The FTA has recently issued two public clarifications under the UAE VAT law that discusses the VAT treatment on -
- Disbursements and Reimbursement of expenses claimed from the customer.
- VAT treatment on options and option premiums.
We have summarised below, the gist of the key UAE VAT positions discussed in the clarification:
- Disbursements and reimbursements of expenses claimed from the customer:
|
Revenue on account of |
Taxability under UAE VAT law |
Key conditions |
|
Disbursement of expenses claimed from the customer |
Outside the scope of UAE VAT |
Company (i.e. supplier incurring expenses) needs to have acted as an agent when incurring such expenses |
|
Reimbursement of expenses claimed from the customer |
Within the scope of UAE VAT and follows the same treatment as the main supply |
Company (i.e. supplier incurring expenses) needs to have acted as a Principal when incurring such expenses |
The clarification also discusses indicative principles to determine
if a transaction is a disbursement or reimbursement of expenses
from the customer.
|
Sl. No. |
Principles of disbursement |
Principles of reimbursement |
|
1. |
The other party (customer) should be the recipient of the goods/services. |
The company should have contracted for the supply of goods/services in its own name and capacity. |
|
2. |
The other party (customer) should be responsible for making payment to the supplier from whom such expenses have incurred. |
The company should have received the goods/services from the supplier. |
|
3. |
The invoice should have been received by the other party (customer) and in its own name. |
The supplier should have issued an invoice in the name of the company and the company should be under the legal obligation to make payment for it. |
|
4. |
The other party (customer) should authorize the company (i.e. the supplier incurring the expenses) to make a payment on its behalf. |
In the case of goods, the company should own the goods prior to making an onward supply to another party. |
|
5. |
The goods/services paid for should be clearly in addition to the supplies made by the company. |
- |
|
6. |
The payment should be separately shown on the invoice and only the exact amount should be recovered, without a mark-up. |
- |
The principles stated above should be used as an indicator to
analyze whether recovery of expense amounts to reimbursement or
disbursement. The taxpayer should consider all the facts and
circumstances of the transaction on a holistic basis.
- VAT treatment on options and option premiums:
|
Income type |
Tax position |
|
Supplies of options with respect to debt securities or equity security in return for premiums. |
Exempt from VAT [under Article 42(3) of the Executive Regulation to Federal Decree-Law No. (8) of 2017 ] |
|
Supplies of options in respect of commodities, other non-debt or non-equity instruments in return for the premium. |
Taxable under VAT [under Article 42(4) of Executive Regulation to Federal Decree-Law No. (8) of 2017] |
Further, the clarification also states that wherever any supplier
has treated the supply of options as taxable and charged 5% VAT,
they should -
- Issue a credit note to the recipient for correcting the treatment;
- Report the same in the returns in the tax period during which the tax credit notes were issued and passed on to the recipients to which the VAT was charged.
The recipients of such an invoice, who have claimed credit of the invoice, would have to adjust the input tax (as a negative in the net and VAT column of Box 9) in the tax return for the tax period in which the recipient received the tax credit note.
SKP's Comments
- On a clarification of
disbursement/reimbursement: This public clarification resolves the
long-standing ambiguity on the subject matter of VAT applicability
on disbursement/reimbursement of expenses claimed from customers.
It is pertinent for companies to re-look at the tax positions
adopted in case of disbursement/reimbursement in light of this
clarification. Wherever any deviation is noted from the position
taken by the company, relevant steps should be taken to discharge
appropriate liabilities.
- On a clarification of options/option premiums: Companies operating in the finance industry should re-look at the tax positions adopted. In the cases where any deviation is noted from the position taken by the company, relevant steps should be taken to issue credit notes or discharge the adequate liability.
The link to public clarification is attached herewith below
–
https://www.tax.gov.ae/-/media/Files/FTA/links/Public-Clarification/VATP013---Disbursements-and-Reimbursements.pdf
https://www.tax.gov.ae/-/media/Files/FTA/links/Public-Clarification/VATP014---Public-clarification---Option-premiums.pdf
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
