PWC Study - Manual GCC + KSA + UAE PDF

ht
rig
py
Tolley Exam Training
®
GCC VAT Compliance Diploma

Study Manual
co
Contents of GCC VAT Compliance Diploma
Introduction 1
ht
Module A
1 Chapter 1 General principles 5
1.1 VAT Legislation and interpretation 5
1.2 GCC Legislation 5
1.3 VAT Territory of the GCC 5
1.4 Interpretation of the law by the Tax Authorities in each 6
ig
Member State
1.5 General principles of VAT 6
1.6 Scope of VAT 6
1.7 Place of Supply 6
1.8 Time of Supply 6
1.9 Value of Supply 7

r
1.10
1.11
Output Tax
Input Tax
7
8
py
1.12 VAT rates 8
1.13 Exempt supplies 8
1.14 Registration 9
1.15 Imports 9
1.16 Exports 10
1.17 Transactions with other GCC Member States 10
1.18 Invoices 10
1.19 Returns and Payment of VAT 10

co
1.20 Records 10
1.21 Bad debts 10
1.22 Assessments 10
1.23 Fines and Penalties 11

1.24 Appeals 11
Appendix 1 KSA Chapter 1 13
Appendix 2 UAE Chapter 1 19
ht
2 Chapter 2 Registration 25
2.1 Introduction 25
2.2 Who is Required to Register 26
2.3 Registration of Non-residents 26
2.4 Types of Registration 27
2.5 Historic test 27
ig
2.6 Future test 28
2.7 VAT Registration threshold: Taxable supplies 28
2.8 Deregistration 29
2.9 Exemption from Registration 29
2.10
r Disaggregation of Business activities 30
3 Chapter 3 Definition of Supplies 53

py
3.1 Introduction 53
3.2 Five conditions 53
3.3 Goods or Services 54
3.4 Supply must be made by a taxable person 54
3.5 Supply in the Member State 54
3.6 Supply by a taxable person conducting Economic 55

Activity
3.7 Taxable supply 56
co
4 Chapter 4 Liability of the Supply 67
4.1 Introduction 67
4.2 Taxable supplies 67

4.3 Method of determining liability 67
4.4 Outside the scope of VAT 68
ht
5 Chapter 5 Zero-rating 73
5.1 Introduction 73
5.2 Zero-Rating in the Agreement 73
5.3 Discretion of the MEMBER STATES to Apply Zero-Rating or 73

Exemption
5.4 Food, Medicines and Medical Equipment 74
ig
5.5 Internal and International Transportation of Goods 74
and Passengers
5.6 Certain Means of Transport 74
5.7 Supply of Goods and Services Outside the GCC 74
5.8 Supply of Gold, Silver and Platinum 74
5.9 Financial Services as an Exception to Exemption 74

r
5.10
5.11
Supplies of Used Goods
A Word of Warning
75
75
py
6 Chapter 6 Exemptions 95
6.1 Introduction 95
6.2 Exemptions in the Agreement 95
6.3 Discretion of the Member States to apply exemptions 95
6.4 Mandatory exemption 96

co
6.5 Financial services 96
6.6 Exemptions on Importations 96
6.7 A Word of Warning 97

7 Chapter 7 Deemed Supplies 107
7.1 Introduction 107
7.2 Deemed supplies 107
ht
7.3 How to account for VAT on deemed supplies 108
7.4 Gift of goods 108
7.5 Private use of business assets 109
7.6 Private use of motor dealers’ stock in trade 109
7.7 Private use of services supplied to a business 109
7.8 Motor fuel provided for business use 109
ig
7.9 Goods held on deregistration 110
7.10 Motor cars 110
8 r Chapter 8 Value of the Supply 123
8.2 Consideration wholly in money 123
8.3 Consideration not wholly in money 123

py
8.4 Rules on the value of supply of goods and services 124
8.5 Exceptions to the use of fair market value 124
8.6 Reduction pf the Supply value 125
8.7 How to determine the value of a supply – special cases 125

co
Module B
9 Chapter 9 Time of Supply 139
ht
9.2 Tax Point 139
9.3 Deposits 140
9.4 Special rules 141
10 Chapter 10 Input tax – when to recover 155
ig
10.2 A supply of goods or services has been made 156
10.3 Supply made to the taxable person 156
10.4 Supply for the purpose of economic activities 157
10.5 Goods and services only partly used for business 157
purposes
r
10.6
10.7
Claimant holds required evidence
Input tax was correctly charged

157
158
py
10.8 Blocked input tax 158
11 Chapter 11 Partial Exemption 169
11.2 Non-business activities 170
11.3 Standard method of apportioning residual input tax 170
11.4 Special methods of apportioning residual input tax 171

co
11.5 De minimis input VAT 171
11.6 Annual adjustment 171
12 Chapter 12 VAT records and returns 193

12.2 Records 193
12.3 Special record keeping requirements 193
ht
12.4 Tax invoices 194
12.5 Simplified invoices 194
12.6 Electronic invoices 194
12.7 Self-billing 194
12.8 Tax return 195
ig
13 Chapter 13 Accounting for VAT 213
13.2 Payment/repayment of VAT 213
13.3
r Invoice accounting basis 213
13.4 Cash accounting 214
13.5 Receipts and payments for Cash Accounting 214
13.6 Leaving the Cash Accounting scheme 215

py
14 Chapter 14 Bad Debt Relief 223
14.2 The Problem 223
14.3 Conditions 224
14.4 Records required 224

co
14.5 Debtor obligations 225
14.6 Part payments 225

Module C
15 Chapter 15 The Authority Powers, Appeals and 243
Assessments
ht
15.2 Powers to obtain information and documentation 243
15.3 Inspection of premises 243
15.4 The tax Audit 243
15.5 Examination of records 243
15.6 Assessments and time limits 244
15.7 Appeals 244
ig
15.8 Before an appeal can be made 244
15.9 Procedure 244
16 Chapter 16 Penalties for errors, failure to notify and other 263

penalties
r
16.1 Introduction
Appendix 1 KSA Chapter 16

263
265
py
17 Chapter 17 Refunds, Repayment supplement and 287

security
17.2 Refunds 287
17.3 Refund of VAT shown on a VAT return 288
17.4 Security 288
299
co
Appendix 2 UAE Chapter 17

18 Chapter 18 International Aspects - Goods 307
18.2 Exports 307
18.3 Imports 308

18.4 Goods sold to a GCC customer 309
18.5 Transfer of own goods to another member state 310
18.6 Distance selling 310
ht
19 Chapter19 International Aspects - Services 329
19.2 Rules 329
19.3 General exceptions (B2B and B2C) 330
ig
19.4 Reverse charge Art 9 of the Agreement 332
19.5 Reporting 332
r
py
Module D
20 Chapter 20 Real estate 359
20.2 Place of supply 359
21 Chapter 21 Capital Assets Scheme 373

co
21.2 Exceptions to the Adjustment rule 373
22 Chapter 22 Transfer of an Economic Activity 391

23 Chapter 23 Groups 405
ht
23.2 Tax group 405
24 Chapter 24 Used Goods Margin Scheme 419
ig
24.2 Operation of the margin scheme 419
24.3 Exclusions from the scheme 419
24.4 Records 420
r Appendix 2 UAE Chapter 24 427
25 Chapter 25 Excise Tax 431
25.2 Definitions 431

py
25.3 Scope of excise 431
25.4 Tax suspension 432
25.5 Registration 432
25.6 Valuation of excise goods 433
25.7 Exemption 433
25.8 Payment of excise tax 433
25.9 Tax refund 434

co
25.10 Compliance on import and export 434
25.11 Excise records and returns 434
25.12 Electronic service systems 434
25.13 Penalties 435

26 Chapter 26 Role of the Tax Agent 453
26.1 Who is the Tax Agent 453
26.2 Appointment of the Tax Agent 453
ht
26.3 Conditions to be satisfied to be a Tax Agent 453
26.4 Registration 453
26.5 Payment of tax and filing of return 453
26.6 Responsibility during a tax audit 454
26.7 Notification to Tax Agent 454
26.8 Records 454
ig
26.9 Confidentiality 454
r
py
co
GCC VAT COMPLIANCE DIPLOMA INTRODUCTION
INTRODUCTION
Welcome to the PwC Academy! Please read through this Introduction before you
start studying as it contains information pertinent to the GCC VAT Compliance
Diploma course.
The study manuals are designed to explain all of the key examinable elements of
your Diploma.
ht
What do I have here?
Your study pack contains the GCC VAT Compliance Diploma study manual and
question bank for one of the following GCC Member States.
Member State Abbreviation

Kingdom Of Saudi Arabia KSA
United Arab Emirates UAE
State of Qatar Qatar
rig
Kingdom of Bahrain
State of Kuwait
Sultanate of Oman
BHR
KWT
Oman
After this introduction you will find:
•
a contents listing
the study manual chapters and appendices
The manual contains 4 modules split into chapters. The Chapter has been written
using the GCC Framework Agreement (Treaty).
Following each chapter is an Appendix and question bank for each Member State
py
(in the order shown above). The Appendices have been written using the relevant
Member State legislation and implementation regulations as detailed below.
VAT – The Framework and Legislation
Candidates sitting the examinations in the calendar year 2017/18 will be examined
on the Tax law and regulations as it stands up to 30 November 2017, further details
about these publications can be found below.
GCC Framework
The Unified VAT Agreement for The Cooperation Council for the Arab States of the
Gulf (dated 31 January 2017).
co
Kingdom of Saudi Arabia
Legislation: Value Added Tax Law (dated 28 July 2017)
Regulations: Value Added Tax – Implementation Regulations (dated 29 August

2017)
© RELX (UK) Limited 2017 I

United Arab Emirates
Legislation: Value Added Tax Law (dated 23 August 2017)
Tax Procedures Law (dated 11June 2017)
Regulations: Implementing Regulations (dated 26 November 2017)
ht
Executive Regulations on Tax Procedures (dated 24 September 2017)
It is important for students to have a copy of the documents listed above to take
into the examination with them.
References to the legislation
All references to "Articles" in the main text of each chapter refers to the Article
number in the Unified VAT Agreement of the GCC, for example “Art. 5 of the
Agreement”.
rig
All references to "Articles" in the Appendices of each Chapter refer to the Article
number in the legislation or regulations of the member state on which the
Appendix is based, for example “Art. 5 of the VAT Law” or “Art. 5 of the
Regulations”.
Excise – The Framework and Legislation
GCC Framework
Unilateral Agreement for Excise Tax (dated Friday 26 May 2017)
Kingdom of Saudi Arabia
Legislation: Excise Goods Tax Law (dated June 2017)

py
Regulations: Implementing Regulations of Excise Goods Tax Law (dated June 2017)
United Arab Emirates
Legislation: Excise Tax Law (dated 17 August 2017)
Regulations: Executive Regulations (dated 24 September 2017)
The Online Exam Centre
The Online Exam Centre is an online platform where all mock and final
examinations must be completed.
co
There is a mock exam for each module and a final mock exam covering all
modules. These are essentially for you to test your knowledge, so you are aware of
and can study up on any potential problem areas, before you sit the final module
exams and the final examination.
There is a further “module exam” for each module which must be passed before
progressing to the Final Certificate Examination which includes all modules.
© RELX (UK) Limited 2017 II

The module exams for A, B, C and D must be passed in that order. The mock and
final examinations are accessed here: http://gccvat.tolleytraining.co.uk
Login details are sent by email within a couple of weeks of enrolling as a student.
Contact details
We hope you enjoy studying with PwC Academy. If you have any queries in
ht
connection with your course or any other comments on our products, please
contact us on one of the email address below. Please state which course you are
referring to or ask for a GCC VAT Compliance Diploma tutor.
Student exam eligibility support: gcc-vcd-academyme@ae.pwc.com
Tutorial and material support: supportgcc-vcd-academyme@ae.pwc.com
Copyright and disclaimer
All rights reserved. No part of this publication may be reproduced, stored in a
rig
retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise without the prior written
permission of the publisher.
This material contains general information only. Whilst every care has been taken
to ensure the accuracy of the contents of this work, no responsibility for loss
occasioned to any person acting or refraining from action as a result of any
statement in it can be accepted by the author or the publishers.
py
co
© RELX (UK) Limited 2017 III

co
py
rig
ht
GCC FRAMEWORK AGREEMENT MODULE A CHAPTER 1
CHAPTER 1
GENERAL PRINCIPLES
GCC FRAMEWORK AGREEMENT
ht
In this chapter we will gain an understanding of the general principles of VAT.
1.1 VAT Legislation and Interpretation
Value Added Tax (VAT) is a tax on consumption to be implemented across the

MEMBER STATES of the GCC. The Unified Gulf Cooperation Council Value added
Tax Framework Agreement (the "Agreement") was published by the Kingdom of
1.2
VAT.
rig
Saudi Arabia on 20 April 2017 in the Official Gazette.
The Agreement provides the framework of the tax but much of the detail is to be
found in the MEMBER STATES legislation in the form of VAT Law and Regulations.
The Tax Authorities are empowered by the Agreement to manage VAT. It is clear
that the Agreement has drawn much of its inspiration from the European system of
European Community Legislation
The framework on VAT throughout the GCC is in the Agreement. The form and
method of compliance is left to individual MEMBER STATES but there are some
provisions which are made mandatory for all MEMBER STATES. Mandatory
py
provisions are identified by the wording, “MEMBER STATES shall ...” whereas
optional provisions are identified by the words “MEMBER STATES may ...”.
It is intended that the system of VAT across the GCC is harmonised so that all
MEMBER STATES tax supplies at the standard-rate established in the Agreement;
although zero-rating and exemptions are left to the discretion of the MEMBER
STATES to a certain extent.
1.3 VAT Territory of the GCC
The VAT territory of the GCC consists of 6 countries as follows, as stated in the
Agreement:
co
• United Arab Emirates
• Kingdom of Bahrain
• Kingdom of Saudi Arabia
• Sultanate of Oman
• State of Qatar and
• State of Kuwait
© RELX (UK) Limited 2017 1.1

1.4 Interpretation of the Law by the Tax Authorities in each MEMBER STATE
The Tax Authorities in each MEMBER STATE may issue explanatory notices on VAT,
together with VAT notes, news releases and business briefs. These explain how
each Tax Authority interprets the law.
If a taxable person disagrees with the Tax Authorities interpretation or decisions, he

has a right of appeal.
ht
The Tax Authority in the KSA is the General Authority of Zakat and Tax (GAZT) and in
the UAE it is the Federal Tax Authority (FTA). However, for the purposes of this study
manual the Tax Authorities for all MEMBER STATES have been referred to as THE
AUTHORITY throughout.
1.5 General Principles of VAT
VAT is a tax on consumer expenditure and is collected on business transactions

and imports. The basic principle is to charge VAT at each stage in the supply of
1.6 rig
goods and services (output tax). If the customer is registered for VAT and uses the
supplies for business purposes, he will receive credit for this VAT (input tax). The
broad effect is that businesses are not affected and VAT is actually borne by the
final consumer.
Scope of VAT
A transaction is within the scope of GCC VAT if all the following conditions are met.
•
It is a supply of goods or services according to the definition provided in the
Agreement. Certain transactions, although supplies, are regarded as supplies
of neither good nor services and are outside the scope of GCC VAT.
It takes place in the GCC.

py
• It is made by a taxable person. A taxable person is an individual, firm or
company etc. which is registered for VAT or which is required to register for
VAT.
• It is made in the course or furtherance of any economic activity carried on by

that person.
A transaction which does not meet all of the above conditions is outside the
scope of GCC VAT.
1.7 Place of Supply

co
To be within the charge to VAT, a supply must be made in the GCC. Supplies
made outside the GCC are outside the scope of GCC VAT (although they may be
liable to VAT in another country). (Chapter 3, Part 1 and Part 2 of the Agreement)
Separate rules apply for determining the place of supply of goods and services.
1.8 Time of Supply
VAT must normally be accounted for in the VAT period in which the supply occurs
and at the rate of VAT in force at that time.
In general, a supply of goods takes place on the earliest of the following dates:

• when the goods are put at the disposal of the customer (if they are not being
delivered);
• when delivery commences (if they are being delivered);
• when installation/assembly of the goods is completed (if the supply involves

such installation/assembly);
ht
• when (and to the extent) the goods have been paid for;
• when a tax invoice for the supply is issued.
Imports of goods take place at the date of first importation into the GCC (but note
the payment of tax provisions for imports of goods, below).
Time of supply of services
As regards a supply of services, it generally takes place on the earliest of the

following dates:
1.9
•
• rig
when the services are performed;
when (and to the extent) the services have been paid for;
when a tax invoice for the supply is issued.
In relation to a continuous supply of services, a supply will take place each time a
payment is made or on the payment date specified on the invoice issued,
whichever is the earlier, and at least once in every twelve month period.
Value of Supply
The value of a supply is the value on which VAT is due. The amount of VAT is then
py
the value multiplied by the VAT rate.
The value of a supply normally depends upon what is given in exchange for the
supply, i.e. the consideration. If this is wholly in money, the value will be based on
that amount. If not, the value is the monetary equivalent of the consideration.
There are special rules relating to discounts offered, transactions between

connected persons and values expressed in foreign currencies. Imports and
acquisitions from other GCC MEMBER STATES also have their own valuation rules.
(Art. 26 and 28 of the Agreement)
1.10 Output Tax

co
Output tax is the VAT due on taxable supplies and is normally the liability of the
person making the supply. In addition to straightforward business transactions,
output tax may also be due on business gifts and private use of own goods and
services.
A particular supply may be complicated by being a mixed supply where a single

inclusive price is charged for a number of separate supplies. Where these supplies
are taxable at different rates, a fair and justifiable apportionment of the total price
must be made.

1.11 Input Tax
A taxable person is entitled to reclaim input tax suffered on goods and services
supplied to him, imports from outside the GCC and acquisition of goods from other
MEMBER STATES provided that the input tax relates to taxable supplies.
Taxable supplies are those chargeable at the standard or zero-rate.
ht
VAT cannot be recovered on goods and services which are not used for business
purposes (e.g. for private use). Where goods are used partly for business and partly
for non-business purposes or exempt purpose, the VAT incurred is normally
apportioned.
VAT incurred on a number of items is non-deductible (i.e. blocked). These include

motor cars (with certain exceptions), and business entertainment.
Where input tax has been claimed but the consideration for the supply is not paid
within a period established by each MEMBER STATE, the input tax must be repaid
to THE AUTHORITY.
1.12
rig
Special rules also apply to input tax incurred before registration for VAT and after
deregistration.
VAT Rates
There are currently two main rates of VAT, a standard-rate of 5% and a zero-rate.
The effect of a supply being zero-rated is as follows:
•
The amount of VAT on the supply is nil but it is still a taxable supply.
As a taxable supply, it must be taken into account in determining whether

py
registration is required.
• Input tax may be reclaimed subject to the same rules as for standard-rated
supplies.
• Where a supply could be either zero-rated or exempt, zero-rating takes priority.
1.13 Exempt Supplies
Certain supplies are exempt from VAT. This means that no VAT is chargeable but,
unlike zero-rated supplies, related input tax is not recoverable.
Where a person makes both taxable supplies and exempt supplies, he is partially
exempt and may or may not be able to recover all his input tax. All input tax
co
directly attributable to taxable supplies can be reclaimed but none of the input
tax directly attributable to exempt supplies can be claimed. Special rules then
apply to work out how much input tax can be reclaimed on general overheads,
etc.

