment of the prescribed conditions:

  1. The VAT registrant should adhere to the requirements for simplified tax invoice in Article 148 of the Executive Regulations (i.e. the VAT registrant must submit an application for OTA’s approval to issue simplified tax invoice).

  2. The taxpayer concerned should inform the OTA of the simplified invoices on or before 15 July 2021 and provide OTA a copy of the simplified tax invoices issued by the taxpayer

It was also clarified in the same notice that the VAT amount should be mentioned upto 3 decimal places in Omani Riyal on the simplified tax invoice. 

Oil & gas sector zero rating

In relation to the zero-rating of goods and services provided in connection with upstream ('primary') and midstream ('intermediate') oil and gas activities in Oman and as per article 93 (3) of the Executive Regulations, in order to zero rate oil and gas supplies, a supplier is required to be registered and licensed by the Ministry of Energy and Minerals.

In relation to this requirement  and whether the registration on the Joint Supplier Registration System (JSRS) may be used as a 'proxy', the Ministry of Energy and Minerals (MEM) confirmed that they are liaising with the Oman Tax Authority to accept Joint Supplier Registration System (JSRS) registration in lieu of MEM registration and licensing. MEM recommends that businesses that have not yet registered for VAT (or are in the process of doing so) should submit their JSRS certification along with their application.

Zero rating of the supply of medicines and medical equipments 

Ministerial Decision No. 59/ 2021 has been issued by the OTA Chairman for zero-rating the supplies of medicines and medical equipment for which a release permit is issued by the Ministry of Health in accordance with the customs code (HS code). 

Further to the release of the Ministerial Decision, the Ministry of Health has released 2 separate lists for medical devices and medicines, respectively, based on the customs HS codes. 

Below is the link to these lists on the Ministry of Health portal -  List of Medical Devices (based on HS codes) and List of Medicines (based on HS codes)

Non-resident VAT registration 

On April, 2021, The Oman Tax Authority published guidance on the VAT registration procedure for non-resident businesses in Oman. In summary, the following two options have been made available for non-residents with a VAT registration requirement in Oman:

  1. Appoint a tax representative - A tax representative will replace the non-resident person in all that is related to his tax liabilities and rights. 

  2. Provide a bank guarantee or fiscal undertaking to the Oman Tax Authority for a value no less than 5% of the forecasted annual taxable supplies in Oman during the year where a tax representative is not appointed. 

Link to the VAT registration procedures for Oman non-resident applicants issued on16 April 2021  https://tms.taxoman.gov.om/portal/web/taxportal/vat-tax

Legislative updates:

Revised list of zero rated Food products 

As per Article 51 (1) of the Oman VAT law, the supply of food items is zero rated. A separate Ministerial Decision No. 2/2021 dated 4 Jan 2021, was issued by the OTA Chairman providing a list of such food items (list of 93 food items).

In furtherance to the initial list (consisting of 93 food items), the OTA issued a separate Ministerial Decision No. 65/ 2021 on April 11, providing a new list of food items zero-rated under Oman VAT (list of food items increased to 488 from 93 food items).

Link to the Ministerial Decision No. 65/ 2021 issued today (Arabic version) - https://tms.taxoman.gov.om/portal/web/taxportal/vat-tax

Special Zones classified by OPAZ 

On April 27 the Public Authority for Special Economic Zones and Free Zones (OPAZ) in Oman announced, that the Special Economic Zone at Duqm (SEZAD) and the Free Zones in Salalah, Sohar and Al Mazunah are classified as Special Zones for the purposes of VAT, as per Decision No. 53/2021.

In the announcement it is also prescribed by OPAZ that a taxable person (operating in the Special Zones mentioned above), applying for VAT registration must attach to the VAT registration application a copy of the commercial registration certificate and a copy of the license issued by the relevant Special Zone Authority for carrying out economic activity in the Special Zone. It may also be prudent, for the taxable persons who have already registered for VAT to submit (email) their license to operate in the Special Zone along with their VAT registration details to the Oman Tax Authority on VAT@taxOman.gov.om , as a matter of good practice.

Below is the link to the OPAZ announcement on Special Zones: 

https://opaz.gov.om/en/news/2021/sezad-and-free-zones-in-salalah-sohar-and-al-mazunah-are-classified-special-zones

Further to the implementation of Value Added Tax Law (VAT) in Oman, the Tax Authority issued the VAT  Executive Regulations (‘Executive Regulations’), on Sunday , 14 March 2021 via Official Gazette No. 1383.

VAT Law was Published on 18 October 2020 in Oman in Royal Degree No; 121/2020, and the Executive Regulations set out the rules and procedures for the implementation of this Law.

The Executive Regulations are divided into thirteen chapters, and include details relating to the procedures and conditions relating to the implementation of VAT Law in Oman.These provide clarity around issues such as

  • Procedure for registration and deregistration

  • Computation of Value Added Tax 

  • Exempt and Zero rated transaction treatment 

  • Import and Export transaction and documentation requirement

  • Procedure for filing of VAT returns  

  • Provisions for the payment and refund of input tax credit

  • Procedure for conducting assessments and appeals

  • Levy of administrative penalties and fines

The publication of the VAT Executive Regulations provides the taxpayer further clarity on the VAT provisions set out in the law. 

The Regulations in both languages here can be accessed through the following link:

https://tms.taxoman.gov.om/portal/web/taxportal/vat-tax

 

Contact us

Jeanine Daou

Indirect Tax Leader

Tel: +971 (0) 4 304 3744

Nadine Bassil

Indirect Tax Partner

Tel: +971 (0) 4 304 3688

Antoni A Turczynowicz

Tax Partner & Managed Services Lead

Tel: +971 (0) 4 515 7372

Carlos Garcia

Partner, Middle East Customs & International Trade

Tel: +971 (0) 4 304 3936

Ken Healy

Partner, Tax Leader, Bahrain

Tel: +973 3840 0897

Chadi Abou Chakra

Partner, Indirect Tax and Fiscal Policy

Tel: +966 11 211 0400 Ext: 1858

Maher ElAawar

Partner, Middle East Indirect Tax and Fiscal Policy

Tel: +971 (0) 56 216 1109

Darcy White

Partner, Oman Tax Leader

Tel: +968 2455 8154

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