VAT Refund Policies | All you need to Know About VAT Refund Policies
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Jun 2020

VAT is a kind of indirect tax applied in more than 180 countries around the world, on all purchase of products or services paid at the time of sale. In the region of the UAE, it has been made mandatory to pay VAT. Thus, before the imminent deadline, all the companies in the region must present their respective VAT demand.

The rate of VAT will be levied at 5 per cent with the expectation that the Value Added Tax (VAT) will promote a new revenue stream for the UAE that will further be used and aid in providing eminent public services.VAT shall provide the UAE with a new income source, which will be continued to be utilized to provide high-quality public services. It would also contribute to the government's goal of reducing reliance on oil and other hydrocarbons as revenue sources.

 Authorities Involved

Federal Tax Authority shall be liable for the administration and collection of federal taxes and associated fines, as well as distributing tax-generated income and applying the tax-related procedures in the UAE. The chairman of the authority is His Highness Sheik Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai, and the UAE Finance Minister. FTA will collaborate with the Ministry of Finance (MoF) to achieve economic diversification in the UAE, focusing on profits derived from non-oil sources.

It will work towards increasing the financial stability of the UAE and will provide assistance and guidance to consumers and businesses to ensure they meet their liabilities and understand the application of taxation in the country fully.

VAT Categorization

1.Input VAT

For most VAT systems, VAT is charged when the products or services are purchased, and, as with most countries, if you are a registered VAT purchaser, you can subtract the amount of VAT paid when reporting your local tax filings.

2.Output VAT

The VAT is paid on the export/sale of services and goods. 

3.Exempt Supply

The list of supplies for which authorities do not apply VAT. 

4.Zero-rated Supply

The list of goods where the VAT rate is zero, and thus there is no VAT tax. 

5.Standard Supply Rate 

It refers to a taxable supply in which VAT is paid at the standard rate of the country; the standard rate in UAE is 5%. Both non-exempt or zero-rated products and services fall under this category.

6.Reverse Charge Mechanism (RCM)

The purchaser of the goods and services is liable to notify the VAT rather than the supplying agency. The reverse charging system was both introduced by the UAE and Saudi Arabia. This means that corporate buyers who are UAE residents are required to report VAT on the various goods and services they purchase, which come under this framework.

VAT Will Be Paid at Zero Percent on The Following Big Supply Groups

  • Exports of products and services outside the GCC.
  • Foreign supplies and associated deliveries
  • Supply of other means of transport (such as aircraft and ships) through the sea, air, and land.
  • Some investment-grade of precious metals (e.g., 99 percent purity of gold, silver).
  • Newly constructed residential buildings, which are first supplied within three years of their completion.
  • Provision of other educational facilities and the delivery of related goods and services.
  • Provision of other Healthcare facilities and procurement of goods and services concerned.

VAT Exemptions

  • The supply groups below are excluded from VAT.
  • Provision of other financial services (as laid down in the VAT legislation ).
  • Residential building. 
  • Barren land and local public transit to Federal Tax Authority requirements and procedures.

How To Claim a VAT Refund? 

If you have excess input VAT, there will be an option on VAT Return to request a refund.  One must select 'Yes' if you Would you like to offer a refund for the above amount of excess recoverable tax. If you choose 'No’, the excess recoverable tax would be transferred to future tax periods and can be used to reduce the payable tax and/or fine. You are expected to complete the VAT refund form 'Form VAT311' after the VAT return is submitted. 

The Following Are The Steps To Apply The VAT Refund Form 'VAT311'

  1. Using your username and password to sign in to the FTA e-Services Portal to access the refund form, move to the 'VAT' button and then to the VAT refund tab Click on Request for the VAT refund. Clicking on the ‘VAT Refund Request’ will open the refund form. 
  2. Fill out the information in all relevant fields. Required fields are needed to complete for submission of the Refund Form. Most of the details are auto-crowded. 