1.14 Registration
Where a person is in business and making taxable supplies, the value of these
supplies is his taxable turnover. If, at the end of any month,
• taxable turnover in the year then ended has exceeded SAR 375,000 (or its
equivalent), or
ht
• there are reasonable grounds for believing that the value of taxable supplies
in the current month and the next 11 months will exceed SAR 375,000 (or its
equivalent),
then that person normally becomes a taxable person and must notify THE
AUTHORITY of his liability to register for VAT.
Where, however, only zero-rated supplies are made, THE AUTHORITY have a
discretion to exempt a person from registration.
Even if taxable turnover is below the specified limit, a person who makes taxable
rig
business supplies including zero-rated can request voluntary registration if his
supplies are at least SAR 187,500 (the Voluntary Registration Threshold).
A person who is not currently making any taxable supplies but can provide
documentary evidence that they intend to do so at some point in the future can
register voluntarily.
A person who is registered for VAT ceases to be liable to be registered and can
apply to be deregistered if the VAT-exclusive value of his supplies falls below the
minimum limit for voluntary registration.
Even where there is no liability to register for VAT in respect of GCC supplies of
goods or services, a liability may arise in respect of:
py
• sales of goods sold to non-taxable persons in the GCC by suppliers in other
MEMBER STATES; or
• acquisitions of goods in the GCC from other GCC countries.
1.15 Imports
VAT is charged and payable on the importation of goods and services into the
GCC from outside the GCC. The rate of VAT is the same as if the goods and
services had been supplied in the GCC.
Unless the goods are placed under a duty suspension scheme under the Common
Customs Law any VAT due must normally be paid at the time of importation. The
co
person liable to pay the import VAT to THE AUTHORITIES is the importer in
accordance with the Common Customs Law.
VAT paid on the importation of goods can be claimed as input tax, subject to the
normal rules.
Reverse charge VAT is applied by the recipient on the importation of goods and
services.

1.16 Exports
Goods and services exported outside the GCC are zero-rated with some
exception.
1.17 Transactions with Other GCC MEMBER STATES
The concept of ‘imports’ and ‘exports’ of goods apply only to transactions with
ht
countries outside the GCC. Supplies of goods to a customer registered for VAT in
another GCC country can be zero-rated provided certain conditions are met, for
instance the customer is a VAT registered business customer. The customer then
accounts for VAT at the appropriate rate on the goods in the GCC country of
destination applying reverse charge. If the customer is a non-business, VAT must be
charged in the country of origin at the rate applicable to the goods.
Special rules apply to transfers of own goods between GCC MEMBER STATES.
1.18 Invoices
1.19 rig
A registered taxable person must issue a VAT invoice where he makes a standard-
rated supply to another taxable person in the GCC or a supply to a person in
another GCC MEMBER STATE that is not exempt from VAT.
Returns and Payment of VAT
Every taxable person must provide a summary of the output tax and input tax for
each VAT period. A VAT period is established by the MEMBER STATE but cannot be
less than one month.
The information must then be shown on a VAT return for that period. Submission of
the VAT return and payment of the amount due is established by the MEMBER
STATE.
py
1.20 Records
Every taxable person must keep records for no less than 5 years; or 15 years for real
estate. Records include business and accounting records, the VAT account,
copies of all VAT invoices and credit notes issued and received, and
documentation relating to imports, exports, acquisition of goods from other GCC
MEMBER STATES and goods dispatched to other GCC MEMBER STATES.
1.21 Bad Debts
VAT is normally due by reference to the time of supply. The supplier must therefore
account to THE AUTHORITY for the VAT even if the debt, including the VAT, is not
co
paid. By way of relief, VAT can be reclaimed where a debt has been written off
within the time frame established by THE AUTHORTIY in each MEMBER STATE.
1.22 Assessments
The MEMBER STATES can establish rules to raise assessments or audits of tax returns.

1.23 Fines and Penalties
The MEMBER STATES can determine the defaults and the fines and penalties levied
for each of these defaults.
1.24 Appeals
An appeal against a decision made by THE AUTHORITY may be made to THE
ht
AUTHORITY and escalated to the competent local courts in each MEMBER STATE.
The conditions and rules for appealing are determined by each MEMBER STATE.
rig
py
co

co
py
rig
ht
KINGDOM OF SAUDI ARABIA MODULE A CHAPTER 1 - APPENDIX 1
APPENDIX 1
KINGDOM OF SAUDI ARABIA
CHAPTER 1 GENERAL PRINCIPLES
ht
Further to the introduction of Value Added Tax (VAT) by The Unified Gulf
Cooperation Council Value added Tax Framework Agreement (the "Agreement"),
KSA has implemented the VAT system according to the powers granted by the
Agreement to THE AUTHORITY.
The KSA VAT legislation enacting the Agreement is as follows:
1.2
•
rig
The Value Added Tax Law (“VAT Law”), and
The Value Added Tax Implementing Regulations (“Regulations”).
In this appendix we refer to the VAT Law and Regulations.
KSA Legislation
The VAT Law sets out definitions, powers of THE AUTHORITIES and the general
principles of VAT deriving from the Agreement. The Regulations provide the rules
and limitations to the principles laid out in the VAT Law.
It is fair to say that the VAT Law sets the general local principles of VAT as directed
by the Agreement and the Regulations provides the details regulating those
py
principles.
1.3 VAT Territory of the KSA
The KSA is a MEMBER STATE of the GCC. VAT is a common system of the GCC and
all taxable transactions taking place within the KSA and between the KSA and
other MEMBER STATES of the GCC are subject to a specific VAT treatment,
according to the rules of the VAT Law and Regulations, further to the provisions
stated in the Agreement.
1.4 Interpretation of the Law by THE AUTHORITY
THE AUTHORITY, on request of a taxpayer, may issue non-binding rulings and

co
opinions that can be private or public on the interpretation of the VAT Law and
Regulations. (Art. 75 of the Regulations)
The general principles of VAT outlined in Chapter 1 apply to the KSA as a result of
the implementation of the Agreement.
© RELX (UK) Limited 2017 Appendix 1 - 1.1

1.6 Scope of VAT
A transaction is within the scope of KSA VAT if all the following conditions are met.
• It is a supply of goods or services according to the definition provided in the

of neither good nor services and are outside the scope of GCC VAT.
ht
• It takes place in the KSA.

company, etc. which is registered for VAT or which is required to register for
VAT in KSA.

that person.
scope of KSA VAT. Some transactions are outside the scope of VAT although they
1.7
rig
have the characteristics of a taxable supply (i.e. transfer of business as a going
concern).
Place of Supply
To be within the charge to VAT, a supply must be made in the KSA. The Regulations
establish where the place of supply is to determine where VAT is applied in relation
to goods and services; they make special provisions for certain supplies of goods
and services and specify that the Regulations have precedence over the
provisions made in Agreement. (Chapter 4 of the Regulations)
Separate rules apply for determining the place of supply of goods and services
and supplies between the KSA and other MEMBER STATES.
py
1.8 Time of Supply
The VAT Law delegates the Regulations to establish the rules for when a supply
takes place and VAT is imposed. The Regulations are silent about the date a
taxable supply takes place, adopting the rules in the Agreement as per Art. 11 of
the VAT Law. However, the Regulations specify the time of supply for continuous
supply of services and instalment payments (Art. 20 of the Regulations).
1.9 Value of Supply
The Regulations make detailed provisions to determine the value of a supply. A

distinction between monetary and non-monetary consideration is made; where
co
the consideration is not wholly in money, the method to value the supply is at
market value calculated using specific criteria. (Chapter 7 of the Regulations)
1.10 Output Tax
In addition to straightforward business transactions where output tax is payable by

the supplier, the KSA legislation makes provisions for special cases where output
tax may also be due; such as business gifts above a certain value and private use
of goods and services originally bought for business purposes but subsequently put
to private use.

1.11 Input Tax
Input tax can be claimed on supplies received in the course of an economic

activity. These include imports from outside the GCC, acquisition of goods from
another MEMBER STATE on condition that the input tax relates to taxable supplies,
including zero-rated supplies. (Art. 22 of the VAT Law)
The Regulations establish the limits within which input tax can be deducted and
ht
the powers of THE AUTHORITY in relation to VAT recovery and set out rules for
specific circumstances such as VAT recovery on goods and services bought
before registration as well as VAT recovery on goods held at deregistration. Also,
there are specific Regulations restricting VAT recovery on goods and services
which are not used for business purposes (e.g. for private use), such as business
entertainment.
The Regulations establish that any input tax where goods are used partly for
business and partly for non-business purposes, the VAT incurred is normally
apportioned. (Art. 51 of the Regulations)
1.12
rig
within a period established by each MEMBER STATE, the input tax must be repaid
to THE AUTHORITY.
VAT Rates
The VAT rates established in the Agreement are adopted by all MEMBER STATES,
including the KSA.
These are 5% for standard-rated supplies and 0% for zero-rated supplies. There are
specific provisions for zero-rated supplies and these apply to the export of goods
from the KSA, some forms of transport, export of goods and services and the
supply of medicines and medical equipment. (Chapter 6 of the Regulations)
py
The Regulations specify that specific supplies are exempt from VAT. These are
financial services and the lease or licence of Real Estate (Chapter 5 of the
Regulations). Any input VAT incurred in making these supplies is blocked and VAT is
not chargeable by the supplier.
Where a person makes both taxable and exempt supplies, he is partially exempt
and may or may not be able to recover all of his input tax. All input tax directly
attributable to taxable supplies can be reclaimed but none of the input tax
directly attributable to exempt supplies can be claimed. Special rules then apply
to work out how much input tax can be reclaimed on general overheads, etc.
co
1.14 Registration
Any person exceeding the VAT registration threshold of SAR 375,000 at the end of
any month is required to mandatorily register for VAT. The threshold needs to be
monitored at the end of each month including the 12 months ending at the end of
that month. Also, when a trader believes that he is going to reach the VAT
registration threshold in the next 12 months from the end of any month, he can
apply for registration.
A notification of liability to register for VAT needs to be sent to THE AUTHORITY

within 30 days.

Where, however, only zero-rated supplies are made, the Regulations exempt a
person from registration.
The Regulations allow registration of related persons to form a VAT Group and non-
resident persons may also become liable to register in the KSA.
apply to be deregistered if the VAT-exclusive value of his supplies or annual
ht
expenses in the past twelve months, from the end of any month, does not exceed
the minimum limit for voluntary registration, subject to other conditions being
satisfied. (Art. 3 to Art. 13 of the Regulations).
1.15 Imports
The Regulations define what an import is, the exemptions and make provisions for
the collection and payment of tax.
VAT is charged at the entry of goods into the KSA; VAT is imposed by Customs and
can be claimed in a VAT return using a statement issued by Customs as proof of
1.16
1.17
payment.
rig
VAT cannot be claimed by a private individual or unregistered business on imports
that are subject to tax when exceeding SAR 10,000. (Chapter 8 of the Regulations)
Exports
Export of goods are zero-rated in the Regulations and include the export of own
goods to another GCC country. Services are also zero-rated when provided to a
recipient outside the GCC. (Art. 32 and Art. 33 of the Regulations)
Transactions with Other GCC MEMBER STATES

py
The Regulations make provisions for zero-rating only where supplies are made to
businesses in another MEMBER STATE. These supplies are known as Internal Supplies.
Evidence is required that the recipient is a business in order to apply the zero-
rating. If evidence is not held by the supplier, the transaction is subject to VAT in
the KSA.
1.18 Invoices
Invoices must be issued for supplies made to registered or non-registered

businesses within 15 days from the end of the month in which either the supply took
place or the payment was received. The Regulations set up the details of a valid
tax invoice and also allow the issuance of a simplified VAT invoice for transaction
of a value less that than SAR 1,000.
co
1.19 Returns and Payment of VAT
A taxable person must provide a VAT return to THE AUTHORITY by the last day of
the month following the end of the tax period. The tax period depends on the
value of taxable supplies made by the taxable person in a year. This is monthly if
the value of the supplies is more than SAR 40 million; otherwise it is three months.
The details of a VAT return include input and output tax value, value of taxable
and exempt supplies, value of internal supplies, imports, exports, adjustments etc.
(Art. 62 of the Regulations)

1.20 Records
Records must be kept for at least 6 years from the end of a tax period. Special
rules apply to records of Capital Assets. Also, access to the records must be
provided to THE AUTHORITY whether the records are kept physically in the KSA or
electronically on a server. (Art. 66 of the Regulations)
1.21 Bad Debts
ht
The Regulations make provisions for a bad debt write off and discount of output
tax paid on a supply for which consideration has not been received, either fully or
in part. Some requirements must be met in order for a supplier to be able to write-
off a bad debt and claim back the output tax. (Art. 40(7) of the Regulations)
1.22 Cash Accounting
Provided turnover is below SAR 5 million, a taxable person may, subject to

conditions, account for and pay VAT on the basis of cash or other consideration
1.23
rig
paid and received (Art. 46 of the Regulations). The advantage is that no bad debt
write-offs is required to be made by a person using the cash accounting basis (Art.
40(8) of the Regulations).
Assessments
Assessments can be raised by THE AUTHORITY within a maximum of 5 years from

the end of the year of the period assessed and must notify the taxable person of
the assessment providing information about the VAT due.
However, assessments for failing to register or fraud can go back 20 years from the
end of the year of the period assessed. With regards to omissions in relation to the
filing of a VAT return, an assessment can be withdrawn as soon as a return is filed.
py
THE AUTHORITY has wide powers to access records for the purpose of an
assessment and can take measures to seize documentation for non-cooperative
taxpayers (Art. 64 of the Regulations). Assessments can be appealed.
Penalties can be imposed on non-payment of VAT, non-compliance and failing to

provide information or access to information to THE AUTHORITY and other defaults
mentioned in the VAT Law.
1.25 Appeals
The VAT Law allows for appeals to be made against decisions of THE AUTHORITY.
co
However, the Regulations establish which type of decisions can be reviewed or

appealed.
An appeal against an assessment or a decision of THE AUTHORITY may be made to

the Judicial Authority in accordance with the Royal Decree No. (M/113) dated 2-
11-1438 H, Income Tax Law. The Regulations also make provisions for a mediation
procedure where the taxpayer and THE AUTHORITY agree to use the procedure.

Now test your understanding by attempting the questions from this chapter in
Q your Question Bank.
ht
rig
py
co

UNITED ARAB EMIRATES MODULE A CHAPTER 1 - APPENDIX 2
APPENDIX 2
UNITED ARAB EMIRATES
CHAPTER 1 GENERAL PRINCIPLES
ht
Further to the introduction of Value Added Tax (VAT) by The Unified Gulf
Cooperation Council Value Added Tax Framework Agreement (the "Agreement"),
the UAE has implemented the VAT system according to the powers granted by the
Agreement to THE AUTHORITY.
The UAE VAT legislation enacting the Agreement is as follows:
1.2
•
•
rig
The Federal Decree-Law No. (8) of 2017 on Value Added Tax (“VAT Law”);
The Value Added Tax Executive Regulations (“Regulations”); and
The Federal Law No. (7) of 2017 on Tax Procedures (“Procedures”).
In this appendix we refer to the VAT Law, Regulations and Law on Tax Procedures.
UAE Legislation
The VAT Law sets out definitions, powers of THE AUTHORITIES and the general
principles of VAT deriving from the Agreement. The Regulations provide the rules
and limitations to the principles laid out in the VAT Law. The Law on Tax Procedures
establishes the general rules in relation to the compliance, record keeping, audit
py
rights of THE AUTHORITIES and the taxpayer; etc.
The VAT Law, the Regulations and the Law on Tax Procedures together implement
the Agreement in the UAE.
1.3 VAT Territory of the UAE
The UAE is a MEMBER STATE of the GCC. VAT is a common system of the GCC. All
taxable transactions taking place within UAE and between UAE and other
MEMBER STATES of the GCC are subject to a specific VAT treatment, according to
the rules of the VAT Law, Regulations and Law on Tax Procedures further to the
provisions stated in the Agreement.
co
1.4 Interpretation of the Law by THE AUTHORITY
There is no specific disposition in the current law in relation to how THE AUTHORITY
will deal with conflicting interpretations of the Law. However, it is specified in the
Regulations that any provision conflicting with the VAT Law will be repealed,
providing precedence to the VAT Law.
The general principles of VAT outlined in Title 1 apply to the UAE as a direct result of
the implementation of the Agreement.

1.6 Scope of VAT
A transaction is within the scope of UAE VAT if all the following conditions are met.
• It is a supply of goods or services according to the definition provided in the

of neither goods nor services and are outside the scope of GCC VAT.
ht
• It takes place in the UAE.

company, etc. which is registered for VAT or which is required to register for
VAT in the UAE.

that person.
scope of UAE VAT. Some transactions are outside the scope of VAT although they
1.7
rig
have the characteristics of a taxable supply (i.e. transfer of business as a going
concern).
Place of Supply
To be within the charge to VAT, a supply must be made in the UAE. The
Regulations establish where the place of supply is to determine where VAT is
applied in relation to goods and services; they make special provisions for certain
supplies of goods and services and specify that the Regulations have precedence
over the provisions made in the Agreement. (Title 5, Chapter 2 of the VAT Law and
Title 4 of the Regulations)
Separate rules apply for determining the place of supply of goods and services
py
between the UAE and other MEMBER STATES requiring specific evidence for the
supply having taken place.
1.8 Time of Supply
The VAT Law establishes the rules for when a supply takes place and VAT is
imposed. The time of supply for goods and services is different. For goods, this can
be the earlier of when title in the goods passes, the goods are imported, made
available, installed and accepted by the recipient (the latter with conditions). For
services, the time of supply is when the services are completed. However, if an
invoice or a payment is made earlier than the above occurring the time of supply
is the date of the payment or the date of the invoice, whichever is first. (Art. 25 of
the VAT Law)
co
1.9 Value of Supply
The VAT Law makes detailed provisions to determine the value of a supply while
the Regulations provide details of the application of principles such as Market
Value, apportionment of the consideration, discount, etc. A distinction between
monetary and non-monetary consideration is made in the VAT Law which also
establishes that the value of the supply is the consideration received exclusive of
VAT. (Title 5, Chapter 4 of the VAT Law)

1.10 Output Tax
In addition to straightforward business transactions where output tax is payable by

the supplier, the UAE legislation makes provisions for special cases where output
tax may also be due, such as business gifts above a certain value and private use
of goods and services originally bought for business purposes but subsequently put
to private use.
ht
1.11 Input Tax
Input tax can be claimed on supplies received in the course of an economic

activity. These include imports from outside the GCC, acquisition of goods from
another MEMBER STATE on condition that the input tax relates to taxable supplies,
including zero-rated supplies. (Art. 54 of the VAT Law)
The Regulations establish the limits within which input tax can be deducted and
set out rules for specific circumstances such as VAT recovery on goods and
services bought before registration, as well as VAT recovery on goods held at
1.12
rig
deregistration. Also, there are specific Regulations restricting VAT recovery on
goods and services which are not used for business purposes (e.g. for private use),
such as business entertainment.
within a period, established by each MEMBER STATE, the input tax must be repaid
to THE AUTHORITY.
There are specific provisions for blocking input tax such as on entertainment, motor
vehicles for private use, etc.; and also provisions for calculating input tax that is not
fully in relation to taxable supplies made by the taxpayer. (Title 10 and Title 11 of
the Regulations)
VAT Rates
py
The VAT rates established in the Agreement are adopted by all MEMBER STATES,
including UAE.
These are 5% for standard-rated supplies and 0% for zero-rated supplies. There are
specific provisions for zero-rated supplies and these apply to exports of goods from
the UAE, some forms of transport, exports of goods and services and the supply of
medicines and health equipment. (Title 6 of the Regulations)
The Regulations define exempt supplies as supplies of goods and services on which
VAT is not chargeable but also non-recoverable. Exempt supplies are financial
co
services, residential buildings, bare land and local transport services. (Title 7 of the
Regulations).
Where a person makes both taxable supplies and exempt supplies, he is partially
exempt and may or may not be able to recover all of his input tax. All input tax
directly attributable to taxable supplies can be reclaimed but none of the input
tax directly attributable to exempt supplies can be claimed. Special rules then
apply to work out how much input tax can be reclaimed on general overheads,
etc.

