Latest VAT Updates and Opportunity to benefit from Significant Penalty Waiver From FTA

UAE FTA latest announcements regarding VAT

Major changes, amendments, notifications during the period from FTA on VAT rules & regulations are listed below.

1. FTA has amended the VAT law to curb the possibility of double taxation on supply of goods to designated Zones.

Designated zones specified by a Cabinet Decision are generally treated as being outside the UAE if they meet the requirements listed in Article 51(1) of the Executive Regulation, which include that the area is fenced and has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods.

Taxable persons are required to impose VAT on every taxable supply and deemed supply made in UAE. VAT is also imposed on the importation of concerned goods. The supply of goods within a designated zone is generally regarded as being outside the scope of UAE VAT, unless the goods are supplied to be consumed.

The place of supply of goods which are supplied within a designated zone for consumption (within or outside the designated zone) are considered to be inside UAE, unless a specific exclusion applies. In lieu of such an exclusion, such supplies may potentially be subject to double taxation, i.e., on the transfer of ownership of the goods as well as on importation thereof.

The place of supply of services is regarded as inside UAE if supplied in the designated zone unless a special exclusion applies.  In lieu of a special exclusion, the place of supply of shipping or delivery services in respect of goods moved from a designated zone is within UAE and may require non-resident suppliers of these services to register for VAT in the UAE.

In order to avoid double taxation on goods supplied from a designated zone, and to provide registration relief to non-resident suppliers who also ship or deliver these goods, Article 51 of Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, was amended by Cabinet Decision No. 88 of 2021 (“Executive Regulation”), with effect from 30 October 2021.

Article 51(5) of the Executive Regulation2 was amended to treat the supply of goods in the designated zone as outside the scope of UAE VAT if the goods are consumed outside the designated zone, provided evidence is obtained and retained that:

− the goods were delivered to a place outside the UAE; or

− VAT was paid on the importation of those goods into the UAE.

 

The service of shipping / delivery of Qualifying Goods is also outside the scope of UAE VAT if supplied by the same supplier of the goods, provided the supplier is a non-resident who is not registered for VAT in the UAE.

31. FTA has fixed the deadline for availing the penalty redetermination scheme till 31.12.2021

The Cabinet Decision No. 49 of 2021 on Amending some Provisions of Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violation of Tax Laws in the UAE (“the Decision”), which aims to support registrants in fulfilling their tax obligations, will have the following features

 

• The Decision will go into effect starting from 28 June 2021.
• The Decision reduces many administrative penalties imposed on the violation of tax laws post 28 June 2021.
• The Decision allows registrants who have been penalized prior to the effective date of the Decision to benefit from a penalty redetermination scheme, where they would only be required to settle 30% of their payable administrative penalties outstanding on 28 June 2021 subject to meeting the requirements specified in the Decision.

 

In order to benefit from the penalty redetermination scheme, the FTA urges registrants to settle all pending tax until 31 December 2021 and 30% of the total administrative penalties imposed and outstanding on 28 June 2021, no later than 31 December 2021.