Value Added Tax (VAT) will come into effect in the United Arab Emirates (UAE) from 1st January 2018.
In line with its introduction, VAT will be charged on certain banking fees and charges.
For any enquiries on the above or to share your Certificate of Registration, please email us at customertaxtrn@cbd.ae along with your corresponding CBD account numbers.
Dear Valued Customer,
You are probably aware that as per the Federal Decree Law No (8) of 2017, Value Added Tax (“VAT”) at a standard rate of 5% will come into effect in the United Arab Emirates (“UAE”) from 1st January 2018. In line with its introduction, VAT will be charged on most supplies of goods and services including banking services supplied from this date, even if the contract for supply of services was made prior to that date.
This implies that any supply of services from Commercial Bank of Dubai (CBD) after 1st January 2018 may attract VAT including but not limited to services for financing facilities, operating of bank accounts, money transfers and cash services, investment banking, and treasury. However as per the UAE VAT Law, margin / profit and currency spreads will be exempt from any VAT. Where VAT is chargeable, CBD will debit the VAT due along with the underlying fee, charge or commission.
As per the Transitional Provisions of the Law, CBD reserves the right to charge VAT from you in respect of any services which will be fully or partly provided in 2018, even where the related payment have been received prior to 1st January 2018.
We further wish to inform you that with effect from 1st January 2018 you will receive a tax invoice from CBD with details of all taxed transactions and the total tax charged thereon. One of the mandatory fields in the Tax invoice is the Tax Registration Number (TRN) of all registered customers. Accordingly, we request customers who are or will be registered for VAT to provide us with your Certificate of Registration for VAT in the UAE as soon as it is available to include your TRN in our future VAT invoices.
You can share your Certificate of Registration along with the related RIM / Account number through one of the following channels:
Dear Valued Customer,
You are probably aware that as per the Federal Decree Law No (8) of 2017, Value Added Tax (“VAT”) at a standard rate of 5% will come into effect in the United Arab Emirates (“UAE”) from 1st January 2018. In line with its introduction, VAT will be charged on most supplies of goods and services including banking services supplied from this date, even if the contract for supply of services was made prior to that date.
This implies that any explicit fee, discount, commission or rebates related to supply of services from Commercial Bank of Dubai (CBD) after 1st January 2018 may attract VAT including but not limited to services for financing facilities including mortgages, card-related services, operating of bank accounts, provision of safe custody, money transfers and cash services. Where VAT is chargeable, CBD will debit the VAT due along with the underlying fee, charge or commission.
Commercial Bank of Dubai considers this notice as acceptance of the revised terms and conditions as set out in the appendix. These terms are in addition to our existing agreement with you, to the extent applicable.
Appendix
“All amounts charged for any taxable services provided by the Commercial Bank of Dubai to you will be treated as exclusive of VAT. You must pay us the tax due along with the consideration for services provided.
Where the banking agreement pre-dates the VAT implementation date, Commercial Bank of Dubai reserves the right to levy VAT in accordance with VAT Law, on the proportion of services that have been carried out post the VAT implementation date and assign a value accordingly, where applicable, even where (pre-) payments have been received before 1st January 2018”.
Valued Vendor,
As you are aware as per Federal Decree Law No. (8) of 2017, Value Added Tax (VAT) will come into effect in the United Arab Emirates (UAE) as of 1st January 2018.
In line with its implementation, CBD requires all its vendors to register for VAT and also to provide CBD with their Certificate of Registration to enable the tax submission process. Vendors can submit their Certificate of Registration through one of the two below channels:
- Email us at vendortaxtrn@cbd.ae
- Hand deliver to Financial Control department – Operations at our Head Office in Dubai.
Kindly provide these details as soon as possible.
Download a copy of CBD’s Certificate of Registration here.
1. What is VAT?
Value Added Tax (or VAT) is an indirect tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a
refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to
government reflect the ‘value add’ throughout the supply chain.
2. Why is the UAE implementing VAT?
The UAE Federal and Emirate governments provide citizens and residents with many different public
services – including hospitals, roads, public schools, parks, waste control, and police services. These
services are paid for from the government budgets. VAT will provide our country with a new source of
income which will contribute to the continued provision of high quality public services into the future. It
will also help government move towards its vision of reducing dependence on oil and other hydrocarbons
as a source of revenue.
3. When will the VAT go into effect and what will be the rates?
VAT will be introduced across the UAE on 1 January 2018 at a standard rate of 5%.
4. How will the government collect VAT?
Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
5. Who can or will be able to register for VAT?
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration
threshold of AED 375,000.
Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less
than the mandatory registration threshold, but exceed the voluntary registration threshold of AED
187,500.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold.This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
6. When are businesses supposed to start registering for VAT?
VAT registration has opened in October 2017 for businesses that need to be registered by 1 January 2018.Any business that is required to be registered for VAT and charge VAT from 1 January 2018 must beregistered prior to that date.According to the Federal Law No. (7) on Tax Procedures, the Authority has 20 business days to review and respond on registration applications.Registration applications shall be submitted via the e-Services Portal on the FTA website www.tax.gov.ae.
7. Will there be VAT grouping?
Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool that would simplify accounting for VAT.
8. Will non-residents be required to register for VAT?
Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is
any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.
9. Will VAT be paid on imports?
VAT is due on the goods and services purchased from abroad.
In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes,
VAT would be due on that import using a reverse charge mechanism.
In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on
import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the
goods are released to the person.
10. What are the VAT-related responsibilities of businesses?
All businesses in the UAE will need to record their financial transactions and ensure that their financial
records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.
VAT-registered businesses generally:
• must charge VAT on taxable goods or services they supply;
• may reclaim any VAT they’ve paid on business-related goods or services;
• keep a range of business records which will allow the government to check that they have got things
right.
If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.
If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government.
If you’ve paid more VAT than you’ve charged, you can reclaim the difference.
11. Will VAT cover all products and services?
VAT, as a general consumption tax, will apply at 5% to all transactions of goods and services unless
specifically exempted in Article (46) of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or
subject to a rate of Zero as per Article (45) of the Federal Decree-Law.
12. What sectors will be zero rated?
VAT will be charged at 0% in respect of the following main categories of supplies:
• Exports of goods and services to outside the GCC;
• International transportation, and related supplies;
• Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
• Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
• Newly constructed residential properties, that are supplied for the first time within 3 years of their
construction;
• Supply of certain education services, and supply of relevant goods and services;
• Supply of certain Healthcare services, and supply of relevant goods and services.
13. What sectors will be exempt?
The following categories of supplies will be exempt from VAT:
• The supply of some financial services (clarified in VAT legislation);
• Residential properties;
• Bare land; and
• Local passenger transport
14. How will insurance be treated?
Generally, insurance (vehicle, medical, etc.) will be taxable. Life insurance, however, will be treated as an exempt financial service.
15. How should a business determine the place of supply?
The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.
For a supply of goods, the place of supply should be the location of goods when the supply takes place
with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).
For the supply of services, the place of supply should be where the supplier is established with special
rules for certain categories of supplies (e.g. cross border supplies between businesses).
16. What is a supply in relation to real estate?
A supply of real estate may include the sale, lease or giving the right in any real estate.
17. How will real estate be treated?
The VAT treatment of real estate will depend on whether it is a commercial or residential property.
Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e.5%).
On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure
that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to
ensure that real estate developers can recover VAT on construction of residential properties, the first
supply of residential properties within 3 years from their completion will be zero-rated.
18. What is a residential building for VAT purposes?
A residential building is a building or part thereof that is intended and designed for occupation by
individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:
• Any place that is not a building fixed to the ground and can be moved without being damaged.
• Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.
• A serviced apartment for which services in addition to the supply of accommodation are provided.
• Any building constructed or converted without lawful authority.
19. What is a commercial building for VAT purposes?
A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.
20. Is a residential building subject to VAT?
The first supply of a new residential building within the first three years of it being constructed shall be
zero-rated. All subsequent supplies shall be exempt, even if within the first three years.
21. Is commercial real estate subject to VAT?
All supplies of commercial properties are subject to VAT at 5%, and this includes all buildings or parts
thereof that are not residential buildings.
22. Does the owner of real estate have to register for VAT?
The owners of residential buildings do not have to register for VAT if they do not have any other business
activities. Where owners have other business activities, they should consider their obligations further.
The owner of any building that is not residential, will have to register if the value of the supplies over the
preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over
coming 30 days.
23. Can a real estate owner recover VAT paid in relation to real estate?
An owner of residential building will not be able to recover VAT in respect of expenses related the exempt supply of the residential buildings.
An owner of a commercial building will generally be able to recover VAT in respect of expenses related to the supply of the building.
24. How is a mixed-use building (residential and commercial) treated for VAT?
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending
on whether this is a first supply or a subsequent supply.
The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.
The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply,
and the portion related to the taxable supply (at 0% and 5%) may be recovered.
25. Will VAT be charged on the property I am renting?
The rent of residential building will generally be exempt from VAT.
The rent of commercial building will be subject to VAT at 5%
26. How will financial services be treated?
Generally, financial services will be subject to 5% VAT where they are supplied for an explicit fee,
discount, commission or rebates but margin based products are to be exempt.
27. How will Islamic finance be treated?
Islamic finance products are consistent with the principles of sharia and therefore often operate
differently from financial products that are common internationally.