1.14 Registration
Any person exceeding the annual VAT registration threshold of AED 375,000 at the
end of any month is required to register for VAT mandatorily. The threshold should
be monitored at the end of each month for the 12 months ending at the end of
that month; also, when a trader believes that he will reach the VAT registration
threshold in the next 30 days: in both cases he must apply for registration within 30
days.
ht
Where, however, only zero-rated supplies are made, the VAT Law excepts a
person from registration. (Art. 15 of the VAT Law)
The VAT Law allows registration of related persons to form a VAT Group. Non-
residents are required to register for VAT as soon as they make taxable supplies –
there is no registration threshold for them.
apply to be deregistered if the VAT-exclusive value of his supplies will not exceed
the minimum limit for voluntary registration. (Title 3 of the Regulations)
1.15 Imports
the UAE.
rig
The Regulations define what an import is. Imports include Concerned Goods and
Concerned Services; they are supplies that would have been taxable if bought in
VAT is accounted for and paid of entry on imports of goods into the UAE. VAT on
imported services is applied by way of the reverse charge.
To pay and claim VAT the importer is required to keep evidence of the value of
the import and other customs documents. (Art. 48 of the Regulations)
py
VAT cannot be claimed by a private individual or unregistered business but must
be paid to THE AUTHORITY.
1.16 Exports
Export of goods are zero-rated and include the export of own goods to another
GCC country. Services are also zero-rated when provided to a recipient outside
the GCC, subject to certain conditions. There are specific conditions to zero-rating
an export. Exports can be direct or indirect exports depending on whether the
delivery is arranged by the recipient or the supplier. (Art. 30 of the Regulations)
1.17 Transactions with Other GCC MEMBER STATES

co
The VAT Law makes provisions for supplies made to another MEMBER STATE. The
supplies of goods will be outside the scope of the UAE VAT if the supply is made to
a VAT registered customer in another GCC country. Services are treated as taking
place at the premises of the recipient in another MEMBER STATE, provided the
recipient is a registered for VAT in its MEMBER STATE (Art. 27 and 30 of the VAT Law).
Specific information is required on the invoice to show that the supplies are made
to a business recipient in a MEMBER STATE, such as the VAT registration number of
the recipient.

1.18 Invoices
The Regulations set up the details of a valid tax invoice and also allow the issuance
of a simplified VAT invoice where the recipient is not registered for VAT or where
the recipient is registered but the consideration for the supply does not exceed
AED 10,000.
1.19 Returns and Payment of VAT
ht
A taxable person must provide a VAT return to THE AUTHORITY by the 28th day of
the month following the end of the tax period. The tax period is three months
ending on the month as requested by the registrant or on a month allocated by
THE AUTHORITY. A VAT return is a declaration of all supplies made and received in
the tax period (Title 8, Chapter 2 of the VAT Law). Payment of VAT is also due by
the 28th day of the month following the end of the tax period (Art. 64 of the
Regulations).
1.20 Records
1.21
rig
Records for all supplies made and received as well as records of tax declarations,
must be kept for a number of years. The Agreement specifies that records must be
kept for at least 5 years except in the case of records in relation to real-estate
transactions which must be kept for 15 years. Also, access to the records must be
provided to THE AUTHORITY.
Bad Debts
The VAT Law makes provisions for a bad debt write-off and discount of output tax
paid on a supply for which consideration has not been received, either fully or in
part after 6 months from the date of the supply. Certain conditions must be met in
order for a supplier to be able to write off a bad debt and claim the output tax
back. (Art. 64 of the VAT Law)
py
There are no provisions for Cash Accounting in the UAE VAT Legislation.
1.23 Assessments
Assessments can be raised on tax and penalties for specific omissions, errors and
non-compliance (Art. 25 and 26 of the Law on Tax Procedures). An assessment
must be notified by THE AUTHORITY within 5 days from the decision being made.
(Part 4 of the Procedures)
THE AUTHORITY has wide powers to access records and perform an audit for the
co
purpose of an assessment and can take measures to seize documentation. THE

AUTHORITY also has duties towards the taxpayer being assessed such as carrying
out an audit within a prescribed time of the day and giving notice of an audit
taking place. The taxpayer also has rights, such as verifying the identity of the tax
auditor and attending the audit, and duties, such as cooperating and assisting THE
AUTHORITY in performing the audit.

Penalties can be imposed on non-payment of VAT, VAT evasion, non-compliance

and failing to provide information or access to information to THE AUTHORITY. The
competent court can impose penalties for tax evasion. (Part 5 of the Procedures)
1.25 Appeals
ht
The Law on Tax Procedures allow for appeals to be made against decisions of THE
AUTHORITY within a specific time frame of 20 business days from the notification of
a decision.
An appeal to THE AUTHORITY can be escalated to the Tax Dispute Resolution

Committee (“Committee”). Only tax disputes exceeding AED 100,000 in tax and
penalties that are not resolved at the Committee level can be brought to a
competent court.
Decisions issued by the Committee for tax and penalties below AED 100,000 are
Q rig
final and cannot be appealed further. (Chapter 4, Part 2 of the Procedures)
your Question Bank.
py
co

CHAPTER 2
REGISTRATION
ht
This chapter looks at registration of a business for VAT and includes:
– taxable persons;
– compulsory registration;
– voluntary registration;
– deregistration;
– exemption from registration;
– disaggregation.
2.1
rig
Introduction
Not all businesses must be registered for VAT but, if you are resident in a MEMBER
STATE of the GCC and are in business making taxable supplies, you are a taxable
person. You will then be required to be registered by THE AUTHORITY of a relevant
MEMBER STATE if the value of taxable supplies, for a stipulated period, exceeds or is
expected to exceed the registration threshold set out in the Agreement, which is
the equivalent of SAR 375,000 in the currency of each MEMBER STATE of the GCC.
VAT registration can be Mandatory or Voluntary (Art. 50 and Art. 51 of the

Agreement).
To establish whether you must register for VAT under the mandatory registration
provisions, you have to monitor the level of taxable supplies made by you to
py
ascertain whether you have met the registration threshold and apply to register for
VAT.
‘Taxable supplies’ are transactions that are subject to VAT. However, it is only when
you exceed a certain level of taxable supplies calculated over a period of 12
months that you have to register and actually account for VAT on those taxable
supplies. Until you exceed the level of taxable supplies, you are not required to
register and account for VAT.
Whilst the above are mandatory registration requirements, it is possible to

voluntarily register for VAT. Any business whose taxable turnover is 50% of the
mandatory registration threshold or SAR 187,500 can apply to register voluntarily
provided that the conditions set by each MEMBER STATE are met (Art. 51(1) of the
co
Agreement). Voluntary registration might occur for a number of reasons, one of

which is credibility. For example, if a business did not charge VAT on its invoices,
then customers would know that its turnover is quite small. So many businesses just
register to add credibility or to conceal turnover.
Another reason to register would be to recover your input VAT. When you charge
output VAT on your supplies or your sales, you are entitled to reclaim your input
VAT, which is VAT charged to you on your costs. So, this might be quite an
important reason for registering for VAT.

If your customers are registered businesses themselves, there would be a very

strong incentive to register because your customers would not mind you charging
VAT, since they will claim it back as their input tax. It is only really when your
customers are the public that a small business must think quite seriously about
whether it should register voluntarily or not.
THE AUTHORITY also has the power to enforce VAT registration on the grounds that
a taxable person has met the VAT registration requirements but has not applied for
ht
registration. (Art. 52(3) of the Agreement)
2.2 Who is Required to Register?
Any person performing an economic activity independently for the purpose of

generating income and exceeding the mandatory VAT registration threshold is a
taxable person who must register for VAT or may apply to voluntarily register for
VAT. Only a person, and not a business whether an individual or a legal entity, can
apply for VAT registration and become a taxable person. Below are examples of
persons that can apply for VAT registration and become a taxable person:
•
•
•
•
•
•
•
rig
a sole proprietor
a partnership or limited liability partnership
a limited company
a club
an association
a charity
a joint venture
Two or more Legal Persons such as companies or limited liability partnerships can
register as a single taxable person, forming a VAT Group. Each MEMBER STATE’s
Regulations will set up the conditions and requirements to register as a VAT Group.
However, the general requirement is that the Legal Persons applying for VAT
Group registration carry on an Economic Activity, are resident in the MEMBER STATE
py
and are linked to each other. THE AUTHORITY can exercise discretion in allowing
two or more persons to form a VAT Group to prevent tax avoidance or a result in
VAT accounting that is artificial.
In forming a VAT Group, this being regarded as a single taxable person, and for
the duration of their membership, each member of the VAT Group will be “jointly
and severally liable” with the other members of the VAT Group for any of the VAT
Group’s debts and obligations. This means that it is the VAT Group as a whole and
not the single members that respond for tax debts and obligations.
A person that only makes supplies that are zero-rated may be exempted from
mandatory registration according to the rules set out by each MEMBER STATE. To
apply for VAT registration, you must use THE AUTHORITY’s prescribed forms and
online services, where prescribed. (See Appendix for relevant MEMBER STATE)
co
2.3 Registration of Non-Residents
A non-resident person is a person who does not have a place of business in any
MEMBER STATE of the GCC. However, a non-resident person carrying on an
economic activity whereby he must pay VAT in a MEMBER STATE, will be required
to register for VAT in that MEMBER STATE and become a taxable person.
It is important to note that no VAT registration threshold is applicable to non-

residents, the obligation to pay tax is sufficient to trigger the VAT registration. (Art.
50(3) of the Agreement)

A non-resident business may appoint a tax representative or register directly. The

tax representative must be approved by THE AUTHORITY if appointed and will be
responsible for tax obligation of the non-resident. Each MEMBER STATE will lay out
the conditions for VAT registration applicable to non-resident persons. (See
Appendix for relevant MEMBER STATE)
2.4 Types of Registration
ht
Whatever the legal entity considering registration, registration can be broken
down into a mandatory registration or a voluntary registration. For voluntary
registration, existing traders can register even if their taxable supplies fall below the
mandatory registration limits but it is not less than SAR 187,500 in any 12 month
period. However, the MEMBER STATE may apply the voluntary registration threshold
to both supplies and expenses. If a trader’s annual supplies or expenses exceed
the set supply or expense limit for voluntary registration, then a trader can register
for VAT. (See Appendix for relevant MEMBER STATE)
To register for VAT, there are two tests applied to both the mandatory and
voluntary registration: an historic test and a future test.
rig
The historic test at the end of every calendar month looks at the level of taxable
supplies made in the month and the previous 11 months and if the annual
threshold as established in the Agreement is exceeded, then you have an
obligation to register.
The future test looks at the total value of taxable supplies at the end of the month,
plus the following 11 months to determine whether the level of taxable supplies
exceeds the mandatory registration limit by the end of this future period.
Registration
py
Mandatory Voluntary (for existing or intending
traders)
Taxable Supplies Taxable Supplies or Expenses
Historic test Future test Historic test Future test

co
See Appendix for relevant MEMBER STATE for examples of how the tests are
applied.
2.5 Historic Test (Art 52 (1)(a) of the Agreement)
As we have seen, you will be required to register for VAT if at the end of any
calendar month, the value of your taxable supplies in the last 11 months including
the current month exceeds the current annual threshold.

If you have exceeded the limit then you must notify THE AUTHORITY of your
requirement to be registered within the stipulated time frame per each MEMBER
STATE’s legislation. The registration will be effective i.e. you will be registered from,
the relevant date following the end of the month the threshold was exceeded.
2.6 Future Test (Art. 52(1)(b) of the Agreement)
At the end of every month, the trader must ask himself whether there are
ht
reasonable grounds for believing that the value of taxable supplies at the end of
the month, plus the following 11 months will exceed the registration limit.
Notification must again be made to THE AUTHORITY within the stipulated
timeframe.
This future test is really to catch substantial orders. So, for example, if you are
always below the historic test but today you went into the office and received an
order whose value in itself or in aggregate with other orders is close or above the
set registration threshold of a given MEMBER STATE, then today you know that in
the next 11 months you would exceed the VAT registration threshold.
Consequently, you must notify THE AUTHORITY within the stipulated timeframe.
rig
It is important to note that exempt supplies are not included in the tests.
In dealing with supplies made after the registration is supposed to take effect but
before a VAT number has been allocated, traders need to reserve the VAT in their
sales revenue to account to THE AUTHORITY for it later. Essentially, if the business is
subject to mandatory registration, then all supplies after the date the registration
should be effective are deemed to include VAT, whether explicitly charged or not.
No mention can be made of the amount of VAT charged on a transaction unless

the trader is registered. If at the date of issue of the invoice, he is not registered a
trader may adjust prices to reflect the VAT element of the supply, without
specifically stating that the amount charged is VAT.
py
Where a trader deals mainly with VAT registered customers, he will have to decide
whether to charge an extra 5% VAT at the outset, promising a VAT receipt when
the registration is complete, or whether to invoice the net amount only, followed
by a VAT-only invoice when the registration is approved.
2.7 VAT Registration Threshold: Taxable Supplies (Art. 52(2) of the

Agreement)
A taxable supply is a supply of goods or services on which VAT is chargeable at

the standard-rate or zero-rate of tax.
In determining whether the registration limits have been exceeded, it is therefore

co
necessary to take into account the total value of all standard and zero-rated
supplies of goods and services exclusive of VAT.
The value of all taxable supplies includes the value of all supplies made by the
taxable person. The value of all supplies made to the taxable person on which he
has accounted for output VAT (i.e. the value of ‘reverse charge’ supplies received
from abroad). The value of internal supplies which are supplies made between
businesses residing in different MEMBER STATES on which VAT would be due if the
supply was taxable in the MEMBER STATE of the supplier.

Please note that if a MEMBER STATE business makes supplies that are outside the
scope of MEMBER STATE VAT, these should not be included in the turnover figure
when determining if the business has exceeded the VAT registration threshold.
It should also be noted that exempt supplies and the value of Capital Assets
supplies are never included in the registration test.
2.8 Deregistration (Art. 54 of the Agreement)
ht
Once a business is registered for VAT, it is not always the case that it will remain
registered for VAT. In certain situations, a business may be required to deregister or
may voluntarily deregister. Examples of compulsory deregistration would be:
• Sale of business/business ceases to exist – if you sell your business you are no
longer in a position to charge VAT so you are compulsorily deregistered;
• Ceasing to make taxable supplies – a business may cease trading;
• Value of taxable supplies – if the value of taxable supplies falls below the
rig
voluntary registration limit, a business must de-register. (see Appendix for
relevant MEMBER STATE)
Voluntary deregistration is available where a business has made taxable supplies

in the year of less than the mandatory registration threshold but exceeding the
voluntary registration threshold. THE AUTHORITY of each MEMBER STATE may
establish a minimum period during which the taxable person must be registered
before he can deregister.
The person who no longer wishes to remain registered can inform THE AUTHORITY
and, provided that they are satisfied that the business meets the deregistration
requirements, the person will be permitted to deregister. The Regulations of each
MEMBER STATE may set out the procedures and circumstances under which a
person may voluntarily or compulsorily deregister. (See Appendix for relevant
py
MEMBER STATE)
After the application for deregistration is approved, the applicant will be notified
by THE AUTHORITY of the effective date of deregistration. The deregistered person
will no longer be obliged to charge VAT on his supplies from the date of
deregistration.
2.9 Exemption from Registration
A person who makes or intends to make taxable supplies that would be zero-rated
if he were a taxable person, may apply to THE AUTHORITY of a MEMBER STATE to be
exempted from registration. THE AUTHORITY may, if he so requests grant exemption
from registration if the conditions and rules set by the MEMBER STATE legislation are
co
satisfied (Art. 50(4) of the Agreement).
For a material change in the nature of the supplies made, the person exempted
must notify THE AUTHORITY of the change within the time stipulated as per the
MEMBER STATE legislation (see Appendix for the relevant MEMBER STATE
requirements). Exemption applies until it appears to THE AUTHORITY that the
request should no longer be acted upon or the request is withdrawn by the trader.
THE AUTHORITY will consider applications from unregistered persons who have
reached the registration threshold and from persons who are already registered. A
material alteration affecting exemption from registration would arise if the person
makes any supplies which are subject to tax at standard-rate or import goods or

services. Exemption saves a person the trouble and expense of having to keep
proper records and accounts for VAT purposes and rendering returns but it does
mean that input tax paid on purchases of goods or services for the business is not
reclaimable.
2.10 Disaggregation of Business Activities (Art 52(3) of the Agreement)
The disaggregation provisions are designed to prevent the maintenance or
ht
creation of any ‘artificial’ separation of business activities carried on by two or
more persons, resulting in the avoidance of VAT. For example, a builder might
have a VAT registered company dealing with his larger contracts and an
unregistered partnership with his wife dealing with the smaller maintenance work. If
the partnership were mainly dealing with the public there would be a competitive
and financial advantage from trading in this way. In determining whether any
separation of business activities is ‘artificial’, consideration must be given to the
extent to which the different persons carrying on those activities are closely bound
to one another by financial, economic and regulatory links.
THE AUTHORITY in each MEMBER STATE has the power to determine whether two or
rig
more businesses carry on activities which are similar or related and establish
whether these can be aggregated for the purpose of VAT registration. THE
AUTHORITY can direct each business to register individually for VAT if the conditions
for aggregation of the activities are not met. (See Appendix for relevant MEMBER
STATE).
py
co

APPENDIX 1
CHAPTER 2 REGISTRATION
ht
2.1 Introduction
Any person conducting an economic activity for a profit is a taxable person and
must register for VAT if the value of the taxable supplies made by him for the
stipulated period of 12 months exceeds or is expected to exceed the registration
threshold.
VAT registration in the KSA can be mandatory or voluntary according to the

provisions of Art. 3 of the VAT Law as implemented by the Regulations.
2.2
rig
With regards to mandatory registration, the ‘mandatory registration threshold’
applicable is SAR 375,000 as established in the Agreement.
Therefore, to establish whether a trader must register for VAT, you have to monitor
the level of taxable supplies made by you to ascertain whether you have met the
registration threshold above and apply to register for VAT.
The Regulations also make provision to voluntarily register for VAT. Any trader
whose taxable turnover is below the mandatory registration threshold can apply to
register voluntarily provided that the voluntary registration threshold of SAR 187,500,
applicable to supplies or expenses, is met.
Who is Required to Register?

py
Any person exceeding the mandatory VAT registration threshold of SAR 375,000
must register for VAT. Any person may also apply to voluntarily register for VAT if the
supply or expenses threshold of SAR 187,500 is exceeded, to become a taxable
person. A person can be an individual, a company or a joint venture as illustrated
in Chapter 2.
The above also applies to two or more legal persons to become a single taxable
person by forming a VAT Group. The conditions and requirements to register as a
VAT Group in the KSA as laid out in Art. 10 of the Regulations are as follows:
• The Legal Persons applying for VAT Group registration are resident in the KSA
and carry on an Economic Activity;
co
• They are under common control;
• At least one Legal person is a taxable person eligible to be registered in its own
right i.e. it is a taxable person by way of making taxable supplies meeting the
mandatory or voluntary registration threshold.
The taxable person who makes the application becomes the representative legal
person of the VAT Group and is responsible for all rights and obligations of the VAT
Group (Art. 11(1) of the Regulations). However, the other VAT Group members are
still jointly liable for any debts and obligations concerning the group.

