Indirect Tax bytes

“Bytes” contains a summary of indirect tax developments worldwide.

• Angola: The tax authorities announced on 18 September that certain taxpayers may now pay VAT in five instalments if the VAT due is equal to or exceeds AOA 3 million.
• Anguilla: The Inland Revenue Department posted a notice on 12 September reminding retailers using a transition rule that allows them to temporarily display prices exclusive of Goods and Services Tax (GST) to display the GST-inclusive price beginning on 1 November 2022. GST at a standard rate of 13% entered into effect on 1 July (for prior coverage, see Indirect Tax Bytes in the April 2022 issue of Indirect Tax News).
• Bahamas: The Department of Inland Revenue announced the introduction of new VAT withholding requirements with effect from 1 August 2022, which require certain agents to withhold 40% of the VAT due on supplies of specified goods and services. The department published guidance on 27 July that sets out the procedures for, inter alia, registering withholding agents (as well as for revoking their appointment), VAT remittance requirements, recordkeeping, return filing, refund procedures, etc.
• Bahrain: The National Bureau for Revenue (NBR) and the Ministry of Industry, Commerce and Tourism have launched an inspection campaign to ensure the proper application of VAT by commercial establishments. Based on the data collected and violations reported during inspections thus far, the NBR has issued a number of VAT assessments, along with penalties, with some violations relating to the issuance of incorrect invoices and for failing to show VAT-inclusive displayed prices.
• Barbados: The Ministry of Finance, Economic Affairs and Investment announced on 19 July that the VAT rate on the supply of electricity is temporarily reduced from 17.5% to 7.5% on the first 250-kilowatt hours used by households, with the standard rate applying thereafter. The reduced VAT rate applies from 1 August 2022 through 31 January 2023. On 15 August, the prime minister extended the VAT cap on petroleum products from 30 September 2022 through 31 January 2023; the cap had been put in place in March 2022 and expired at the end of September.
• Bermuda: The government announced on 30 September that the customs rules would be amended to reduce the duty rate to zero on 21 essential items that are subject to rates ranging from 5% to 25%.
• Botswana: The standard VAT rate has been temporarily reduced from 14% to 12% for the period 1 August 2022 to 31 January 2023 to help address inflation and the increased cost of living.
• European Union: The Court of Justice of the European Union (CJEU) ruled on 8 September that a holding company is not entitled to a VAT deduction for services it purchased from third parties and contributed to subsidiaries. The court upheld the opinion of Advocate General Pitruzzella issued on 2 March 2022 (for prior coverage, see the article in the July 2022 issue of Indirect Tax News), making it likely that tax authorities throughout the EU will pay extra attention to situations in which holding companies incur costs for activities of subsidiaries.
• Germany: A draft bill passed by both houses of parliament would temporarily reduce the VAT rate on natural gas from the current standard rate of 19% to 7% for the period 1 October 2022 through 31 March 2024. The bill still must be published before it can become effective.
• Ireland: The 2023 budget presented on 27 September 2023 contains changes to the VAT rules. Specifically, the temporary 9% VAT rate for the supply of gas and electricity would be extended to 28 February 2023. The rate, which had been reduced from 13.5%, was due to expire on 31 October 2022. The temporary 9% VAT rate applying to the hospitality and tourism sector would not be extended beyond the current expiration date of 28 February 2023. VAT on newspapers and news periodicals (including digital editions) would drop from 9% to 0% as from 1 January 2023 (for coverage of the budget measures, see the tax alert dated 3 October 2022). Guidance published by the Revenue Commissioners on 5 August and updated on 7 September confirms that certain digital services taxes (DSTs) incurred wholly and exclusively for a trade may be deducted in computing income of that trade for Irish corporation tax purposes. DSTs in the following countries are covered by the guidance: Austria, France, India (equalisation levy), Italy, Kenya, Spain, Turkey and the UK. Taxpayers can inquire about the deductibility of DSTs in other jurisdictions by contacting the Irish Revenue. One of the recommendations in a report published by the Commission on Taxation and Welfare on 3 June and updated on 14 September is that Ireland consider modernizing VAT administration and the collection of tax and that the existing special VAT reduced rates be merged and increased over time.
• Isle of Man: The government announced on 23 September that starting on 1 January 2023, the 5% reduced VAT rate (rather than the 22% standard rate) will apply to construction services on certain buildings (e.g., residential homes, property used for certain charitable purposes, etc.). Services eligible for the reduced rate include alteration, extension, enlargement or repairs of a building; repairs or maintenance to the land within the boundary of an eligible building that are needed for safety purposes to prevent damage to the building; and installation, repair or maintenance of building materials ordinarily incorporated into an eligible building. The supply of building materials at the same time as the service will also qualify for the reduced rate.
• Italy: The tax authorities issued guidance on 6 September, which clarifies that the reduced 5% VAT rate (rather than the 22% standard rate) applies to the entire supply of natural gas to an end user.
• Jersey: Online sellers and marketplaces will be required to register for GST purposes as from 1 January 2023 if they sell more than GPB 300,000 in goods to Jersey in a 12-month period. The 5% GST already applies to the supply of digital goods and services in the same way as GST applies to tangible goods.
• Kenya: The Revenue Authority released a public notice on 19 August, which clarifies that registered nonresident suppliers of digital services are exempt from issuing electronic tax invoices as required under the 2020 VAT regulations. However, those suppliers must issue invoices or receipts that show the value of the supply and the VAT charged. VAT-registered taxpayers that import digital services may claim input tax charged in accordance with the VAT Act.