To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products will be aligned with the treatment of similar standard financial services.
28. How will partial exemption work?
Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.
In certain situations, an expense may relate to both taxable and non-taxable supplies made by the
registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.
Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.
29. Will there be any VAT that businesses are not allowed to claim?
VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.
30. Under which conditions will businesses be allowed to claim VAT incurred on expenses?
VAT on expenses that were incurred by a business can be deducted in the following circumstances:
• The business must be a taxable person (the end consumer cannot claim any input tax refund).
• VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
• The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
• The goods or services acquired are used or intended to be used for making taxable supplies.
• VAT input tax refund can be claimed only on the amount paid or intended to be paid before the
expiration of 6 months after the agreed date for the payment of the supply.
31. Can UAE nationals claim VAT?
A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family. This will allow the recovery of VAT on such expenses as contractor’s services and building materials.
32. When are registered businesses required to file VAT returns?
Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be:
• Quarterly for businesses with an annual turnover below AED150m;
• Monthly for businesses with an annual turnover of AED150m or more.
The Tax returns shall be filed online using e-Services.
33. What kind of records are businesses required to maintain, and for how long?
Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them is clarified in Federal Law no. (7) of 2017 on Federal Tax procedures and the Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No (7) of 2017 on Tax Procedures.
34. How long must a taxable person retain VAT invoices for?
Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.
35. Will it be possible to issue cash receipts instead of VAT invoices?
A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the
legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.
36. Will Businesses have to report on their business in each of the Emirates?
Businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate. Further detail on this can be found in the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.
37. Can businesses offset customs duty against VAT payments?
VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be
deducted. VAT shall be computed on the value that includes the customs duties.
38. Will the goods exempt from customs duties also be exempt from VAT?
Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.
39. Will there be bad debt relief?
VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that
relates to bad debt which has been written-off by the VAT registered business. The legislation will include the conditions and limitations concerning the use of this relief.
40. Will there be a margin scheme?
To avoid double taxation where second hand goods are acquired by a registered person from an
unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT
on sales of second hand goods with reference to the difference between the purchase price of the goods
and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.
41. Will there be transitional rules?
Special rules will be provided to deal with various situations that may arise in respect of supplies that span the introduction of VAT. For example:
• Where a payment is received in respect of a supply of goods before the introduction of VAT but the
goods are actually delivered after the introduction of VAT, this means that VAT will have to be
charged on such supplies. Likewise, special rules will apply with regards to supplies of services
spanning the introduction of VAT.
• Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly
or partly made after the introduction of VAT, and the contract does not contain clauses relating to the
VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT.
There will, however, be special provisions to allow suppliers to charge VAT in situations where their
recipient is able to recover their VAT but where there is no VAT clause.
42. How quickly will refunds be released?
Refunds will be made after the receipt of the application and subject to verification checks, with a
particular focus on avoiding fraud.
43. How will Government Entities be treated for VAT purposes?
Supplies made by government entities will typically be subject to VAT. This will ensure that government
entities are not unfairly advantaged as compared to private businesses.
Certain supplies made by government entities will, however, be excluded from the scope of VAT if they
are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely certain government entities will be entitled to VAT refunds – this is designed to avoid budgeting
issues and provide a level playing field between outsourced and insourced activities.
For the supplies provided for government entities, the treatment of such supplies shall depend on the
same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment would remain the same even if it is provided to a government entity.
44. Will tourists also pay VAT?
Yes, tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale.
Nevertheless, we have set the VAT rate deliberately low so that VAT is a limited burden on all consumers.
45. Will visiting businesses be able to reclaim VAT?
It is intended that we will allow foreign businesses to recover the VAT they incur when visiting the UAE.
This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries (where the rates are a lot higher).
46. What are the penalties for not complying with a business’s VAT responsibilities?
Everyone is urged to fully comply with their VAT responsibilities. The government is currently in the
process of defining the exact fees and penalties for non-compliance.
Administrative penalties for violations have been issued by Cabinet Decision No. (40) of 2017 and can be
found under the Legislation section on the FTA website.
47. What are the cases that would lead to the imposition of penalties?
Penalties will be imposed for non-compliance.
Examples of actions and omissions that may give raise to penalties include:
• A person failing to register when required to do so;
• A person failing to submit a tax return or make a payment within the required period;
• A person failing to keep the records required under the issued tax legislation;
• Tax evasion offences where a person performs a deliberate act or omission with the intention of
violating the provisions of the issued tax legislation.
48. How can someone access UAE Tax Law?
All Federal Tax Laws, Executive Regulations and Cabinet Decisions are published under the “Legislation” section on the FTA website.
Website of the Federal Tax Authority – https://www.tax.gov.ae/index.aspx