In forming a VAT Group, this being regarded as a single taxable person, and for
the duration on their membership, each member of the VAT Group will be “jointly
and severally liable” with the other members of the VAT Group for any of the VAT
Group’s debts and obligations. This means that it is the VAT Group as a whole and
not the single members that respond for tax debts and obligations.
The representative legal person can apply to amend the VAT Group to add or
remove members, disband the VAT Group or change the representative legal
ht
person. Changes to the VAT Group based on the application filed by the
representative will have immediate effect from the date of application, unless THE
AUTHORITY establishes otherwise.
Where one or more members leave the VAT Group or where the group disbands
but an individual member remains eligible to be a taxable person in its own right, a
new Tax Identification Number will be issued. Such members are not considered to
be deregistered and deemed to be continued as registered.
THE AUTHORITY, based on the information provided, can exercise discretion in

allowing two or more persons to form a VAT Group to prevent tax avoidance or a
2.3 rig
result in VAT accounting that is artificial.
The application to register for VAT, whether as a single registration or a VAT Group
registration, can be made through THE AUTHORITY’s online services.
Registration of Overseas Traders
A non-resident person must register for VAT in the KSA if he makes, or intends to
make, taxable supplies of goods and services in the KSA in the course of the
furtherance of his business.
The non-resident person must register if he makes or receives supplies on which

VAT is due by him within 30 days from when the first such supply was made. The
registration limit does not apply to non-resident persons, instead they will be
py
expected to register for VAT if they make, or intend to make any taxable supplies
in the KSA. (Art. 5 of the Regulations)
Non-resident suppliers of goods and services whose supplies are all subject to
reverse charge are not required to register in the KSA.
A non-resident person who is required to be registered in the KSA must appoint a

tax representative who will be jointly and severally liable for any VAT debts until THE
AUTHORITY confirms that he is discharged from acting as a tax representative (Art.
77 of the Regulations). The overseas trader himself or his tax representative must
complete the specified VAT registration form to apply for VAT registration and the
tax representative is obliged to maintain the books records, invoices and
accounting for the non-resident person (Art. 9 and 66 of the Regulations).
co
The Regulations make provisions for mandatory and voluntary registration.
With a mandatory registration a person has no choice but to register when the VAT
registration threshold is met. There are two tests used to monitor whether the VAT
registration threshold has been met or whether it will be exceeded, which then
requires a person to register in the KSA.
One test is the historic test and the other is the future test.

The historic test looks retrospectively at the level of supplies made over a 12 month
period and the future test looks at supplies that will be made in the next 12 month
period. If the level of supplies made in the historic or future 12 month period
exceeds the VAT registration threshold of SAR 375,000, a person has 30 days to
apply for registration.
For voluntary registration, existing traders can register even if their taxable supplies
fall below the mandatory registration limits, and if their annual supplies or expenses
ht
exceed SAR 187,500.
With regards to voluntary registration, the same historic and future tests apply. A
business that is not required to be registered may still apply for registration
provided that its supplies or expenses are not below the voluntary registration
threshold in the historic and future 12 month period. The VAT registration can take
effect from an earlier or later date from the date of application (effective date)
on condition that the person was eligible to be registered from the earlier or later
date (the eligibility depends on whether the level of supplies or expenses were not
below the voluntary registration threshold).
rig
Voluntary registration may be chosen as it could be beneficial for intending
traders. These are traders who have not actually commenced trading, but who
intend to within the foreseeable future. These traders apply to THE AUTHORITY for a
VAT number well before they commence trading. This might be for a number of
factors but the most common is to enable recovery of VAT from THE AUTHORITY
whilst the business is being set up.
For example, it might take you 6 months to refit a shop but in those 6 months, if you
are registered for VAT (which is allowed only if your supplies or expenses exceed
SAR 187,500), you can reclaim input tax from THE AUTHORITY. These would
obviously be provisional reclaims and will be dependent on the fact that the
business does actually commence trading and make taxable supplies for VAT
purposes. THE AUTHORITY will normally expect to see satisfactory evidence that the
business is intending to make taxable supplies before they will register a person as
py
an intending trader.
THE AUTHORITY will maintain a register of persons registered for VAT and will issue a
certificate of VAT registration with information relating to the registered person,
such as, the name of the registered person, their allocated VAT registration
number and the date from which their registration is effective. (Art. 8 of the
Regulations)
2.5 Historic Test
The historic test is applied at the end of every calendar month. You look at taxable
supplies in the previous 12 months and if you have exceeded the annual threshold,
currently SAR 375,000, then you have an obligation to register.
co
If the VAT registration is mandatory, under the historic test the person has to apply
for VAT registration within 30 days from exceeding the threshold, and the
registration takes effect from the first day of the month following that in which the
application was made. This is the date from which the trader can start charging
VAT on his supplies.
For example, if a trader monitors the level of his supplies at the end of June to find
that he exceeds the VAT registration limits, then he has 30 days from the end of
June to apply for registration and he will be registered from the 1st day of August
which is the month following July, when the application was made. So, the

business must be registered from the 1st day of August. It exceeded the limit in
June, it will have July effectively free of VAT and from 1 August it is registered.
2.6 Future Test
In the future test, at the end of the month you will look at the total value of taxable
supplies in the following 12 months, and determine whether taxable supplies
exceed the mandatory registration limit by the end of this future period. (Art. 4(1)
ht
of the Regulations)
that he exceeds the VAT registration limits, in the next 12 months, he then has 30
days from the end of June to apply for registration and he will be registered from
the 1st day of July which is the first month in which the annual supplies are
expected to exceed the registration threshold.
 Illustration 1
Let us assume we are a trader in business and we are checking at the end of
rig
every calendar month the taxable supplies in the previous 12 months. At the end
of April 2018 our taxable supplies amounted to SAR 325,000 for the previous 12
months, so there is no requirement for the business to be registered.
We then go to the end of May 2018 and, for the previous 12 months to May, the
taxable supplies amounted to SAR 350,000; again, below the limits.
We then go on to the end of June 2018 and for the previous 12 months our taxable
supplies amount to SAR 390,000. The business has exceeded the limit; it has a
requirement to apply for registration within 30 days from the end of the month.
 Example 1
py
The business mentioned in Illustration 1 must notify THE AUTHORITY of its requirement
to register for VAT.
By which date must THE AUTHORITY be notified?
From which date will this business be VAT registered?
 Illustration 2
New Business Limited commenced trading on 1 July 2018. The taxable sales were
as follows:
SAR 2019 SAR

2018 July 18000 March 36150
co
August 18000 April 36150

September 22600 May 36150
October 22600 June 36150
November 27100 July 36150
December 27100 August 40650
2019 January 31600 September 40650
February 31600 October 40650
Assuming the company does not want to voluntarily register, work out when the
SAR 375,000 compulsory registration limit is exceeded.

At the end of every calendar month I look back 12 months. If I do not have 12
months to look back on, for example, on a start-up, I can only look back to the
start of trade. At the end of July 2018, I look to see how much I have sold in the
previous 12 months. I have sold SAR 18,000, so there is no requirement to register. I
then move on to August 2018, taxable supplies in the previous 12 months will be
SAR 36,000, which again does not exceed the limit. This process will continue until I
exceed the SAR 375,000 limit.
ht
We can see from this example that when I get to June 2019, taxable supplies to
June 2019 total SAR 343,200. Thus, registration is not required. The 12 months from
August 2018 to July 2019 amount to SAR 361,350; again, not exceeding the limit.
At the end of August 2019, in the previous 12 months, my cumulative taxable

supplies amount to SAR 384,000; that exceeds the limit of SAR 375,000 so August
2019 is the month the limit has been exceeded. The business has 30 days to notify
THE AUTHORITY of its requirement to be registered. 30 September 2019, is 30 days
after the month in which limit was exceeded.
The mandatory registration date will be 1 October 2018, that is the first day of the
2.7
2018.
rig
month following the month the limit was exceeded. So, September has been free
of VAT and the first time the business will have to charge VAT is from 1 October
Where this registration test is breached the trader may be excepted from the
registration obligation if they can prove that their taxable supplies for the next 12
months will not exceed SAR 375,000. In our example, the 12 months would run from
31 August 2019.
VAT Registration Threshold: Taxable Supplies

the standard-rate or zero-rate of tax as defined in the Agreement.
py
In the KSA, VAT is chargeable on all taxable supplies of goods and services made
and received in the KSA by a taxable person, including the supplies that are
subject to reverse charge VAT accounting by the recipient in the KSA.

necessary to take into account the total value of supplies of goods and services
exclusive of VAT made and received by a taxable person in the KSA.
The value of all taxable supplies includes the value of all supplies made by the
taxable person and the value of ‘reverse charge’ supplies made to the taxable
person on which he has accounted for output VAT, such as supplies received from
abroad and supplies received from businesses residing in different MEMBER STATES.
co
Nominal supplies are taxable supplies and should be included in the VAT
registration threshold calculation. However, if they consist of gifts or samples of a
market value not exceeding SAR 200; or consist of gifts to employees not
exceeding the value of SAR 200 a calendar year per employee and are provided
in the course of carrying on an economic activity, these are not considered to be
taxable supplies and can be excluded from the calculation of the registration
threshold.
Also exempt supplies, and supplies of goods and services that are outside the
scope of VAT, should not be included in the turnover figure when determining if
the business has exceeded the VAT registration threshold.

Also, the following are excluded from the calculation of the VAT registration
threshold:
• Goods or services that are capital assets of the business supplied in the course
or furtherance of an economic activity;
• Capital assets may be tangible or intangible and include premises, plant,

machinery, office machinery, computers, office furniture, used company cars,
ht
patent rights which have been exploited and which are sold outright, and
goodwill;
• Supplies that are outside the scope of VAT such as supplies made by a legal
person to itself which are not nominal supplies.
2.8 Deregistration
Deregistration can be mandatory or voluntary.
A taxable person must mandatorily deregister where his economic activity ceases
•
rig
or a legal person ceases to exist as a legal person. Deregistration is effective from
the date determined by THE AUTHORITY. (Art. 13(1) of the Regulations)
Provided that a taxable person has been registered for at least 12 months he must
deregister at the end of any month if each of the following occurs as per Art 13(3)
of the Regulations:
• The annual supplies or expenses in the previous 12 months do not exceed the
voluntary registration threshold of SAR 187,500.
The annual supplies or expenses in the previous 24 months do not exceed the
mandatory registration threshold.
The value of supplies or annual expenses at the end of the month and the
py
following 11 months does not exceed the voluntary registration threshold. In
these cases, deregistration takes effect from the date of application.
A non-resident legal person that has not made any taxable supplies at the end of
any month for the prior 12 months must also deregister for VAT. Deregistration is
effective from the date determined by THE AUTHORITY. (Art. 13(2) of the
Regulations)
The application for deregistration must be made in electronic form as prescribed

by THE AUTHORITY. THE AUTHORITY may demand evidence that the economic
activity has ceased or to determine the value of taxable supplies as mentioned in
the deregistration application. Taxable supplies for the above purposes are
determined on the basis that no VAT is chargeable on the supply (i.e. VAT-
co
exclusive).
THE AUTHORITY might refuse the application for deregistration. However, whether
an application is approved or refused, THE AUTHORITY will issue a formal notice
and state the date from which deregistration takes effect if deregistration is
approved.
When deregistering, VAT must be accounted for on the final return on any ‘goods’
forming part of the business assets which are on hand at the close of business, or
on the last day of registration as if they were supplied in the course or furtherance
of the business, unless the business is transferred as a going concern to another
taxable person.

‘Goods’ for these purposes means tangible goods (e.g. unsold stock, plant,
furniture, commercial vehicles, computer, etc.) and intangible goods such as
patents, copyrights and goodwill can be disregarded. It includes goods
purchased where title has not yet passed to the business but where input tax on
the purchase has been allowed (e.g. goods on hire purchase or lease purchase
and goods subject to reservation of title). Land forming part of the business assets
is treated as if it were goods.
ht
This charge on deregistration is known as a deemed (nominal) supply.
The provisions do not apply to any goods where the taxable person can show, to
the satisfaction of THE AUTHORITY, that:
i. no credit for input tax has been allowed to him in respect of the supply of
goods;
ii. the goods did not become his as part of the assets of a business transferred as
a going concern from another taxable person.
•
rig
The following are therefore excluded from the charge to VAT:
• Goods bought from unregistered businesses.
Motor cars (except qualifying cars on which input tax has been claimed).
Goods bought under the provisions of the supply of used goods scheme.
Goods used wholly for entertainment.
Goods that have been directly attributed to an exempt business activity

(unless the input tax was reclaimable through the partial exemption rules).
Goods not bought for business purposes.

py
• Land or buildings which were purchased under an exempt supply such as
residential building.
Where a business has taxable land or buildings on hand at the time of

deregistration, on which it claimed input tax deduction, the property is deemed to
be supplied on deregistration. To avoid the cash flow problem that this might
create, the business could defer the cancellation of registration until the property is
sold so that it would then be required to account for output tax on the actual sale
of the property.
When a deemed supply on deregistration is in point the value is based on the fair
market value.
co
2.9 Exemption from Registration
The Implementing Regulations make provisions at Art. 9(1) to exempt taxable

persons from VAT registration if their annual turnover, calculated in accordance
with the rules explained above, exceeds the mandatory VAT registration threshold,
but it is made up exclusively of supplies which are taxable at zero-rate of VAT.
A taxable person making exclusively zero-rated supplies can apply for voluntary
registration in order to be able to recover the input tax incurred on expenses used
in making zero-rated supplies.

2.10 Disaggregation of Business Activities (Art. 9(2) of the Regulation)
THE AUTHORITY may issue a notice to aggregate the value of taxable supplies
made by two or more related persons carrying on similar or related activities. This
aggregate amount will be considered to each person’s annual supplies to
determine registration limit.
Preconditions for making a requirement to register - these are as per the best
ht
practices in established jurisdictions and can be used only as a reference. These
preconditions are not listed in either the VAT Law or the Regulations.
Before making a requirement to register naming any person THE AUTHORITY might
need to be satisfied that:
a. he is making or has made taxable supplies;
b. the activities in the course of which he makes or made those supplies form
only part of certain activities, the other activities being carried on concurrently
or previously (or both) by one or more other persons; and
c.
rig
if all the taxable supplies of the business described in the notice were taken
into account, a person carrying on that business would at the time of the
notice be liable to be registered under the normal registration rules.
In deciding whether or not to make a requirement to register, THE AUTHORITY might

be concerned with separations which are devices contrived to circumvent the
normal VAT registration rules. Whether any particular separation is artificial will, in
most cases, depend upon the facts. The following are examples of where THE
AUTHORITY would at least make further enquiries, based on EU case law.
• Separate entities supply to registered and unregistered customers.

py
• The same equipment/premises are used by different entities on a regular basis.
This may occur, for example, in launderettes, food take-away or mobile
catering equipment.
• Splitting up of what is usually a single supply, e.g. bed and breakfast.
• Artificially separated businesses which maintain the appearance of a single

business, e.g. bar sales and catering in a public house.
• One person has a controlling influence in a number of entities which all make
the same type of supply in diverse locations.
co

ANSWERS
 Answer 1
The correct notification date is 30 July 2018. This is 30 days from the end of the
month in which the limits were exceeded.
ht
As the business exceeds the limits at the end of June 2018, the correct registration
date is 1 August 2018. Thus, July was free of VAT and no VAT needs to be charged
in July. However, from 1 August the business will be registered and then must
charge VAT.
rig
py
co

co
py
rig
ht
UNITED ARAB EMITATES MODULE A CHAPTER 2 - APPENDIX 2
APPENDIX 2
CHAPTER 2 REGISTRATION
ht
2.1 Introduction
Any person conducting an economic activity for an income is a taxable person

and must register for VAT if the value of the taxable supplies made by him exceeds
the registration threshold.
VAT registration in the UAE can be mandatory or voluntary according to the

provisions of Art. 13 and Art. 17 of the VAT Law, as implemented by the UAE
Regulations.
rig
The ‘mandatory registration threshold’ is AED 375,000 as established in the
Agreement.
Therefore, to establish whether a person must register for VAT, he must monitor the
level of his taxable supplies to ascertain whether he has met the registration
threshold and, if he has, he must apply to register for VAT.
The Regulations also make provision for voluntary registration. Any trader whose
taxable turnover is below the mandatory registration threshold can apply to
register voluntarily provided that the threshold of AED 187,500, applicable to
supplies or expenses, is exceeded.
It should be noted that there is no registration threshold for non-residents in the

py
UAE. Non-residents are required to register for VAT as soon as they make supplies of
goods or services here unless the customer is required to account for the VAT
under the reverse charge. See paragraph 2.3 below.
2.2 Who is Required to Register?
Any person exceeding the mandatory registration threshold of AED 375,000 must
register for VAT or may apply to register voluntarily if the value of his supplies or
expenses exceeds the voluntary registration threshold of AED 187,500. A person
can be a legal or natural person, such as an individual or a company.
Two or more legal persons with sufficient financial, economic and regulatory links
can apply to become a single taxable person by forming a VAT group. The
co
conditions and requirements to register as a VAT group in the UAE are as follows:
• the Legal Persons applying for VAT group registration are incorporated or are
a permanent entity in the UAE;
• They are related parties;
• One or more persons control the others.

The representative member of the VAT group can be any member of the VAT
group and shall be nominated by the group. The representative member is
responsible for all applications to THE AUTHORITY on behalf of the VAT group (Art.
11(2) of the Regulations), such as to include or exclude members from the VAT
group and nominate another representative member. However, any notification
received by the representative member affects all members of the VAT group.
The representative member is deemed to undertake the business carried on by the
ht
other members and is responsible for supplies made outside the VAT group.
Supplies made within the VAT group are disregarded for VAT purposes. The
representative member is responsible for output tax on supplies made by the
group members. Supplies received by the VAT group are deemed to be received
by the representative member and it is responsible for the related input tax
accounting. Each member of the VAT group is “personally and jointly liable” for
any tax debts of the representative member. This means that all the members of
the VAT group are equally liable for any VAT debts created by any member of the
group.
The representative member can apply to amend the VAT group to add or remove
2.3
rig
members, disband the VAT group or change the representative member.
However, an application to amend the group must be made within 20 days from
the change taking place and has immediate effect from the date of application.
(Art. 6(2)(b) of the Law on Tax Procedures)
THE AUTHORITY, can refuse to allow grouping where there are serious grounds for
believing that if the registration as a group is permitted, it would enable tax
evasion or significantly decrease tax paid to THE AUTHORITY or increase the
administrative burden on THE AUTHORITY significantly. Art. 10(4)(b) of the
Regulations
Registration of Non-residents
py
A non-resident person is a person who does not own a place of establishment or
fixed establishment and does not usually reside in the UAE.
A place of establishment is the place where a business is registered and where

decisions and management of the business take place. A fixed establishment is
the place where the business is actually carried out from, such as an office or a
branch, where there are sufficient human and technology resources to make and
receive supplies of goods and services.
A non-resident person who make or intend to make taxable supplies of goods and
services in the UAE, on which tax is payable, must register for VAT in the UAE within
10 working days from when the first such supply was made. The registration
threshold does not apply to non-resident persons. If the VAT on supplies of goods
and services into the UAE is accounted for by the importer then the value of these
co
goods and services will not be counted towards registration. (Art. 18 of the VAT
Law)
The UAE Executive Regulations make provisions for mandatory and voluntary
registration.
A mandatory registration leaves no choice to a person resident in the UAE to

register when the VAT registration threshold is met.

