Updates on VAT rules
Several changes have been made to the UAE VAT rules in recent months, including an extension of the time for non-UAE businesses to submit a VAT refund claim, an extension of the time for the redetermination of a VAT penalty and an updating of the voluntary disclosure guide.
- Refund scheme for business visitors: Non-UAE businesses can claim a refund of VAT incurred in the UAE under the business visitor refund scheme, which provides refunds to foreign businesses that do not have a place of establishment or a fixed establishment in the UAE, subject to the fulfilment of certain conditions. The refund is available to foreign business visitors from an approved list of countries that offer similar reciprocal refunds in their countries. The minimum refund claim is AED 2,000 (approximately USD 500) and can cover a period of 12 calendar months. The application must be filed online and the foreign business visitor must submit a prescribed a list of documents. The refund application for calendar year 2021 can be filed from 1 March 2022 to 31 August 2022.
- Timeline for penalty redetermination: Cabinet Decision 108 of 2021 issued on 30 December 2021 extends the period for the redetermination of administrative penalties to 31 December 2022. This follows from an earlier decision that allowed penalties imposed before 28 June 2021 to be reduced if all tax due was paid by 31 December 2021 and 30% of total unsettled penalties imposed before 28 June 2021 were paid by that date. If both of these conditions were fulfilled, the Federal Tax Authority (FTA) would reduce the penalties payable to 30% of the original amount. The deadline for making the payments has been extended from 21 December 2021 to 31 December 2022.
- Voluntary disclosure: The FTA has updated the voluntary disclosure guide to confirm that the late payment penalty for voluntary disclosures will be levied from 20 days after the date the voluntary disclosure is filed, rather than one month after the due date of the return that has been corrected. As a result, if the taxpayer pays the outstanding tax within 20 days of making the disclosure, it will not be subject to a late payment penalty. This change is significant and welcome as it encourages taxpayers to disclose errors and omissions quickly to minimise the penalty cost. The revised guide also includes instructions on voluntary disclosures by tax groups. The format of the voluntary disclosure for tax groups is same as for single registrations, but there is an additional feature that allows the tax group members to view the voluntary disclosure application filed by the group’s representative member.
VAT input on pre-registration expenses
We have observed that the FTA has disallowed input VAT on expenses “consumed” before the effective date of VAT registration (e.g., rent paid for periods that ended before the registration date). Article 56 of the UAE VAT Law allows input VAT on pre-registration expenses, except in the following circumstances:
- The receipt of goods and services for purposes other than making taxable supplies;
- Input tax related to the part of capital assets that depreciated before the date of tax registration;
- If the services were received more than five years before the tax registration date; and
- Where a person has moved the goods to another implementing state prior to the tax registration in the UAE.