The Fields Available on The VAT Refund Form 311 Are As Follows:

⮚TRN, Legal Name of Entity

This section is auto-crowded on the basis of the information contained in your account user profile. It is, therefore, very essential that the information contained in your profile is both accurate and correct. Please check your Tax Registration Number (TRN) before submitting the refund form.

⮚The Total Sum of Excess Refundable Tax

This field is auto-crowded based on the excess refundable tax reported in the last VAT returns fewer administration penalties due (except for the late registration penalty which is shown separately).

⮚The Amount You Wish To Have Refunded

Please enter the total sum you wish to have refunded. The amount must be equivalent to or greater than the Total sum of Excess Refundable Tax.

⮚The Remaining Amount of Eligible Excess Refundable Tax

This field is auto-crowded and represents the remaining amount of excess refundable tax, which you may apply for a refund in the future.

⮚Late Registration Penalty Amount (In AED)

This field is auto-crowded, depending on whether you have a levied penalty and have settled the late registration penalty for VAT or not. The following table gives information when the payment amount will be shown in this field.

Scenario

Penalty Amount

  If you are not charged with a penalty 

Zero

  If you receive a penalty, and you pay the penalty

Zero

If you have been charged a fine, but you still have to pay the penalty at the time you claim the refund.

 20,000

 

⮚Authorized Declaration And Signatory  

The Authorized signatory will be auto-populated, and you need to tick the declaration before submitting it.

Tourist Terms And Conditions For Seeking VAT Refunds

For a tourist to apply for a VAT refund on purchases made in the UAE, he must fulfil particular conditions.

  • The purchased products must be exported out of the UAE within three months from the date of delivery.
  • The products are not exempt from the Federal Tax Authority's refund scheme.
  • Goods must be purchased from a company participating in the `Tax Refund for Tourists Scheme’.
  • He should be clearly intent on leaving the UAE along with the material purchased, within 90 days from the date of delivery.
  • The import and export process of the products has to be carried out accordingly.

Below table gives information about some of the Services for which VAT may be refunded in Saudi Arabia and UAE.

Types of Business

UAE

Hotel

Refundable

Restaurant Meals

Not Applicable

Entertainment Business

Not Applicable

Conferences

Refundable

Exhibition Trade Fairs

Refundable

Marketing

VAT Zero-rated

Consultants

VAT Zero-rated

Car Rentals

Not Applicable

Lawyer Fees

VAT Zero-rated

Tele Communications

Not Applicable

Training Courses

Refundable

Travel

Not Applicable

Transportation

Not Applicable

Petrol

Not Applicable

Diesel

Not Applicable

 

Effects on businesses and steps to follow

The implementation of VAT would have a huge effect on Saudi Arabia and the UAE companies, and they must take constructive measures to prepare for the new program. 

⮚Sales And Marketing

firms may need to adjust their pricing strategy, which in turn will impact the demand for the products and services and will impact their profit margins if businesses seek to absorb the vat by reducing the net sales price.

⮚Legal

Companies would have to ensure conformity with the new laws and regulations for both current and new business contracts, invoices, and accounting. 

⮚Information Structures 

The IT systems will need to be checked and revised to comply with VAT. 

⮚Human Resources

A company's human resources, as well as government officials, would need to be prepared and certified to be ready to comply with the new system. 

⮚Finance

All firms will have to file for VAT and comply with the VAT systems. It would not only affect cash flow but would also allow financial departments to be more careful about their VAT input and output liabilities.

Why JAXA?

While VAT has improved since the beginning of 2019, not all information and procedures have been released for reclaiming VAT back. Companies will be entitled to recover the VAT paid on hotels, car rentals, exhibits, conferences, and training courses based on correspondence with the Ministry of Finance. However, services such as marketing, consultancy, and legal fees are unlikely to incur VAT. The rules for a VAT refund on food, restaurants, and business entertainment are yet to be defined. Are you confused with so many rules? Don't worry, Experts at Jaxa will help you to get your VAT refund and make your operating process easier. Feel free to contact us!