Two tests are applicable to monitor whether the VAT registration threshold has
been or will be exceeded requiring application for VAT registration in UAE as set
out in Art. 13 of the VAT Law: one test is the Historic Test and the other is the Future
Test.
The historic test looks retrospectively at the level of supplies made in the previous
12-month period to establish if the mandatory registration threshold is exceeded
and the future test looks at supplies that will be made within the next 30 days to
ht
establish whether the same threshold will be exceeded. If the level of supplies
made in the historic or future period exceeds the VAT registration threshold of AED
375,000, a person has 30 working days to apply for registration. In respect of the
historic test, the VAT registration has effect from the first day of the month following
that in which the person became liable to register. In respect of the future test,
registration takes effect from the date on which there were reasonable grounds
for believing he would be required to register or an earlier agreed date.
For voluntary registration, existing traders can register even if their taxable supplies
fall below the mandatory registration limits, and if their annual supplies or expenses
exceed AED 187,500.
rig
With regards to voluntary registration, the same historic and future tests apply. A
business that is not required to be registered may still apply for registration
provided that its supplies or expenses are not below the voluntary registration
threshold in the historic and future 12-month period calculated, as explained
above. The VAT registration can take effect from the first day of the month
following the month in which the application is made or from an earlier agreed
date.
Voluntary registration may be chosen as it could be beneficial for intending

traders. These are traders who have not actually commenced trading, but who
intend to within the foreseeable future. These traders apply to THE AUTHORITY for a
VAT number well before they commence trading. This might be for various factors
but the most common is to enable recovery of VAT from THE AUTHORITY whilst the
py
business is being set up. For example, it might take you 6 months to refit a shop but
in those 6 months, if you are registered for VAT (which is allowed only if your
supplies or expenses exceed AED 187,500 in the previous 12 months or are
expected to in the next 30 days), you can reclaim input tax from THE AUTHORITY.
These would obviously be provisional reclaims and will be dependent on the fact
that the business does actually commence trading and makes taxable supplies for
VAT purposes. THE AUTHORITY will normally expect to see satisfactory evidence
that the business is intending to make taxable supplies or incur expenses subject to
VAT before they will register a person as an intending trader.
THE AUTHORITY will maintain a register of persons registered for VAT and will issue a
certificate of VAT registration with information relating to the registered person,
such as the name of the registered person, its allocated VAT registration number
co
and the date from which its registration is effective. (Art. 4(5) of the VAT Law)
2.5 Historic Test
The historic test is applied every calendar month. You look at taxable supplies in
the previous 12 months and if you have exceeded the annual threshold, currently
AED 375,000, then you have an obligation to register.
If the VAT registration is mandatory, under the historic test the person has to apply
for VAT registration within 10 working days from exceeding the threshold, and the
registration takes effect from the first day of the month following that in which the

person became liable to register. This is the date from which the trader can start to
charge VAT on his supplies.
that he exceeds the VAT registration limits then he has 10 working days from the
end of June to apply for registration and he will be registered from the 1st day of
July which is the first of the month following June, when the trader is required to be
registered. So, the business must be registered from the 1st day of July as it
ht
exceeded the limit in June.
2.6 Future Test
In the future test you look at the total value of taxable supplies to be made in the
next 30 days alone and determine whether taxable supplies will exceed the
mandatory registration threshold at any point in the next 30 days. It is important to
recognise that the future test is a daily test, so every single day you must look
forward to the next 30 days and see if in that period you will exceed AED 375,000.
For example, if a trader monitors the level of his supplies on 15 June 2018 to find
rig
that in any of the next 30 days he will exceed the VAT registration limits, then he
has 10 working days from the day in which he becomes liable to be registered to
apply for registration. Assuming the VAT registration will be exceeded on 5 July
2018, an application to register must be submitted by 19 July 2018 (10 working
days) and he will be registered from the 1st of August 2018 which is the 1st day of
the month following July, when the person became liable to register.
 Illustration 1
Let us assume we are a trader in business and we are checking every calendar
month the value of taxable supplies in the previous 12 months. At the end of April
2018 our taxable supplies amounted to AED 325,000 for the previous 12 months, so
there is no requirement for the business to be registered for VAT.
py
We then go to May 2018 and, for the previous 12 months to May, the taxable
supplies amounted to AED 350,000; again, below the limits.
We then go to June 2018, and for the previous 12 months our taxable supplies
amount to AED 390,000. The business has exceeded the limit; it has a requirement
to apply for registration within 30 working days from the day it becomes liable to
register for VAT.
 Example 1
The business mentioned in Illustration 1 must notify THE AUTHORITY of its requirement
to register for VAT.
co
By which date must THE AUTHORITY be notified?
From which date will this business be VAT registered?

 Illustration 2
New Business Limited commenced trading on 1 July 2018. The taxable sales were
as follows:
AED AED
2018 July 18000 2019 March 36150
August 18000 April 36150
ht
September 22600 May 36150
October 22600 June 36150
November 27100 July 36150
December 27100 August 40650
2019 January 31600 September 40650
February 31600 October 40650
Assuming the company does not want to voluntarily register, work out when the
AED 375,000 mandatory registration limit is exceeded.
At any day of a calendar month the company looks back 12 months. If it does not
rig
have 12 months to look back on, for example, on a start-up, it can only look back
to the start of trade. Assuming it takes 31 July 2018 to see how much it has sold in
the previous 12 months, it has only sold AED 18,000, so there is no requirement to
register. It then moves on to August 2018, the taxable supplies in the previous 12
months will be AED 36,000, which again does not exceed the limit. This process will
continue until it exceeds the AED 375,000 limit.
We can see from this example that when New Business Limited gets to June 2019,
taxable supplies to June 2019 total AED 343,200. Thus, registration is not required.
The 12 months from August 2018 to July 2019 amount to AED 361,350; again, not
exceeding the limit.
At the end of August 2019, in the previous 12 months, my cumulative taxable

py
supplies amount to AED 384,000; that exceeds the limit of AED 375,000 so August
2019 is the month the limit has been exceeded. The business has 30 days from the
day it became aware it had exceeded the limit, let’s say 31 August 2018, to notify
THE AUTHORITY of its requirement to be registered, so the notification must be
made by 30 September 2019, which is 30 days after the date it became aware the
limit was exceeded.
The mandatory registration will have effect from 1 September 2019, which is the
first day of the month following the month in which the limit was exceeded and
the business was required to register.
2.7 VAT Registration Threshold: Taxable Supplies

co
the standard-rate or zero-rate of tax as defined in the Agreement.
In the UAE, VAT is chargeable on all taxable supplies of goods and services made
and received in the UAE by a taxable person, including the supplies that are
subject to reverse charge VAT accounting by the recipient in the UAE.

necessary to take into account the total value of supplies of goods and services
exclusive of VAT made and received by a taxable person in the UAE.

As per Art. 19 of the VAT Law the value of all taxable supplies includes:
• The value of all supplies made by the taxable person;
• The value of ‘goods and services’ that have been imported and that would
not be exempt if supplied within UAE;
• Supplies made by a business acquired by another business are considered to
ht
be supplies of the acquiring business and are included in the calculation;
• The aggregate of all supplies made by related parties where notified by THE
AUTHORITY.
Exempt supplies and supplies of goods and services that are outside the scope of
VAT, should not be included in the turnover figure, when determining if the
business has exceeded the VAT registration threshold.
Also, the following are excluded from the calculation of the VAT registration
threshold:
2.8
•
•
rig
Supplies of capital assets of the business made in the course or furtherance of
an economic activity;
Capital assets may be tangible or intangible assets which constitute part of

the assets of the business and are assigned for the long term use as a business
tool or as an investment vehicle.
Deregistration
Deregistration can be mandatory or voluntary. A registered person must deregister

mandatorily if at the end of any month the following occurs:
• The person ceases to make taxable supplies and does not intend to make
py
taxable supplies in the future 12 months.
• The annual supplies or expenses in the previous 12 months and future 30 days
do not exceed the voluntary registration threshold of AED 187,500.
A registered person may deregister voluntarily if at the end of any month his value
of taxable supplies in the previous 12 months does not exceed the mandatory
registration threshold. (Art. 22 of the VAT Law)
A person who has registered voluntarily for VAT must be registered for a minimum
of 12 months from the date of his registration before being able to apply for
deregistration. (Art. 23 of the VAT Law)
co
Taxable supplies for the above purposes are determined on the basis that no VAT
is chargeable on the supply (i.e. VAT-exclusive).
The application for VAT deregistration must be made in electronic form as

prescribed by THE AUTHORITY and within 20 business days from when the
conditions for deregistration where met.
Mandatory deregistration will take effect from the last day of the period in which
the conditions for deregistration are met. (Art. 14(3) of the Regulations)

Voluntary deregistration will take effect from the date requested by the registered
person or the date the request is made when no preferred date is mentioned. (Art.
14(7) of the Regulations)
In addition, a registered person cannot be deregistered if he has not paid any

outstanding VAT penalties and VAT liability in full and submitted all relevant VAT
returns. (Art. 14(5) of the Regulations)
ht
THE AUTHORITY might refuse the application for deregistration where it is in
disagreement with the applicant. THE AUTHORITY will issue a formal notice to the
applicant with a date from which deregistration takes effect, within 10 business
days of making a decision.
When deregistering, VAT must be accounted for on the final return on any ‘goods
and services’ forming part of the business assets which are on hand on the last day
of registration as if they were supplied in the course or furtherance of the business.
These are considered to be deemed supplies and are subject to VAT unless the
exceptions set out in Art. 5 of the Regulations apply, as follows:
a.
b.
c.
d.
e.
rig
no input tax is recovered on the goods and services of the business;
the supply is exempt from VAT;
input VAT on capital assets has been amended according to the capital asset
scheme;
the goods supplied are samples or commercial gift of a value up to AED 500
per recipient in any 12 months;
the output tax on all the deemed supplies made by that person would not be
more than AED 2,000 within 12 months.
‘Goods and services’ for these purposes means tangible goods (e.g. unsold stock,
py
plant, furniture, commercial vehicles, computer, etc.) and intangible goods such
as patents. It includes goods purchased where title has not yet passed to the
business but where input tax on the purchase has been allowed (e.g. goods on
hire purchase or lease purchase and goods subject to reservation of title). Land
forming part of the business assets is treated as if it were goods.
The following are therefore excluded from the charge to VAT:
• Goods bought from unregistered businesses.
• Motor cars (except qualifying cars on which input tax has been claimed).
• Goods bought under the provisions of the second-hand schemes.

co
• Goods used wholly for entertainment.
• Goods that have been directly attributed to an exempt business activity

(unless the input tax was reclaimable through the partial exemption rules).
• Goods not bought for business purposes.
• Land or buildings which were purchased under an exempt supply such as

residential buildings or bare land.

Where a business has taxable land or buildings on hand at the time of

deregistration on which it claimed input tax deduction, the property is deemed to
be supplied on deregistration. To avoid the cash flow problem that this might
create, the business could consider whether it is possible to defer the cancellation
of registration until the property is sold so that it would then be required to account
for output tax on the actual sale of the property.
When a deemed supply on deregistration is in point the value will be the market
ht
value. The market value of a supply of goods or services at a given date is the
consideration in money which the supply would generally achieve if supplied in
similar circumstances at that date in the MEMBER STATE, being a supply freely
offered and made between persons who are not connected in any manner.
2.9 Exception from Registration (Art. 15 of the VAT Law and Art. 16 of the
Regulations)
Taxable persons can be excluded from mandatory registration if their annual

turnover is made up exclusively of supplies which are taxable at the zero rate of
2.10
VAT.
rig
An application for such exception shall be filed with THE AUTHORITY. If THE
AUTHORITY is satisfied that the conditions for exception from registration exist, it will
issue a notice to the applicant confirming its exception from registration or THE
AUTHORITY will notify the applicant of his its registration.
If the circumstances of the applicant change in the future and it will make
standard-rated taxable supplies or will receive supplies on which VAT is due in the
UAE, it must to notify THE AUTHORITY within 10 business days from when the taxable
supply was made or received and it will be registered for VAT.
Disaggregation of Business Activities (Arts. 9(4), 9(5) and 12 of the

Regulations)
py
THE AUTHORITY may assess the relationship of two or more persons where these
are:
• associated by economic, financial and regulatory links;
• are not registered for VAT as a Tax group; and
• have artificially segregated their business
Where the conditions above are met, the taxable supplies of each person will be
aggregated for the purposes of determining whether they have exceeded either
the mandatory or voluntary registration thresholds.
co
Where the business was not segregated artificially but THE AUTHORITY considers
that there is a tax loss due to segregation, it may treat the taxable supplies of each
of the persons as aggregated to determine whether they have exceeded the
registration thresholds.
Where this article applies each party is treated as making the taxable supplies
made by the other person and is required to apply for registration if the mandatory
registration threshold has been exceeded.

Financial, economic and regulatory links depend upon the specific circumstances
but the following examples illustrate the types of factors indicative of the
necessary links:
a. Financial Links
• Financial support given by one part to another.
ht
• One part would not be financially viable without support from another.
• Common financial interest in the proceeds of the business.
b. Economic Links
• Seeking to realise the same economic objective.
• The activities of one part benefit the other part.
• Supplying the same circle of customers.
2.11
c.
•
rig
Regulatory Links
Common management.
Common employees.
Common shareholders or economic ownership.
Common equipment.
Reconsideration
py
Any person can apply to THE AUTHORITY to reconsider any decision within 20
business days from notification of the decision. The applicant must provide reasons
to appeal a decision. THE AUTHORITY will review the decision and issue a new one
within 20 business days from receipt of the application and must inform the
applicant within 5 business days of issuing the decision. (Art. 27 of the Law on Tax
Procedure)
co

co
py
rig
ht
ANSWERS
 Answer 1
The correct notification date is 30 July 2018. This is 30 days from the date on which
the limit was exceeded.
As the business exceeds the limit on 30 June 2018, the correct registration date is 1
ht
July 2018; this is the first day of month following that in which the business was
required to be registered. The business will be registered and must charge VAT on
supplies made from 1 July 2018.
Note: The UAE legislation does not specify when in a month the historic test must
be applied. We have used the last day of the month in this example but the 30
day notification period begins on the day the business becomes aware it has
exceeded the test.
rig
py
co

co
py
rig
ht
CHAPTER 3
DEFINITION OF SUPPLIES
ht
This chapter will look at the following:
– when a supply arises for VAT purposes;
– the definition of consideration;
– the five basic conditions required to determine whether a supply should be charged
to VAT.
3.1 Introduction
rig
A supply for VAT purposes would generally arise where consideration is given in
return for goods or services.
Consideration is everything collected or to be collected from the customer or third

party for the supply of goods or services. Suppose we have a registered trader that
sells goods to a customer (the supply). In return, the customer pays cash to the
registered trader (consideration). Where the consideration is for the goods
provided, we have a supply for VAT purposes.
However, it is not necessary for cash to pass; the definition of consideration says
everything collected, so it need not be money. For example, in return for the
goods the customer may offer his time i.e. he may have an arrangement where
he works one morning a week in the registered trader's business. He would not get
paid for that morning; instead he receives goods. So, the consideration in this
py
example would be the time the customer is giving the registered trader, hence
there will be a supply for VAT and the registered trader must determine whether he
should account for VAT on the goods supplied. This will depend on whether the
goods supplied are taxable or not.
Consequently, once consideration is present and directly linked to a supply, we

then need to determine whether it is a taxable supply.
3.2 Five Conditions
There are five basic conditions to determine whether a supply merits a charge to
VAT.
co
a. The supply must amount to a supply of goods or services.
b. The supply must be made by a taxable person.
c. The supply must have been made in the MEMBER STATE.
d. The supply must have been made by a taxable person conducting an

economic activity.
e. It must be a taxable supply by definition.
We shall now consider each of these in turn.

3.3 Goods or Services
A supply of goods is defined in the legislation as the transfer of the whole of

property in goods by way of sale, hire purchase, conditional sale or similar
transaction. This is effectively exclusive ownership passing. Supply of gas, oil, water
and electricity, granting rights in rem deriving from ownership giving the rights to
use real estate and compulsory transfer of ownership pursuant to a decision of the
public authorities are also included as supply of goods. Anything done for
ht
consideration which does not fall within the above is a supply of services. So, there
is no real definition of services. There is a definition of goods but if your particular
transaction does not fall within this definition, then it will be a service.
For example, if you are a retailer who sells a computer to a customer, that will be a
supply of goods as exclusive ownership is passing. If, on the other hand, the retailer
retains ownership of the computer and leases it or rents it to the customer, that is a
service.
The place of supply rules are different for goods and services so the distinction is
important.
3.4
3.5
rig
There are also important distinctions between goods and services in the pre-
registration input tax rules.
Supply Must be Made by a Taxable Person
The second condition is that the supply must be made by a taxable person. A
taxable person for VAT purposes is any individual (i.e. a sole trader), any
partnership, company, club or association which is registered or is required to be
registered for VAT. So, this is basically any person who has exceeded the
mandatory registration tests or has registered for VAT voluntarily.
Supply in the MEMBER STATE

py
The third condition is that the supply must be made in the MEMBER STATE of the
GCC. The MEMBER STATES of the GCC as follows: United Arab Emirates; Kingdom of
Bahrain, Kingdom of Saudi Arabia; Sultanate of Oman, State of Qatar and State of
Kuwait as specified in the preamble of the Agreement.
Subject to various overrides, if the supply of goods is without transportation, they

shall be treated as supplied in the MEMBER STATE where the goods exist at the time
of placing it at the disposal of the customer (Art. 10 of the Agreement). Where the
goods are supplied with transport, the goods are supplied in the MEMBER STATE
where the transport begins (Art. 10 and 11 of the Agreement).
Services supplied to business customers are deemed to be supplied in the country

co
in which the customer belongs, i.e. a country in which he has his business
establishment or, if there is no such establishment, in the country in which he
resides. The basic rule for supplies to non-business customers is where the supplier
belongs. (Art. 15 and 16 of the Agreement)
There are various overrides to these basic rules within Part 2, Section 2 of the
Agreement, whereby the place of supply of certain services is either where the
services are performed or where the supplier is established, where the customer is
non-business.

3.6 Supply by a Taxable Person Conducting Economic Activity
The next condition is that the supply must be made by a taxable person
conducting an economic activity where the taxable person conducts the activity
for a profit.
However, the definition of economic activity includes:
ht
a. Any trade, profession or services;
b. Any use of material or immaterial property;
c. Any other activity.
A requirement for an activity to be considered an economic activity is that it is

conducted in an “ongoing and regular manner”.
Each MEMBER STATE will apply the definition of economic activity to define a
taxable person in its territory as specified in their own VAT Law and Regulations.
ii.
rig
When considering whether an activity is to be treated as a business for the
purpose of a person to become a taxable person and make taxable supplies, the
‘business test’ below can be applied. These tests are from case studies in
established jurisdictions in the EU and may be used for reference purpose.
i. Is the activity a ‘serious undertaking earnestly pursued’ or a ‘serious

occupation not necessarily confined to commercial or profit-making
undertakings’?
Is the activity an occupation or function actively pursued with reasonable or

recognisable continuity?
py
A one-off supply or a series of infrequent, unconnected supplies is not normally
a business activity in its own right although it is important to consider the nature
of the activity. For example, occasional sales by small speculative builders and
property developers are business activities.
iii. Does the activity have a certain measure of substance as measured by the
quarterly or annual value of taxable supplies made?
iv. Is the activity conducted in a regular manner and on sound and recognised
business principles?
v. Is the activity predominantly concerned with the making of taxable supplies to

consumers for a consideration?
co
This is perhaps the most important point to establish, bearing in mind that
‘consideration’ need not necessarily be monetary. If a trader is carrying on an
activity which does not involve the making of any supplies for a consideration
and there is no intention in the future of doing so, then the activity is unlikely to
be regarded as business even if all the other criteria are met.

Case Laws – Only for Reference
Eastbourne Town Radio Cars Association argued that it merely acted as agent
of its members and did not make any supplies. It was held that there was a
direct link between the services the association provided and payments its
members made. It was supplying services for a consideration and was
required to register for VAT.
ht
In C & E Commrs v The Apple and Pear Development Council, [1988]) the
Council's principal activity was to advertise English apples and pears, which
activity was financed by a statutory levy on growers. The CJEU ruled that the
levy was not consideration because there was no direct link between the
payments and the benefits of individual growers on which basis the House of
Lords concluded that the activity was not ‘business’ in the VAT sense.
The carrying on, by a regulatory authority, of a statutory licensing activity to

protect the public interest is not a business activity even though carried on for
a consideration. In Institute of Chartered Accountants in England and Wales v
C & E Commrs, [1999] the Institute's authorisation to issue licences to auditors,
rig
insolvency practitioners and persons carrying on investment business was held
not to be a business activity.
vi. Are the taxable supplies of a kind which are commonly made by those who
seek to profit by them?
If a person is carrying on an activity and it is not clear whether it amounts to a

business, it is more likely to be regarded as such if others are carrying on the
same type of activity and are clearly doing so on a commercial basis. In
Church of Scientology of California (No 1) v C & E Commrs, [1981] courses in
the study of its beliefs provided by the Church, some of which competed with
those offered by trained psychologists and psychiatrists, were found to be
business activities.
py
If all or a sufficient number of the above criteria are satisfied in sufficient measure
to override any contra-indications which might be seen in the facts, then as a
matter of law the activity must be held to be a business.
3.7 Taxable Supply
The final point is whether or not the supply is a taxable supply. Once it has been
established that there is a supply we then need to determine whether the supply is
taxable, exempt or outside the scope of VAT completely.
Taxable will be at one of the two rates of VAT; the standard-rate and a zero-rate.
The standard-rate is 5% and the zero-rate, as you would expect, is 0%. The
legislation details supplies which are subject to the zero-rate of VAT. The legislation
co
also outlines which supplies are exempt supplies and, to a certain extent, which
supplies are outside the scope of VAT. If your supply is not within one of those
specific definitions, then the supply is standard-rated by default. Each MEMBER
STATE can apply zero-rating or exemption to certain categories of supplies such as
Education, Health, Real estate and Local Transport (Art. 29 of the Agreement).