• Luxembourg: The prime minister announced on 20 September 2022 that an agreement has been reached between the government, employer representatives and trade unions on an anti-inflation package that includes a temporary 1% reduction in the VAT rates, i.e., the 17% standard rate will drop to 16%, the 14% intermediary rate will drop to 13% and the 8% reduced rate will drop to 7% (the super reduced rate of 3%, however, will remain unchanged). The rate reductions are expected to apply during calendar year 2023.
• Malaysia: Budget 2023 presented on 7 October 2022 includes proposals that would affect service tax. In an effort to streamline the tax treatment of digital services related to banking/financial services by local non-bank digital payment service providers, it is proposed that the service tax exemption be extended to apply to recipients of digital payment services and local non-bank digital payment service providers (i.e., payment instrument issuers, merchant acquirers and payment system operators). Under this proposal, the expiry date for the existing service tax exemption would be standardised as follows: (i) local non-bank digital payment service providers: 1 August 2022 to 31 July 2025 and local financial institutions/banks and any qualified service providers: 1 January 2020 to 31 July 2025. Digital services related to banking/financial services provided by local financial institutions/banks licensed under certain laws have been exempt from service tax since 2020. The budget also includes the phased-in implementation of e-invoicing requirements as from 2023.
• Netherlands: In an effort to address the impact of the increase in energy costs, the VAT rate on energy is reduced from 21% to 9% for the period 1 July-31 December 2022, and the State Secretary announced that energy suppliers that grant discounts for supplies that partly relate to the period in which the reduced VAT rate applies do not have to make a distinction between the different rate periods to claim a VAT refund.
• Nigeria: The Minister of Communication and Digital Economy announced on 5 September that the government has suspended the implementation of the proposed 5% excise tax on telecommunications services, such as voice calls, SMS (short message service) and data services, citing existing taxes and the fact that the excise tax would increase the cost of telecommunications services in the country.
• Oman: After a year’s experience with a new VAT regime, which has introduced a significant increase in tax and compliance obligations for businesses in Oman, the tax authorities have started issuing notices to taxpayers requesting detailed transaction level sales and purchase data relating to VAT returns. In another development, the tax authorities have issued a detailed guide on the e-commerce sector, which provides useful information regarding the application of the reverse charge mechanism on e-commerce transactions. The tax authorities have issued a detailed guide on the e-commerce sector (available only in Arabic) that provides useful information regarding the application of the reverse charge mechanism on e-commerce transactions.
• Philippines: The president has indicated that his administration intends to pursue the introduction of VAT on digital service providers. A previously proposed measure would have imposed a 12% VAT on nonresident providers whose annual gross sales exceeded PHP 3 million.
• Slovenia: Legislation adopted on 23 August temporarily reduces the 22% VAT rate on specific supplies to mitigate the burden of rising energy prices on the population. A lower rate of 9.5% applies during the period 1 September 2022 through 31 May 2023 on supplies of electricity, natural gas, remote heating and firewood.
• South Africa: The tax authorities issued a draft interpretation note on 9 September on the VAT treatment of debt collection activities of credit providers or in-house or outsourced debt collectors and the VAT treatment of amounts recovered from the debtor, and it closed a public consultation on this issue on 7 October. The supply of debt collection services by a debt collector to a credit provider is subject to VAT in South Africa at the 15% standard rate unless an exemption or exception applies to the supply. The draft note examines topics such as the application of the 15% standard VAT rate on commissions earned by debt collectors, the treatment of debt collection costs. Although it may be clear contractually that a commission paid by the credit provider to the debt collector is for debt collection services, there may be a question as to whether the recovery of those amounts is also in respect of the supply of such debt collection services to the credit provider.
• Surinam: The minister of finance and planning announced on 26 August that he intends to propose the introduction of a standard VAT rate of 10% rather than 15% for the new VAT regime that is to enter into effect on 1 January 2023 replacing the current 12% sales tax. The minister hopes that lowering the standard rate will mitigate the inflationary impact of VAT. The parliament will continue to debate the draft VAT legislation.
• United Arab Emirates: The Federal Tax Authority (FTA) has released a cabinet decision that allows mosques to request a refund of input VAT incurred on construction costs. The refund claim will be subject to conditions for obtaining planning approvals and approvals for the operation of the mosque. The refund application will be separate from VAT return filings. The FTA released guidance on 31 August that addresses the basis for calculating the amount of the financial guarantee required to be provided by warehouse keepers to the Designated Zones in which they are registered to mitigate risks related to excise tax payments on goods stored in, or moved from, the zone. The new rules, which apply as from 1 September 2022, take into account the compliance history of the warehouse keeper and the excise tax registrant and adopt a risk-based approach to determining the amount of the financial guarantee. The minimum guarantee is AED 175,000 and capped at AED 25 million if prescribed conditions are fulfilled.
• United Kingdom: Following a consultation, the government published a policy paper on 16 August on the Developing Countries Trading Scheme (DCTS), which aims to improve access to the UK market for developing countries, create stronger trade and investment partners and strengthen the supply chain. The DCTS, which will come into effect in early 2023, will replace the Generalised System of Preferences and will provide duty-free, quota-free trade on 85% of eligible goods to most low income and lower middle income countries.
• Uzbekistan: The standard VAT rate will drop from 15% to 12% on 1 January 2023.