The UAE’s Federal Tax Authority (FTA) recently outlined the four conditions that allow foreign businesses to recover Value Added Tax (VAT) incurred in the UAE.
2018 was a monumental year for the United Arab Emirates (UAE) following the introduction of Value-Added Tax, with both businesses and tax authorities transitioning to meet the requirements of this important new regime.
The UAE’s Federal Tax Authority (FTA) has recently outlined the four conditions that allow foreign businesses to recover Value Added Tax (VAT) incurred in the UAE.
To be eligible, foreign businesses must meet four conditions:
- The business must not have a place of establishment in the UAE or in any of the VAT-implementing GCC states (currently Saudi Arabia and Bahrain).
- They must not be a taxable person in the UAE.
- They must be registered as an establishment with a competent authority in the jurisdiction in which they are established.
- They must be from a country that implements VAT and that equally provides VAT refunds to UAE businesses in similar circumstances.
The authority also clarified that businesses residing in any of the other GCC states may still submit a VAT refund application.
The FTA also outlined three situations where VAT cannot be reclaimed:
- If the foreign business makes supplies in the UAE (unless the recipient is obliged to account for VAT under the reverse charge mechanism).
- If the input tax in respect of any goods or services is restricted from recovery and, therefore, not recoverable by a taxable person in the UAE.
- If the foreign business is a non-resident tour operator.
The FTA also clarified that the period of each refund claim shall be a calendar year (January 1 to December 31), and refund applications for 2018 can be made as of April 1, 2019.
For subsequent calendar years, the opening date for accepting refund applications will be March 1st of the following year.
The minimum claim amount of each VAT refund application submitted by business visitors is Dhs2,000, which can consist of a single purchase or multiple purchases.
Potential applicants have also been urged to keep the original tax invoices on the purchases for which they would like to reclaim VAT, as they will be required to be submitted along with the refund applications.
FTA director general Khalid Ali Al Bustani said the refund procedure was “clear and transparent” and that it supported economic activities in sectors such as tourism, trade, exhibitions, and conferences.
The UAE implemented 5 per cent VAT on the supply of most goods and services in the country on January 1, 2018. Certain aspects of the refund procedure in UAE are still being reviewed and will be confirmed by the UAE tax office in the next couple of months.
For more information on VAT regimes in the Middle East, including the recent implementation in Bahrain, check out our blog.
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