Supply liability
Outside the
Taxable Exempt
ht
scope of VAT
Standard-rate Zero-rate
So, there we have it, the five conditions. For there to be a taxable supply you must
rig
meet all five.
py
co

co
py
rig
ht
APPENDIX 1
CHAPTER 3 DEFINITION OF SUPPLIES
ht
3.1 Introduction
The KSA adopts the same definition of supply as laid out in the Agreement. (Art. 2
of the VAT Law)
Therefore, VAT is chargeable on the supply of goods, services and imported goods
and services.
Consideration is the main element to characterise a supply as a taxable supply for
3.2
rig
VAT purposes and consideration can consist of cash or “everything collected’ as
per the definition in the Agreement.
The charge of the supply to VAT will depend on whether the goods and services
supplied are taxable or not.
Five Conditions
The same five basic conditions outlined in Chapter 3 determine whether a supply
merits a charge to VAT in the KSA. These are:
a.
b.
The supply must amount to a supply of goods or services.
The supply must be made by a taxable person.

py
c. The supply must have been made or received in the KSA.
d. The supply must have been made or received by a taxable person

conducting an economic activity.
e. It must be a taxable supply by definition or subject to reverse charge.
We will consider these in relation to the VAT Law and Regulations as implemented
in the KSA.

co
The definition of goods and services as provided by the Agreement is adopted in

the VAT Law and the Regulations of the KSA. Goods are defined as “all types of
material properties (material assets) including water and all forms of power
including electricity, gas, lighting, heating, cooling and air conditioning”.
The place of supply rules are different for goods and services in the KSA, so the
distinction between goods and services is important.
registration input tax rules. Input VAT incurred on service prior to registration can be
recovered on expenses incurred in the 6 months before registration. (Art. 49(2) of
the Regulations)

3.4 Supply Must be Made or Received by a Taxable Person
The second condition is that the supply must be made by a taxable person. That is
any individual or organization that is registered or is required to be registered for
VAT and has exceeded the mandatory registration threshold or has registered for
VAT voluntarily. Also supplies received by a taxable person in the KSA and that are
subject to reverse charge accounting by the recipient are taxable supplies.
ht
3.5 Supply in the KSA
The third condition is that the supply must be made in the KSA.
Subject to various overrides, if the supply of goods is without transportation, they

shall be treated as supplied in the MEMBER STATE where the goods exist at the time
of placing it at the disposal of the customer (Art. 10 of the Agreement). Where the
goods are supplied with transport, the goods are supplied in the state where the
transport begins (Art. 10 and 11 of the Agreement).
rig
Services supplied to business customers are deemed to be supplied in the MEMBER
STATE or other country in which the customer belongs, i.e. a country which he has
his business establishment or, if there is no such establishment, in the country in
which he resides.
The basic rule for supplies to non-business customers is where the supplier resides.
There are various overrides to these basic rules within the Agreement, whereby the
place of supply of certain services is either where the services are performed or
where the supplier is established, where the customer is non-business. The
Regulations, however, establish that where the place of supply of services is
determined in accordance with the general principles of Art. 15 and 16 of the
Agreement, and these conflict with the Regulations, the provisions of the
Regulations prevail (Art. 22 of the Regulations).
py
3.6 Supply by a Taxable Person Conducting an Economic Activity
conducting an economic activity where the taxable person conducts the activity
for the purpose of generating income. (Art. 2 of the Regulations)
The same definition of economic activity as provided in the Agreement applies in

the KSA to include:
a. any trade, profession or services;
b. Any use of material or non-material property;

co
c. Any other activity.
The activity is conducted in an “ongoing and regular manner” according to the

definition in the Agreement and “independently for generating income” as per
Art. 2 of the Regulations.
In considering whether an activity is to be treated as a business for the purpose of

a person to become a taxable person and make taxable supplies, the ‘business
test’ in Chapter 3 may be applied. However, it is necessary that the activity is
conducted independently (i.e. the person is not an employee) with the intention

to generating income (i.e. it is a business that generates or intends to generate

income).
3.7 Taxable Supply
established that there is a supply, then we need to determine whether the supply is
ht
Taxable will be at one of the two rates of VAT; the standard-rate and a zero-rate.
The standard-rate is 5% and the zero-rate is 0%. Art. 31 of the Regulations details
the conditions for zero-rating and subsequent Articles details the supplies that are
zero-rated supplies and includes exports of goods from the KSA, services provided
to non-GCC residents, transport of goods and people outside the Kingdom,
medicines and medical equipment and supply of precious metal for investment
(Qualifying metal: Gold, silver or platinum) etc.
The legislation also outlines which supplies are exempt supplies in Art. 29, 30 and 42
of the Regulations. These include financial services, the lease or licence of
Q
rig
buildings to be used for residential purposes, the import of personal goods, the
import of medical equipment subject to certain conditions etc.
Art. 17 and 18 of the Regulations detail that supplies outside the scope of VAT are
the transfer of an economic activity subject to certain conditions, supplies made
by a legal person to itself and intra-VAT Group supplies.
For there to be a taxable supply, all five conditions must be met.
py
your Question Bank.
co

co
py
rig
ht
APPENDIX 2
CHAPTER 3 DEFINITION OF SUPPLIES
ht
3.1 Introduction
VAT is chargeable on the supply of goods and services for a consideration. The
definition of supply is provided in Title 2, Arts. 2 and 3 of the Regulations and
defines in detail what a supply of goods is and what a supply of services is.
Transfer of ownership is the main requirement for a supply of goods to take place.
A supply of services is generally anything that is not a supply of goods. The
payment of consideration for a supply made in the course of business is the main
3.2
rig
element of a taxable supply for VAT purposes.
Consideration is all that is received or expected to be received for the supply of

Goods or Services, whether in money or other acceptable forms of payment. (Art.
1 of the Regulations)
The charge of the supply to VAT will depend on whether the goods and services
supplied are taxable or not.
Five Conditions
There are five basic conditions to determine whether a supply merits a charge to
VAT in the UAE. These are:
py
a. The supply is a supply of goods or services.
b. The supply must be made by a taxable person.
c. The supply must have been made or received in the UAE.
d. The supply must have been made by a taxable person conducting business in
the MEMBER STATE.
e. It must be a taxable supply by definition.
We will consider these in relation to the VAT Law and Regulations as implemented
in the UAE.
co
The definition of goods and services as provided by the Agreement is adopted in

the VAT Law and the Regulations of the UAE. Art. 1 of the Regulations defines
goods as “physical property that can be supplied”.
The supply of goods is the transfer of anything under an agreement for

consideration. The definition of supplies of goods includes the supply of water and
all forms of energy such as electricity, gas, lighting, heating, cooling and air
conditioning; and the supply of real estate including sale and tenancy contracts.
(Art. 2 of the Regulations with reference to Art. 5(1) and (2) of the VAT Law)

Services are defined in Art. 1 of the Regulations as anything that can be supplied
other than goods. Supplies of services include, among others, the granting or
assignment of a right; transfer of shares in an asset, transfer of licensing or
intangible rights such as copyrights etc. (Art. 3 of the Regulations)
The place of supply rules are different for goods and services in the UAE, so the
distinction between goods and services is important. The place of supply of goods,
with exceptions, is the UAE where the supply takes place in the UAE; the place of
ht
supply of services is where the supplier is resident. The place of residence is where
the person’s place of establishment is located or where he has a fixed
establishment. (Art. 32 of the VAT Law)
Place of establishment is defined as the place where a business is legally

established in a country or where significant management decisions and
management functions are taken and conducted; and fixed establishment is any
fixed place of business, other than the place of establishment, in which the person
conducts his business regularly or permanently and where sufficient human and
technology resources exist to enable the person to supply or acquire goods or
services, including the person’s branches.
3.4
rig
registration input tax rules. Input VAT incurred on services prior to registration can
be recovered on services received in the 5 years before registration (Art. 56 of the
VAT Law). There is no time restriction on the recovery of pre-registration input tax
on goods.
Supply Must be Made by a Taxable Person
The second condition is that the supply must be made by a taxable person. That is
any individual or organization that is registered or obligated to be registered for
VAT that has exceeded the mandatory registration threshold or has registered for
VAT voluntarily. This includes supplies received by a taxable person in the UAE that
py
are subject to reverse charge accounting by the recipient.
3.5 Supply in the UAE
The third condition is that the supply must be made in the UAE.
Subject to various overrides, if the supply of any goods does not involve their
export from or import to the UAE they shall be treated as supplied in the UAE;
otherwise they shall be treated as supplied outside the UAE. (Art. 27 of the VAT
Law)
The place of supply of services is the place of residence of the supplier.
For services supplied to customers who are resident in another MEMBER STATE and
co
are registered for VAT there the place of supply is the place of residence of the
customer.
There are various overrides to these basic rules within Chapter 2 of the VAT Law –
Place of Supply, whereby the place of supply of certain services is either where the
services are performed or used or where the supplier is resident if the customer is a
non-business.

3.6 Supply by a Taxable Person Conducting an Economic Activity
conducting a business. A business is defined in Art. 1 of the Regulations.
“Any activity conducted regularly, on an ongoing basis and independently by any

Person, in any location, such as industrial, commercial, agricultural, professional,
service or excavation activities or anything related to the use of tangible or
ht
intangible property.“
The definition of economic activity as provided in the Agreement, ‘the activity

being carried out in a continuous and regular manner and shall include
commercial or industrial, or agricultural, or professional, or service or, any use of
material or non-material properties, or any other similar activity applies in UAE to
include:
a. any trade, profession or vocation;
b. drilling activities;
3.7
c.
rig
any other activity in relation to the use of tangible or intangible property;
provided the activity is conducted regularly on an ongoing basis, independently

and in any location.
Taxable Supply
established that there is a supply we then need to determine whether the supply is
Taxable will be at one of the two rates of VAT, the basic-rate and a zero-rate. The
py
basic-rate is 5% and the zero-rate is 0%. Arts. 30-41 of the Regulations sets outs the
conditions for zero-rating and the supplies that are zero-rated supplies and
includes exports of goods from the UAE, services provided to non-GCC residents,
international transport of goods and people, supply of precious metals, supply of
new residential buildings, healthcare, etc.
The legislation also outlines which supplies are exempt supplies in Arts. 42-45 of the
Regulations. These include financial services, residential buildings, bare land and
local transport of passengers.
The transfer of an economic activity subject to certain conditions, and intra-VAT

Group supplies are outside the scope of VAT.
For there to be a supply that merits a charge to VAT, all five conditions must be
co
met.

2
co
py
rig
ht
CHAPTER 4
LIABILITY OF THE SUPPLY
ht
This chapter is going to look at the following:
– how we work out whether a supply is chargeable to VAT;
– if it is, how much VAT do we actually charge on that supply;
– the three types of supply;
– the way to categorise a supply in order to work out the correct VAT treatment.
4.1 Introduction
4.2
rig
This chapter looks at how to work out whether a supply is chargeable to VAT and,
if it is, how much VAT to charge on that supply. Effectively, it could be said that
there are three types of supply. The first type of supply is a taxable supply which is
the sort of supply that VAT will apply to. The second type of supply is an exempt
supply, there is no VAT on an exempt supply. The final type of supply is called
outside the scope.
Taxable Supplies
Basically, there are two types of taxable supply. The first type of taxable supply is
called standard-rated because the standard-rate of VAT would apply to this
supply, so 5% VAT will be charged on standard-rated taxable supplies.
The second type of taxable supply is the zero-rated taxable supply which, of
py
course, is taxable at the zero-rate of VAT, 0% VAT.
In the VAT legislation there is a list of zero-rated supplies and exempt supplies in Art.
29 of the Agreement. Each MEMBER STATE has discretion to set out the conditions
and rules in relation to the exemptions or zero-rating for the sectors listed in Art. 29.
Nowhere in the legislation is there a definitive list of standard-rated taxable
supplies. Supplies are standard-rated by default i.e. not covered by the provisions
relating to zero-rated and exempt supplies.
4.3 Method of Determining Liability
A business supplies widgets. How should it treat the supply of these goods for VAT
purposes? Firstly, one looks at whether a widget falls into any category of the
co
exempt or zero-rated supplies listed in Art. 29 of the Agreement.
If the business cannot allocate the supply within any of the categories listed as
exempt or zero-rated supply, the next step would be to decide if the widget was
outside the scope of VAT. Again, there are specific supplies that are outside the
scope of VAT, for example, supplies of goods that take place outside of the
MEMBER STATE.

Thus, if the item is not zero-rated, not exempt, and not outside the scope of VAT
then what is left is a standard-rated taxable supply and that is what the widget
must be. This is the final step. There is no list of standard-rated taxable supplies in
the legislation, basically one gets there by default.
However, each MEMBER STATE will apply the zero-rating and exemption at its own
discretion and with distinction between the two categories; consequently, the
above is a general method to determine whether the supply is a taxable supply.
ht
Depending on the MEMBER STATE in which the supply occurs, one has to look at
the MEMBER STATE’s specific rules; the decision process is as follows:
Step
1 Supply listed as zero-rated? No
↓
2 Supply listed as exempt? No

↓
3 Supply is outside the scope? No
↓
4.4
rig
4 Supply must be: Standard-rated
Zero-rating will always take priority over exemption.
Outside the Scope of VAT
The sorts of items that are completely outside the scope of VAT are things like:
•
statutory charges;
salaries and wages;
intra-group transactions if there is a VAT group registration in force; and

py
• the sale or purchase of a business as a going concern.
co

APPENDIX 1
CHAPTER 4 LIABILITY OF THE SUPPLY
ht
4.1 Introduction
This Appendix looks at how to work out whether a supply is chargeable to VAT
and, if it is, how much VAT to charge on that supply according to the VAT
legislation as implemented in the KSA. The Agreement, the VAT Law and the
Regulations make provisions as follows:
• taxable supply - a supply to which VAT will apply;
4.2
•
rig
exempt supply - a supply where there is no VAT; and
outside the scope supply - a supply that is neither taxable nor exempt.
Taxable Supplies
The Regulations of the KSA make provisions for two types of taxable supply in
accordance with the Agreement as follows:
•
Taxable supply, subject to the 5% rate of VAT, called standard-rated supplies;
Zero-rated taxable supply, subject to the 0% rate of VAT, called zero-rated

supplies.
py
Whilst there is a definition of taxable supplies in the VAT Law and Regulations, the
legislation does not provide a list of standard-rated taxable supplies. Supplies are
standard-rated by default i.e. not covered by the provisions relating to zero-rated
and exempt supplies.
There is, however, a list of zero-rated supplies in Art. 31 to Art. 36 of the Regulations
and a list of exempt supplies in Art. 29 and Art. 30 of the Regulations.
purposes? Firstly, one looks at whether a widget falls into any category of the zero-
rated supplies listed in Art. 31 to Art. 36 of the Regulations.
co
If the business cannot allocate the supply within any of the categories listed as a
zero-rated supply, the next step would be to decide if the widget falls into any
category of the exempt supplies in Art. 29 and Art. 30 of the Regulations.
If the business cannot allocate the supply to any category of the exempt supplies,
it looks at whether the supply is outside the scope of VAT. Supplies outside the
scope of VAT are categorised as a separate item in the KSA legislation. These are
identified in the law by reference to specific situations such as VAT Grouping,
exports of own goods outside the KSA and sale of business as a going concern
(Art. 16 to Art. 18 of the Regulations).

If the supply cannot be allocated to any category above, the supply is a

standard-rated taxable supply and VAT at 5% must be applied.
According to the construction of the legislation, the decision process is as follows:
Step
1 Art. 31 to Art. 36 of the Regulations (zero-rated)
↓ ↓
ht
2 Art. 29 and Art. 30 of the Regulations (exempt)
↓ ↓
3 Art. 16 to Art. 18 of the Regulations (outside the
scope - specific supplies)
↓ ↓
4 Standard-rated
4.4 Outside the Scope of VAT
•
rig
The VAT Law and Regulations in the KSA specify that the following are items always
outside the scope of VAT:
• transfer of own goods to another MEMBER STATE (Art. 16 of the Regulations)
the sale or purchase of a business as a going concern (Art. 17 of the

Regulations).
supplies by a legal person to itself and intra-group transactions if there is a VAT

group registration in force (Art. 18 of the Regulations);
py
co

APPENDIX 2
CHAPTER 4 LIABILITY OF THE SUPPLY
ht
4.1 Introduction
This Appendix looks at how to work out whether a supply is chargeable to VAT
and, if it is, how much VAT to charge on that supply according to the VAT
legislation as implemented in the UAE.
The Agreement, the VAT Law and the Regulations make provisions as follows:
• Taxable supply - a supply to which VAT will apply.
4.2
•
rig
Exempt supply - a supply where there is no VAT and on which the related input
tax cannot be recovered.
Taxable Supplies
The Regulations of the UAE make provisions for two types of taxable supply in
accordance with the Agreement as follows:
•
Taxable supply, subject to the 5% rate of VAT, called standard-rated supplies.
Zero-rated taxable supply, subject to the 0% rate of VAT, called zero-rated

supplies.
py
Whilst there is a definition of taxable supplies in the VAT Law and Regulations, the
legislation does not provide a list of standard-rated taxable supplies. Supplies are
standard-rated by default i.e. not covered by the provisions relating to zero-rated
There is, however, a list of zero-rated supplies in Arts. 30-41 of the Regulations and a
list of exempt supplies in Arts. 42-45 of the Regulations.
purposes? Firstly, one looks at whether a widget falls into any category of the zero-
rated supplies listed in Arts. 30-41 of the Regulations.
co
If the business cannot allocate the supply within any of the categories listed as
zero-rated supplies, the next step would be to decide if the widget falls into any.
If the supply cannot be allocated to any category above, the supply is a

standard-rated taxable supply and VAT at 5% must be applied.

According to the construction of the legislation, the decision process is as follows:
Step
1 Art. 30 to Art. 41 of the Regulations (zero-rated)
↓ ↓
2 Art. 42 to Art. 45 of the Regulations (exempt)
↓ ↓
3 Standard-rated
ht
4.4 Outside the Scope of VAT
The UAE legislation specifies that the following are items always outside the scope
of VAT:
• intra-group transactions if there is a VAT group registration in force, these

supplies are disregarded for VAT purposes (Art.12(1)(b) of the Regulations);
Q
•
•
rig
transfer of own goods to another MEMBER STATE may be outside the scope of
VAT if certain conditions are met otherwise it is treated as a deemed supply
(Art. 11 of the VAT Law);
the sale of vouchers at face value – not a supply (Art. 7(1) of the VAT Law);
the sale or purchase of a business as a going concern – not a supply (Art. 7(2)
of the VAT Law).
py
your Question Bank.
co

CHAPTER 5
ZERO-RATING
ht
This chapter will look at the types of supply listed as zero-rated supplies.
5.1 Introduction
Zero-rate supplies are taxable supplies subject to tax at 0%. A taxable person making
zero-rated supplies is entitled to claim input VAT on the goods and services used to
make these zero-rated supplies subject to satisfying other conditions as detailed in
5.2
rig
Module B. Because zero-rated supplies are taxable supplies, it is necessary to take
into account the value of zero-rated supplies of goods and services to determine
whether the registration threshold has been exceeded for the purpose of VAT
registration.
The Agreement provides details of the various categories of goods and services
which should be zero-rated (Chapter 6). The Agreement assigns discretion to the
MEMBER STATES to choose which categories are to be treated as zero-rated among
those listed and also assigns powers to provide further conditions for each zero-rated
supply. Chapter 6 gives a choice to the MEMBER STATES to make the listed supplies
either zero-rated or exempt; however, it also directs that some supplies shall be
treated as zero-rated.
Zero-Rating in the Agreement

py
The Agreement makes provision assigning to each MEMBER STATE the right to
choose to treat the supply of certain goods and services either as zero-rated or
exempt; however, the Agreement also directs which supplies may be subject to
zero-rate only or exempted from tax to be treated as zero-rated. These are called
"Exceptions”. The Agreement also makes specific provisions for the zero-rating of
specified supplies.
5.3 Discretion of the MEMBER STATES to Apply Zero-Rating or Exemption

(Art. 29 of the Agreement)
The supply of services falling within the category of education, health, real estate
and local transport can be treated either as zero-rated or exempt, at the discretion
co
of the MEMBER STATE and subject to specific conditions as set out in the VAT Law
and Regulations.
Whilst paragraph 1of Art. 29 makes provision for zero-rating or exemption of the
categories mentioned, paragraph 2 of the same article provides that the supply of
oil, oil derivatives and gas may be subject to zero-rating only, but not the exemption,
at discretion of the MEMBER STATE.

