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The implementation and execution of Value Added Tax from 1st January 2018 has been largely successful but also coupled with few challenges. It was well gauged and appreciated by media locally, globally and fairly accepted by the business community.
Since the beginning of the year, Federal Tax Authority has extended the first tax period for many registered businesses. Some businesses even filed their first vat return for four or five months which is to be followed by quarterly returns. Federal Tax Authority has also issued time to time the following guidelines for the smooth enactment of VAT: -
a. FTA has come out with a technical clarification guide for registered as well as unregistered persons inviting their queries in relation to VAT. A Clarification is a mechanism to provide taxpayers with written guidance or advice about the FTA’s interpretation and position on specific tax matters of uncertainty, subject to the terms, conditions and procedures established by the FTA. The answer provided by the FTA applies to the applicant and the specific transaction on which such advice has been requested only.
b. FTA has also issued a guideline where a UAE National owns or acquires land in the UAE on which they build or commission the construction of his / her own residence, he / she shall be entitled to make a claim to the FTA to refund the VAT on the expenses incurred on the construction of the residence, subject to certain conditions.
c. Dubai is also known as the city of exhibitions & conferences and to maintain its competitive edge FTA has issued guidelines and the effect of these rules is that the international customers will not bear the cost of VAT when acquiring qualifying exhibition and conference services.
d. Dubai is known as the city of gold but the gold and diamond industry has been facing challenges since the implementation of VAT, Dubai experienced downward trade and negative growth in this sector in the first quarter of 2018 first time in last 2 decades. FTA has pronounced guidelines for the gold and diamond sector with immediate effect stating that registered dealers trading in gold and diamonds and/or products made of these metals shall not charge VAT on supplies made to other registered merchants, as long as the recipient intends to use the inputs for manufacturing of gold/diamond products or to resell further. The tax in such cases will be paid by the registered recipient on the reverse charge basis.
e. FTA has also issued guidance about the characterization of director’s services under several models to determine whether a taxable supply of services exists for VAT purposes. In particular, employees who perform services for their employer are not considered to be making a taxable supply. However, taxable persons who provide independent director’s services to other legal entities would be considered to be making a taxable supply of services (subject to place of supply rules).
f. VAT refund is another area which still requires more clarification from FTA. FTA has not yet started refunding but it is expected that once the refund process is set it will uplift the sentiments of entrepreneurs who are expecting significant amount of vat refunds from FTA.
It can be summarized that in the light of successful implementation of VAT, FTA has been making untiring efforts and timely publishing the necessary guidelines to help businesses understand and interpret the law properly. We hope that this will continue and FTA will take necessary measures to neutralize any significant impact of VAT on sectors like exhibition and conference.
