LEGAL UPDATE: UAE CABINET DECISION 52 OF 2017 CONCERNING EXECUTIVE REGULATIONS ON VAT LAW
The UAE Cabinet Decision 52 of 2017 on the executive regulations (the Executive Regulations) of the Federal Decree Law Number 8 of 2017 on Value Added Tax (the VAT Law) has shed light on the details regarding the registration and deregistration procedure and conditions, tax group provisions, zero-rated supplies, designated zones and tax exemptions, much of which was not in the public domain a while earlier.
Tax Group Provisions
Article 9 of the Executive Regulations has laid down the definitions of related parties for interpretation of the provisions concerning tax group in the VAT Law. Related Parties shall be: (i) one or more persons acting in partnership and having at least 50% voting rights in each entity or a minimum market value interest of 50% in each entity or control the entities by any other means; or (ii) each entity is a related party with a third party. Two (2) or more entities shall be considered as a tax group if they have an association in economic, financial and regulatory practices. The companies in a tax group should select one of its registered members to act as its representative member, and this member shall request for registration on behalf of the Group in accordance to Article 10 of the Regulations. In case a company expands to add or remove a branch, then the representative member shall apply to the Federal Tax Authority (the Authority) to make such changes within the group. Tax groups are also permitted to change the respective nominee if and when there have been any amendments in the corporate structure of the group of companies. However, a tax group may be deregistered if the group has to be no longer considered as a tax group by the VAT Law or the association based on economic, financial and regulatory practices ceases to exist anymore.
The Executive Regulations have laid down various grounds for refusing a tax group request such as if there is an undeniable risk of tax evasion or if one of the persons is not a legal person could be reasons for the to refuse a tax group request or any other grounds enumerated within the Article 10(5) of the Regulations.
The Executive Regulations also state that any supply made by a member of the tax group to another member of the tax group may be disregarded for the purposes of calculating VAT (article 12).
Zero (0) Rate Tax
Zero-rating of the VAT applies to the goods directly exported to outside the GCC States that are implementing a tax law under an issued legislation or if an official and commercial evidence that the exporter retains the exports or customs suspension. The zero rate applies to indirect exports as well concerning several conditions per Article 30 (2) of the Executive Regulations. Export of services (article 31) and telecommunications services are also subject to zero (0) rate tax if a telecommunication service provider with residence in the UAE supplies to another telecommunication service provider or person with residence outside the UAE by article 32.
International transportation services for passengers and goods are subject to the zero-rate only if the transportation is a place in the State and a place outside the State, or if it is a place in the State to another place in the State by sea or air or land as part of a supply of an international transport and if the first place of departure or the final place of destination is outside the State. Certain means of transport, as well as goods and services supplied in connection with means of transport, are subject to the zero-rating, according to Articles 34 and 35 of the Executive Regulations. A means of transport would be subject to the zero rate if it is a supply of an aircraft that will be used for commercial transportation of passengers or goods (and not for pleasure and sports), a supply of a ship, boat or floating structure for commercial purposes or a supply of a bus or train designed to be used for a public transportation.
Besides, residential buildings (excluding hotels, motels, and hospitals) and buildings specifically designed to be used by charities shall be subject to zero rates, as well as the supply of precious metals (gold, silver, platinum of a purity of 99 percent or more). Finally, education and healthcare services are also subject to the zero-rating of the VAT, provided these service providers meet all the conditions mentioned in Articles 40 and 41 of the Executive Regulations.
A designated zone is any specific fenced geographic area that has been specified by a decision of the Authority and would be treated as being outside the State and the implementing States. The area has to meet certain requirements regarding its security measures and customs controls, internal procedures regarding the storing of goods and that the operator of the designated zone complies with the procedures set by the UAE Authority. If the designated zone does not meet these requirements anymore, it would be considered as being inside the UAE, and the provisions of the designated zone in the VAT Law will not apply.
Also, the transfer of goods between designated zones is not subject to VAT if (i) the good(s) are not released, altered or used during the transfer and (ii) the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law (Article 51 (3)).
Financial services connected to dealings in money or its equivalent and the provision of credit as stated in article 42(2) of the Executive Regulations should be exempted provided the following conditions are met (i) they are not conducted in return for an explicit fee, discount, commission, rebate or similar, or (ii) it is an issue, allotment or transfer of ownership of an equity security or a debt security, or (iii) if the financial service includes the transfer of ownership of a life insurance contract or re-insurance. Under Articles 43, 44 and 45, the exemption would also apply in case of the residential buildings not subject to the zero-rate and where the lease is more than six months or if the tenant of the property holds an ID card issued by Federal Authority for Identity and Citizenship. Also, open lands and local passenger transport services are exempted according to the Executive Regulations. Article 45 defined a ‘qualifying means of transport’ as (a) a motor vehicle (for example, taxis, buses, metro, trams, etc.); (b) vessels including ferry boats; and (c) aviation vehicles (such as helicopters and aircrafts) in accordance with Federal Law Number 20 of 1991 on Civil Aviation.
New Deregistration Conditions
Article 14 of the Executive Regulations has laid down that the registrant should cease from any further supplies once they make an application for deregistration and should not make any supplies over the next twelve (12) months following its deregistration. As it has already been stated in the VAT Law, the second condition is that the value of supplies or taxable expenses incurred by the registrant over the twelve (12) previous months has to be less than the voluntary registration threshold. Further, companies cannot deregister until the registrant has paid all tax and administrative penalties due and filled for tax returns.
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