5.4 Food, Medicines and Medical Equipment (Art. 31 of the Agreement)
Art. 31 of the Agreement provides that food is treated by the MEMBER STATES as
standard-rated at 5% of VAT.
However, foods, medicines and medical equipment for zero-rating treatment must
be listed and approved by the Financial and Economic Cooperation Committee in
order to apply the zero-rating.
ht
5.5 Internal and International Transportation of Goods and Passengers
Art. 32 provides the zero-rating, with no discretion to the MEMBER STATES, for the
transport of people and goods and related services between the territories of the
GCC and from the GCC to other international destinations.
5.6 Certain Means of Transport (Art. 33 of the Agreement)
5.7
rig
With regards to “conveyances”, intended as means of transport, the legislation
allows discretions to the MEMBER STATES to apply zero-rating when conveyances
concern the transport of goods and passengers for a fee for commercial purposes,
such as on cargo transport or a cruise.
The zero-rating may apply also to goods and services bought to be used for
operating, repairing, maintaining or transferring the means of transport used for the
transport of goods and passengers for a fee for commercial purposes.
The zero-rating may also be applied to the supply of rescue airplanes and boats as
well as aid by land and sea; and boats used for sea fishing.
Supply of Goods and Services Outside the GCC (Art. 34 of the

Agreement)
py
The export of goods to a place outside the GCC, the supply of goods to be kept in
a bonded warehouse, goods temporarily imported into the GCC for repairs or other
works on goods but subsequently re-exported, services supplied by a business in the
GCC to a customer outside of the GCC who uses and consumes the services outside
of the GCC are zero-rated with no discretion of the MEMBER STATES.
5.8 Supply of Gold, Silver and Platinum (Art. 35 of the Agreement)
The zero-rating treatment is mandatory for the MEMBER STATES on the first supply
after extraction and the supply for investment of gold, silver and platinum. Only
precious metals traded on the Global Bullion Exchange and with 99% purity are
considered metals for investment.
co
5.9 Financial Services as an Exception to Exemption (Art. 36 of the

Agreement)
Financial Services are generally treated as exempt; however, Art. 38 provides that
a MEMBER STATE can apply any tax treatment to the supply of Financial Services,
including zero-rating.

5.10 Supplies of Used Goods (Art. 37 of the Agreement)
The sale of used good is taxed on the profit margin which is the profit made after
costs that is “sale price – purchase price = profit margin”. MEMBER STATES are
granted discretion in determining the rules and conditions to determine the tax
liability, including zero-rating, of the profit margin made on the sale of second-hand
goods.
ht
The MEMBER STATES will adopt a more detailed approach to define the conditions
applicable to the tax treatment of the above, whether the supply is mandatorily
zero-rated or discretion for zero-rating is allowed.
5.11 A Word of Warning
When considering the items within these supplies, it is important that you fully read
all the notes within the Legislation and Regulations or the VAT notices. Below is a
summary of which supplies are to be treated as zero-rated mandatorily by each
MEMBER STATE and supplies that can be treated as zero-rated at discretion of the

rig
MEMBER STATES:
transport
Mandatory
treatment
Zero-rating
Internal and international 

Discretionary
treatment
Education, health, real

estate and local transport,
py
 Supplies of goods and oil, oil derivatives and gas
services outside the GCC  Conveyances
 Supply of gold, silver and  Financial services
platinum as an investment  Used goods
co

co
py
rig
ht
APPENDIX 1
CHAPTER 5 ZERO-RATING
ht
5.1 Introduction
In accordance with the powers granted by the Agreement, the KSA has
implemented the zero-rating of goods and services by Regulations.
Also, for the legislation of the KSA, zero-rated supplies are taxable supplies subject
to tax at 0% and as such, they are included in the VAT registration threshold
calculation to ascertain whether registration limits have been exceeded.
5.2
rig
A taxable person making exclusively zero-rated supplies can be exempted from
VAT registration. However, where the person elects to register for VAT, he is entitled
to claim input VAT on the goods and services used to make these zero-rated
supplies as normal.
Where a supply of goods and services is both an exempt and a zero-rated supply,
the zero-rating treatment takes precedence over the exemption.
KSA VAT Law and Regulations
Art. 10 of the VAT Law refers to the Regulations for the zero-rating treatment of
goods and services.
The Regulations state in Art. 49(1)(a) that zero-rated supplies are taxable supplies
py
and that the input tax incurred on expenses used in making zero-rated supplies is
deductible.
The zero-rated treatment of certain supplies is to be found in Chapter 6 of the

Regulations. The Regulations implement zero-rating for those supplies that are
mandatorily zero-rated supplies in the Agreement and exercise discretion in
relation to certain supplies as specified in Art. 31 to Art. 36 within Chapter 6.
We analyse those articles in detail below.
5.3 Exports of Goods and Services from the KSA
The export of goods and services is one of the categories subject to mandatory
co
zero-rating as per the dispositions of the Agreement.
The KSA has implemented the zero-rating of goods and services in Art. 32 and Art.
33 of the Regulations respectively, subject to the conditions specified in these
articles.
With regards to goods, the first condition for zero-rating is that the goods leave the
KSA for a destination outside the GCC within 90 days of being supplied and that
the supplier keeps evidence that the goods have left the country.
The evidence to be provided consists of export clearance documents issued by

Customs and an invoice with details of the recipient and of the goods including

where they are delivered and transport documents evidencing consignment of

the goods at the final destination.
The same requirements for zero-rating apply to re-exported goods that entered
the KSA temporarily for the purpose of carrying out repairs or other works.
If THE AUTHORITY is not satisfied with the evidence provided to prove export of the
goods, the supply will be treated as being made in the KSA until satisfactory
ht
evidence of export is provided.
Also, goods that are held in a bonded warehouse under the custom duty
suspension regime, will be treated as zero-rated if the supplier can provide
sufficient evidence that the goods have not been put into circulation in the KSA,
by way of providing details of where the goods are held.
With regards to services, Art. 33 of the Regulations prescribes six conditions to be

met for zero-rating as follows:
(1) Certain services supplied to a recipient that does not reside in the KSA do not
˗
rig
take place in any MEMBER STATE. The services to which the Regulations refer to
consist of the supply of:
The leasing of means of transport to private customers;
Services related to Real Estate;
Telecommunication services;
Electronically supplied services;
Restaurant, hotel, foods and beverages;
Cultural, artistic, sport, educational and recreational Services;

py
˗ Services in relation to the transport of goods provided to private
individual.
Each supply mentioned above is treated in accordance to specific place of

supply rules to be taken into account to determine the appropriate VAT
treatment.
(2) The supplier holds evidence that the recipient of the services resides outside
the GCC. Note: the legislation does not specify what could be used as
evidence of customer’s residence outside the GCC.
(3) The benefit deriving from receiving the services are enjoyed outside the
co
MEMBER STATES.
(4) The services are not in relation to goods or property located within any
MEMBER STATE when they are supplied.
(5) The intention of the supplier is that the services are consumed (and used) by
the recipient outside the GCC.
(6) The supplier has no evidence that the services will be enjoyed within the GCC.
The conditions for the zero-rating of international services are less prescriptive in
terms of the evidence required to prove that the recipient is outside the MEMBER

STATES and that the use and enjoyment of the services takes place outside the
MEMBER STATES. However, all the conditions above must be met for allowing the
zero-rating of the supply.
5.4 Transport of Goods and Passengers Provided Outside the KSA
The legislation establishes that the international transport of goods, the

international transport of passengers and related services, are zero-rated in Art. 34
ht
of the Regulations. The article sets out the conditions for zero-rating those supplies.
International transport means the provision of services for goods and persons from
and to a place outside the KSA, aboard a means of transport that has a driver or
pilot and also a crew where necessary. For example, a hired aeroplane with a
pilot; a bus or a limousine with a driver. Also, the hiring of a yacht with a captain
and a crew for a cruise.
Only qualifying means of transport are subject to the zero-rating provisions. A

qualifying means of transport is defined “any vehicle, ship or aircraft designed or
adapted to carry a minimum of ten (10) people, or designed to carry Goods on a
rig
commercial basis, which is used predominantly for international transportation”.
This definition excludes means of transport adapted to become a qualifying
means of transport. An adapted vehicle is not subject to the zero-rating; and if
transport of goods and people by means of a qualifying means of transport takes
place within the KSA, the zero-rating provisions do not apply.
With regards to goods, it is sufficient for the zero-rating to apply that the
transportation takes place by qualifying means of transport.
For passengers, the transportation has to occur either by way of a qualifying

means of transport or by way of a scheduled trip whether this is by air, land or sea,
for example a scheduled flight.
Also, services provided in connection with international passenger transport are

py
zero-rated. These consist of transporting personal items, such as luggage, pets etc.
The zero-rating applies also to the services and goods used in repairing and
maintaining or modifying qualifying means of transport, subject to the recipient
providing the supplier with a certificate of zero-rating, confirming that the goods
and services will be provided for a qualifying means of transport and the works are
carried out on or at the qualifying means of transport.
5.5 Medicines and Medical Equipment
The zero-rating VAT treatment of this category falls amongst the mandatory zero-
rating treatment.
co
Art. 35 of the Regulations defines Qualifying Medicines and Medical goods as

those classified by the Ministry of Health; and any other competent authority.
In accordance with the Agreement, the zero-rating of this category is subject to

the approval of the Ministers of Health Committee.
5.6 Supply of Metal as an Investment
Metal as an investment is amongst the categories for mandatory zero-rating

treatment.

Art. 36 of the Regulations mirrors the dispositions in the Agreement to establish that
the zero-rating provisions apply to a qualifying metal.
A qualifying metal is gold, silver and platinum supplied for investment. To be

considered a qualifying metal for investment, the metal has to have a level of
purity of 99% and it has to be tradeable on the Global Bullion Exchange as
prescribed by the Agreement.
ht
Once all the conditions above have been met, the transfer of the possession of
the goods is zero-rated.
all the notes within the Agreement, the VAT Law, the Regulations or any guidance
issued by THE AUTHORITY.
rig
your Question Bank.
py
co

EXAMPLES
 Example 1
Using the legislation, decide which of the following are zero-rated.
1. Advisory services provided by a consultant in the KSA to a client in the UK who
ht
occasionally travels to the KSA. The services are used in London for the export
business of the client to the KSA.
2. Over the counter pills to alleviate headache sold by a supermarket.
3. Scheduled flight journey from the KSA to the UK and return undertaken with
the KSA national airline.
4. The sale of a gold ring with diamond.
rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
1. The provision of services is to a person outside the GCC for use outside the
GCC. Consulting services do not fall into any category of those subject to
special place of supply rules; the supplier knows that the recipient does not
ht
reside in GCC; the services will benefit a business established outside the GCC;
they are not in relation to any goods or property located in the GCC when the
advice was provided (the export of the goods to the GCC takes place after
the advice was provided); the supplier was aware that the services would be
used in the UK and that there is no indication that the services will be enjoyed
in the GCC. As all the six conditions prescribed in Art. 33 of the Regulations are
met the supply is zero-rated.
2. This supply may be zero-rated provided it is a qualifying medicine as approved

by the Ministry of Health or other competent authority.
3.
4.
rig
This flight is zero-rated because the flight is to a place outside the KSA and
from a place outside the KSA to the KSA; and it is a scheduled flight meeting
the conditions in Art. 34 of the Regulations.
A gold ring with diamonds, although bought as an investment, it is not a

qualifying metal. It cannot be traded on the Global Bullion Exchange and it is
not sold at first extraction of the gold. The conditions at Art. 36 of the
Regulations are not met and the supply is not zero-rated.
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 5 ZERO-RATING
ht
5.1 Introduction
In accordance with the powers granted by the Agreement, the UAE has
implemented the zero-rating of goods and services by Regulations.
Also, for the legislation of the UAE, zero-rated supplies are taxable supplies subject
to tax at 0%, as such they are included in the VAT registration threshold calculation
to ascertain whether the registration limits have been exceeded for the purpose of
VAT Registration.
5.2
rig
A taxable person making exclusively zero-rated supplies can be exempted from
VAT registration according to the dispositions of the VAT Law. However, where the
person elects to register for VAT, he is entitled to claim input VAT on the goods and
services used to make zero-rated supplies, as normal, as zero rated supplies are
taxable supplies.
UAE VAT Law and Regulations
Art. 44 of the VAT Law establishes that the supply or import of the goods and
services listed in Art. 45 of the same chapter are zero-rated.
The dispositions of Arts. 44 and 45 of the VAT Law are implemented in Title 6 of the
Regulations. The Regulations implement zero-rating for those supplies that are
py
mandatory zero-rated supplies in the Agreement and exercise discretion in relation
to certain supplies as specified in Arts. 30-41.
We analyse those articles in detail below.
5.3 Exports of Goods and Services from the UAE
The export of goods and services is one of the mandatory categories subject to
zero-rating as per the dispositions of the Agreement.
The UAE has implemented the zero-rating of this category in Arts. 30 and 31 of the
Regulations, respectively, and subject to the conditions specified in these articles.
co
The first condition for zero-rating of exported goods is that the goods are physically
exported to a place outside the MEMBER STATES or put into a customs suspension
regime within 90 days from being supplied and that the supplier keeps or obtains
evidence that the goods have left the country.
The article makes a distinction between direct and indirect export, depending on
whether the transport is arranged by the supplier or by the recipient. This distinction
is relevant because the additional conditions to the three above that determine
the zero-rated treatment are different.

In addition to the conditions above, the following additional conditions apply to

indirect exports:
• The overseas customer obtains evidence of export and provides it to the

supplier;
• The goods are not used or altered between the time they were supplied and
exported;
ht
• The goods are not a possession of a crew member of a ship or aircraft when
they leave the UAE.
The evidence to be provided consists of “official evidence” such as export

documents issued by Customs; and “commercial evidence” such as an invoice
with details of the recipient of the goods including where they are delivered and
transport documents evidencing consignment of the goods to the final
destination. THE AUTHORITY can request alternative evidence.
Under some exceptional circumstances beyond the control of the supplier and the
rig
recipient, THE AUTHORITY has the power to extend the 90 day limit for export to
treat the supply as zero-rated. Where the supplier fails to export the goods within
90 days or the granted extended period, the supply will be treated according to its
VAT liability as if it was supplied in the UAE.
With regards to services, Art. 31 of the Regulations prescribes the conditions for
zero-rating as follows:
(1) The services must be provided to a person who is non-resident in the GCC and
is physically outside the UAE when the services are performed; however, the
zero-rating applies also if the person has a minor presence in the UAE and his
presence is not connected with the supply.
(2) The services cannot be connected to Real Estate located in the UAE and to
py
moveable personal assets located in the UAE.
(3) The services are performed outside the MEMBER STATES or are the arranging of
services that are performed outside the MEMBER STATES.
(4) If the service consists of the facilitation of outbound tour services, zero-rating is
available for that part of the service.
In respect of (1) above, conditions are not valid and the zero-rating of the supply is
disallowed if, when a contract between the supplier and the overseas recipient
was entered into, it was foreseeable that the services would be effectively
received by an employee or director of the foreign customer in the UAE and they
are not used in making taxable supplies (including zero-rated).
co
5.4 Transport of Goods and Passengers Provided Outside the UAE
The transport of Goods and Services outside the UAE is one of the mandatory
categories subject to zero-rating as per the dispositions of the Agreement.
The international transport of passengers and related goods and services,

including those for consumption aboard; certain supplies of air, maritime and land
transport and related goods and services; the supply of aeroplanes and vessels
designated for rescue or assistance by land or sea are zero-rated by disposition of
Art. 45, items 2 to 8 of the VAT Law.

Passenger air transport services inside the UAE are zero-rated if the transport is
considered "international" in accordance with article (1) of the Warsaw
Convention for the Unification of Certain Rules Relating to International Carriage
by Air 1929.
The VAT Law establishes the conditions for the definition of international passenger
and freight transport services for the purpose of zero-rating as transports that
“begin, end or pass through the territories of the UAE”. Also, the VAT Law allows the
ht
zero-rating of services provided in the connection with international passenger
and freight transport services.
Art. 33 of the Regulations provides that the international transport services of

passengers and goods are zero-rated if passengers and goods are transported
from the UAE to outside the UAE or from a place outside the UAE to a place inside
the UAE; the transport of passengers by sea or air taking place internally to the UAE
is part of a transport services starting from a place outside the UAE or ending in a
place outside the UAE. The transport of goods within the UAE is also zero-rated if
the services provided in the UAE are part of the transportation from a place
outside the UAE or to a place outside the UAE.
rig
Arts. 34 and 35 of the Regulations establishes the conditions for zero-rating of the
supply of air, maritime and land means of transportation used to transport
passengers or goods; and goods and services supplied in connection with those.
Further to those provisions, the zero-rating applies to the supply of an aircraft, ship,
boat or floating structure that is designed or adapted to be used for commercial
transportation of passengers or goods and which is not designed or adapted for
recreation, pleasure or sports. Further, zero-rating applies to a supply of a bus or
train that is designed or adapted to be used for public transportation of 10 or more
passengers.
With regards to goods and services supplied in connection to the means of

transport above, Art. 35 of the Regulations, establishes that the zero-rating applies
py
to goods and services used in operating, repairing, renovating, modifying,
maintaining or converting those means of transport.
5.5 Supply of Metal as an Investment
Metal as an investment is amongst the categories for mandatory zero-rating

treatment in the Agreement.
Art. 36 of the Regulations mirrors the dispositions in the Agreement to establish that
the zero-rating provisions apply to the supply or import of “investment precious
metal” in accordance with Art. 45(8) of the VAT Law.
Investment precious metal is gold, silver and platinum supplied for investment. To
co
be considered a qualifying metal for investment, the metal has to have a level of
purity of 99% and it has to be in a form acceptable to bullion markets as
prescribed by the Agreement.
5.6 New Residential, Converted and Charity Buildings
The zero-rating VAT treatment of these categories falls amongst the categories left
at the discretion of the MEMBER STATES.

The zero-rated treatment of new residential buildings is established in Art. 45(9) of

the VAT Law and the conditions and exclusions of zero-rating are laid out in Art. 37
of the Regulations.
A residential building is a building designed for human occupation and is used as

residence by an individual, for example by students and armed forces.
The zero-rating applies to the first supply of a residential building by way of sale of
ht
rental made within three years from completion or construction of the building.
Excluded from the definition of residential building are buildings used for human
occupation but not strictly residential such as hotels, serviced apartments,
hospitals, etc.; buildings constructed without authorization. Their supply will not
qualify for zero-rating.
A conversion of a building into a residential building is also zero-rated, unless the

original building or any part of it was used as a residential building within 5 years of
the conversion works commencing. (Art. 39 of the Regulations)
5.7
rig
Also, the first sale of a building designed specifically to be used by a charity for a
charity purpose is zero-rated. A charity purpose is a not-for-profit purpose. (Art. 38
of the Regulations)
Education
The zero-rating VAT treatment of this category falls amongst the categories left at
the discretion of the MEMBER STATES.
The zero-rated treatment of education services is established in Art. 45(13) of the

VAT Law and the conditions and exclusions of zero-rating are laid out in Art. 40 of
the Regulations.
The first condition for the zero-rating of educational services is that both the
py
supplier and the services must be recognised by the federal or local competent
government entity regulating the education sector where the course is delivered.
Also, goods supplied by the recognised institution in connection with the zero-
rated education services are zero-rated; including books or other printed material,
unless they are provided to a person that is not enrolled in the course.
In addition, uniform or clothing supplied by the supplier of education, food and

beverages, electronic devices, recreational excursions, extracurricular activities for
an additional fee, and membership in a student organization are excluded from
zero-rating.
5.8 Healthcare
co
The zero-rating VAT treatment of this category falls amongst the categories left at
the discretion of the MEMBER STATES.
Art. 41 of the Regulations defines zero-rated Healthcare Services as services used

for the medical treatment of the recipient of the services. To qualify for zero-rating
they must be made by a healthcare body or institution, doctor, nurse, technician,
dentist, or pharmacy, licensed by the Ministry of Health or by any other competent
authority and must relate to the wellbeing of a human being.

Zero-rated Healthcare Goods are pharmaceutical products and medical

equipment listed in a decision by the Cabinet; and also, unlisted products that are
used for the provision of zero-rated healthcare services and are necessary to the
services provided.
For the purpose of the zero-rating, the services must be supplied by a hospital,
doctor, nurse, pharmacy or anyone who is licenced by the Ministry of Health or
another authority for the benefit of human wellbeing.
ht
Cosmetic treatments are excluded from zero-rating.
all the notes within the Agreement, the VAT Law, Regulations or any guidance
issued by THE AUTHORITY.
rig
your Question Bank.
py
co

co
py
rig
ht
EXAMPLES
 Example 1
Using the legislation, decide which of the following are zero-rated.
1) Advisory services provided by a consultant in the UAE to a client in the UK who
ht
occasionally travels to the UAE.
2) An internal flight between two places in the UAE as part of journey starting in
Australia.
3) The sale of a gold ring with diamonds.
4) An online course to become an Excel expert provided by a private

educational institution.
5)
6)
rig
The supply of cosmetic surgery.
The supply, 6 months after completion, of a building converted from being a

house into flats.
py
co

co
py
rig
ht
ANSWERS
 Answer 1
1) Consulting services do not fall into any category of those subject to special
place of supply rules; although the recipient occasionally is in the UAE, the
recipient does not reside in the UAE; the supply is zero-rated according to Art.
ht
31 of the Regulations.
2) This supply is zero-rated because the transport originates from a place outside
the UAE. The conditions for zero-rating in Art. 33 of the Regulations are met.
3) A gold ring with diamonds, although bought as an investment, is not a

qualifying metal. It cannot be traded on the Global Bullion Exchange. The
conditions in Art. 36 of the Regulations are not met and the supply is not zero-
rated.
4)
5)
6)
rig
The online course to become an Excel expert provided by a private company
is not a program of studies recognised by the Ministry of Education. Therefore,
this course does not meet the conditions for zero-rating in Art. 40 of the
Regulations.
The supply of cosmetic surgery does not fall amongst the treatments that are
necessary for human wellbeing. The conditions for zero-rating in Art. 41 are not
met.
The first supply of the building, although residential, does not qualify for zero-
rating as the building was already used for residential purposes before
conversion. The zero-rating conditions in Art. 39 are not met.
py
co

co
py
rig
ht
CHAPTER 6
EXEMPTIONS
ht
In this chapter, the supplies which are exempt for VAT will be looked at in some detail.
6.1 Introduction
It is important to note that exempt supplies are not taxable supplies. By definition in
the Agreement, these are “supplies on which no Tax is imposed and from which
associated input tax is not deducted”. As a result, these supplies shall not be
6.2
rig
included in the value of supply for determining the registration limit. (Art. 52(1) of the
Agreement)
This Chapter will illustrate the general principles of exemption as laid out in the
Agreement.
Exemption in the Agreement
Chapter 6 of the Agreement provides a list of items that could be treated either as
exempt or zero-rated and assigns powers to the MEMBER STATES to provide further
conditions for the opted VAT treatment.
Along with the list of supplies in Chapter 6 that can be treated as exempt at the
discretion of the MEMBER STATES, the Agreement provides a list of supplies that will
py
always be exempt and, therefore, their exempt treatment is mandatory.
6.3 Discretion of the MEMBER STATES to Apply Exemption (Art. 29 and Art.
30 of the Agreement)
As discussed in Chapter 5 of this Manual, the exemption can be applied to the

categories where zero-rating or exempt treatment is not a mandatory disposition of
the Agreement. The categories that are neither mandatorily zero-rated nor exempt
are listed in Art. 29 of the Agreement as follows:
 Education;
 Health;
co
 Real Estate;
 Local Transport.
Where a MEMBER STATE has not treated a category of supply above as zero-rated,
it will treat it as exempt in its VAT Law and Regulations implementing the Agreement.

The MEMBER STATES have the discretion to except certain business from paying tax
on goods and services received in the country by applying either zero-rating or
exemption (Art. 30 of the Agreement). These imports become exempt where they
have not been treated as zero-rated. The categories are as follows:
 Government bodies designated by each State;
 Charities and Public Benefit Establishments designated by each State;
ht
 Exempted companies under international event hosting agreements;
 Citizens of the MEMBER STATE when constructing their homes for private use;
 Farmers and fishermen who are not registered for tax.
6.4 Mandatory Exemption (Art. 36 and Art. 38 of the Agreement)
The Agreement provides for the mandatory exemption of the following categories
of supplies:
6.5

rig
Financial Services (Art. 36 of the Agreement);
Certain Importation (Art. 38 of the Agreement).
Each MEMBER STATE shall treat those supplies as exempt, unless exceptions apply.
Financial Services (Art. 36 of the Agreement)
The MEMBER STATES must exempt the supply of Financial Services when the services
are provided by licenced banks or other financial institutions. However, where the
services are not supplied by a licensed Financial Services provider, the MEMBER
STATES can decide to apply any tax treatment to the supplies made by unlicensed
py
suppliers of Financial Services.
Licensed financial services suppliers can recover input VAT on a pro-rata basis. This
means that the input VAT incurred on expenses used in making exempt supplies
only, cannot be recovered, but it can be recovered for the proportion used in
making taxable supplies.
6.6 Exemptions on Importations (Art. 38 of the Agreement)
Some imports are exempt from VAT as follows:
 Goods that are exempted or zero-rated in the final MEMBER STATE of

importation.
co
 Goods that are not subject to custom duties at entry in a MEMBER STATE, such
as:
˗ Diplomatic and military exempted goods;
˗ Personal luggage and household items imported by citizens of the MEMBER

STATES moving from abroad or by foreigners moving from abroad to a
MEMBER STATE;
˗ Goods imported by charities exempted from paying tax by application of

Art. 30 of the Agreement;

˗ Accompanied luggage and gifts;
˗ Goods imported by people with special needs.
You must read the legislation, regulations and any other relevant publications to
determine whether or not your particular transaction is exempt. Below is a summary
ht
of which supplies shall be treated as exempt mandatorily, by each MEMBER STATE,
and supplies that if not treated as zero-rated at discretion of the MEMBER STATES will
be treated as exempt:
Exemption

rig
Mandatory Treatment
Financial Services
Certain imports


Discretionary Treatment
Education,
Health,
Real estate
Local Transport
py
 Supplies made by excepted
business, if not treated as
zero-rated by the Regulations
co

co
py
rig
ht
APPENDIX 1
CHAPTER 6 EXEMPTIONS
ht
6.1 Introduction
In accordance with the powers granted by the Agreement, the exemption of

supplies where the Agreement prescribed either a mandatory or discretionary
exempt treatment has been implemented in Art. 10 of the VAT Law, which refers to
the Regulations.
The Regulations detail two categories of supplies for exemption in Chapter 5; these
are Financial Services supplies (Art. 29 of the Regulations) and the supply of Lease
6.2
rig
or License of Residential Real Estate (Art. 30 of the Regulations).
In addition to the above, the Regulations detail the conditions for exemption of
certain exempt imports, which is a mandatory category subject to exemption in
the Agreement.
Exempt supplies are supplies that are not subject to VAT and, as such, they are not
included in the VAT registration threshold calculation for the purpose of the VAT
registration limits. However, these need to be reported in a VAT return.
Financial Services (Art. 29 of the Agreement)
Financial services are a category that the MEMBER STATES will treat as exempt
when provided by licenced or regulated institutions according to the dispositions
py
of the Agreement.
In Art. 29 of the Regulations a list of financial services and a list of supplies of

financial services is provided.
The following are considered to be financial services:
 the issue, transfer or receipt of, or any dealing with money, any security for
money or any note or order for the payment of money;
 the provision of any credit or credit guarantee;
 the operation of any current, deposit or savings account;

co
 financial instruments, such as derivatives, options, swaps, credit default swaps

and futures;
 Shari’ah compliant Islamic financial products achieving the same result of a

non-Shari’ah financial product and Shari’ah related goods transferred
temporarily to the recipient of the financial product. These are not considered
to be a separate supply of goods.
With regards to the supply of financial services, the condition for exemption is that
the remuneration payable for supply of financial services is not a specific fee,

commission or commercial discount. If consideration is payable by way of any of

those, the supply is not subject to exemption.
The following are considered to be supplies of financial services:
 any form of lending;
 a mortgage or a diminishing musharaka arrangement;
ht
 short term finance such as a hire purchase agreement, finance leasing or a
murabaha contract;
 commission charged for brokerage services, or under a mudaraba or wakala

contract.
The consideration for the above is either the interest or lending fee charged on the
margin or on the spread.
Other exempt financial services supplies are:
6.3


rig
the issue or transfer of a debt security or equity security with an obligation to
pay the bearer;
contracts of life insurance or re-insurance provided by a regulated resident

supplier or by a non-resident supplier.
The above list is not exhaustive and other supplies could be considered to be
exempt supplies.
Residential Real Estate (Art. 30 of the Agreement)
The lease or licence of residential real estate is exempt in Art. 30 of the Regulations
subject to the dispositions of Art. 10 of the VAT Law. Residential real estate is a
py
permanent dwelling designed for human occupation such as a house, flat,
apartment and student accommodation which is to be used as a primary
residence.
Gardens, garages and other fixtures that form part of a residential building are also
treated as exempt.
However, unless used as primary residence, any other building that is used for
temporary accommodation for travellers is not residential real estate. For example,
the supply of a room in a hotel, a guest house, or the supply of a serviced
apartment will not be exempt.
6.4 Exempt Imports (Art. 42 of the Agreement)

co
The Regulations in Art. 42 implement the exemption of certain imports according

to the disposition of Art. 38 of the Agreement.
The KSA has applied the exemption to the importation of personal items and gifts
imported by a traveller. The conditions for the exemption are that these items are
imported as accompanied luggage and that they fall within the customs limits of
the KSA.

The exemption is also applied to the import if the equipment is for someone with
special needs, but only where the equipment is among those listed in an order
issued by the Board of Directors.
The list of exempt supplies is not exhaustive; therefore, before deciding whether a
supply is exempt or not, you need to refer to the Agreement, VAT Law, Regulations
ht
and any other guidance that THE AUTHORITY publishes in due course.
rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 6 EXEMPTIONS
ht
6.1 Introduction
In accordance with the powers granted by the Agreement, the UAE has
implemented the exemption of supplies where the Agreement prescribes either a
mandatory or discretionary exempt treatment, in Chapter 2, Art. 46 of the VAT Law
and Title 7 of the Regulations.
The VAT Law details four categories of supplies for exemption in Chapter 2 Art. 46;
these are Financial Services, the supply of Residential Real Estate, the supply of
rig
bare land and the supply of local passenger transport services.
The Regulations in Title 7 provide the conditions and details for the application of
the exemption to the categories above.
Exempt supplies are by definition, in the Regulations, supplies made in the course
of an economic activity that are not subject to VAT, and for which a deduction of
the related input tax is disallowed.
Exempt supplies are not included in the VAT registration threshold calculation for
the purpose of the VAT registration limits. We will look in detail at the four
categories of exempt supplies in Title 7 of the Regulations. Please note that all the
articles to which we refer below are from the Regulations.
py
6.2 Financial Services (Art. 42 of the Regulations)
Financial services are a category that the MEMBER STATES will treat as exempt
when provided by licenced or regulated institutions, according to the dispositions
in the Agreement.
In Art. 42 of the Regulations, financial services for the purpose of the exemption are
defined as follows:
a) The exchange of currency, whether effected by the exchange of bank notes

or coin, by crediting or debiting accounts, or otherwise.
b) The issue, payment, collection, or transfer of ownership of a cheque or letter of

co
credit.
c) The issue, allotment, drawing, acceptance, endorsement, or transfer of

ownership of a debt security.
d) The provision of any loan, advance or credit.
e) The renewal or variation of a debt security, equity security, or credit contract.

f) The provision, taking, variation, or release of a guarantee, indemnity, security,

or bond in respect of the performance of obligations under a cheque, credit,
equity security, debt security, or in respect of the activities specified in
paragraphs (b) to (e) of this Article.
g) The operation of any current, deposit or savings account.
h) The provision or transfer of ownership of financial instruments such as
ht
derivatives, options, swaps, credit default swaps, and futures.
i) The payment or collection of any amount of interest, principal, dividend, or

other amount whatever in respect of any debt security, equity security, credit,
and contract of life insurance.
j) Agreeing to do, or arranging, any of the activities specified in paragraphs (a)

to (i) of this Clause, other than advising thereon.
The financial services defined above are exempt from VAT when they are NOT
conducted in return for a specific fee, commission, discount and rebate or similar.
to tax.
rig
In practice this means they will be exempt when interest is charged. In cases
where they are conducted for a fee or commission etc., the supply will be subject
Islamic finance products, being financial products which are certified as Islamic
Shariah compliant, which simulate the intention and achieve effectively the same
result as a non-Shariah compliant financial product, will be treated in a similar
manner as the equivalent non-Shariah financial product for the purpose of
applying exemption from tax.
Any supply made under an Islamic financial arrangement shall be treated in such
a way as to give an outcome for the purposes of the Law comparable to that
which would be the case for their non-Islamic counterparts.
py
Where Art. 31 of the Regulations applies to financial services, i.e. the zero-rating
provisions, zero-rating will apply.
6.3 Real Estate – Residential Building and Bare Land (Art. 43 and 44 of the
Regulations)
The lease or licence of residential buildings is exempt in Art. 40 of the Regulations

as per the dispositions of Art. 46(2) of the VAT Law.
A residential building is a building designed for human occupation to be used as

primary residence, such as a house, flat, apartment, student accommodation and
accommodation of the armed forces or labour camp. Whilst new residential
buildings are treated as zero-rated on their first sale when this takes place within
co
three years of construction, the granting of a lease of a length of more than 6

months or where the tenant of the property is a holder of an ID card issued by
Federal Authority for Identity and Citizenship is exempt.
The supply of bare land is also exempt on condition that there are no buildings or
engineering works being carried out on the land; however, the presence of roads,
water pipes, cables etc. do not prevent the land from being bare land and
hence, exempt.

Any other building that is used as temporary accommodation for travellers is not
residential real estate and therefore it is not exempt. For example, the supply of a
room in a hotel, a guest house, or the supply of a serviced apartment will not be
exempt.
6.4 Local Passenger Transport Services (Art. 45 of the Regulations)
The supply of local passenger transport services is exempt when the service takes
ht
place within the UAE by way of a qualifying vehicle operating by land, air or sea,
for example on a train, bus, taxi, tram, boat, or aircraft designed for passenger
transport.
Examples include a taxi ride from one place to another; a trip on a bus, tram or
train, internal flight or a ferry boat, provided the transport is designed or adapted
for the transport of passengers.
The exemption excludes services supplied to transport passengers by aircraft

between two places within the UAE where if the transport is international carriage
according to the definition in the Warsaw International Convention for the
6.5
rig
Unification of Certain Rules Relating to International Carriage by Air 1929. This is
transport within the UAE that originates outside the GCC and the internal flight in
the UAE is part of the international flight.
Also services supplied as a pleasure trip involving sight-seeing, catering aboard or

general entertainment, are excluded from the exemption.
A Word of Warning
Before deciding whether a supply is exempt or not, you need to refer to the
Agreement, VAT Law, Regulations and any other guidance that THE AUTHORITY
publishes in due course.
py
co

co
py
rig
ht
CHAPTER 7
DEEMED SUPPLIES
ht
This chapter looks at deemed supplies. By the end of the chapter you should be able to:
– account for VAT on deemed supplies;
– be aware of how to treat a gift of goods;
– understand the treatment where there is private use of assets or motor fuel is provided
for private use;
– outline the treatment of private use of services supplied to a business;
– outline the treatment of goods held on deregistration of a business;
– outline the VAT treatment of motor cars used in a business.
7.1
7.2
rig
Introduction
Deemed supplies are in existence basically as an anti-avoidance strategy. This

anti-avoidance legislation requires a trader to account for output tax even though
there is no regular supply; in other words, even though there is no supply for
consideration to a third party.
Art. 8 of the Agreement provides for various types of supplies that are deemed
supply for anti-avoidance purposes. Whilst the Agreement sets out what
constitutes a deemed supply, the MEMBER STATES have discretion in creating the
rules and conditions for the implementation of the provisions.
Deemed Supplies
py
Deemed supplies can be of goods and services and are taxable supplies.
Art. 8 of the Agreement provides that deemed supplies include goods bought for
business purposes but then supplied for private consumption with or without
consideration.
The following are deemed supply of goods according to Art. 8 of the Agreement:
 The sale of business goods for private use, with or without a consideration;
 Changing the use of goods from making taxable supplies to making non-
taxable supplies (i.e. exempt or outside the scope);
co
 Retaining the goods which are business assets after closing the business;
 Supplying goods without consideration. However, the supply of samples and

gifts of a value established by the MEMBER STATES are not a deemed supply.
Deemed supply of services are those where:
 A registered person uses goods that are business assets for his own private use;
 Services are supplied for no consideration.

The output charge to be accounted for on the value of the deemed supplies is
only applicable if the input VAT in relation to the above has been deducted.
An example of deemed supply is where petrol or diesel for motor cars is purchased
by a business but then used for private purposes, there is a deemed supply and
output tax is charged on the supply.
Also, where a car dealer takes a car bought as part of his sale stock and VAT has
ht
been recovered on the purchase of the car; but later the dealer uses it for his
business and assigns it to an employee, this is treated as a deemed supply . As the
dealer has recovered VAT on the purchase of the car he will have to account for
output tax on the value and declare it.
7.3 How to Account for VAT on Deemed Supplies
A business that makes a deemed supply will have to account for output tax on the
supply, so there will be output tax to put in the VAT return. This amount will have to
be paid to THE AUTHORITY when the VAT return is submitted.
7.4
rig
Deemed supplies will only be in point if the trader has recovered input tax on the
goods or services in question.
As deemed supplies are taxable supplies, by definition they count towards the
registration limit when looking at whether a business should register for VAT or not.
Below are some examples of deemed supplies and the principles applied.
Gift of Goods
Input tax is clawed back on goods that are given away by making an output tax
charge on the purchase price or cost of such goods. It is important to appreciate
that the rules will not apply unless the donor has or will become entitled to input
py
tax recovery on the goods.
There is no supply (and no VAT liability arises) on a gift of goods made in the course
of an economic activity where the value of the gift was not more than the
stipulated amount (excl. VAT) in any 12 month period, that includes the day on
which the gift is made.
It does not necessarily follow that individual business gifts are ineligible for relief
under the stipulated amount rule because the same person happened to receive
a small gift on several occasions. The test that needs to be applied is whether the
supplier intended to benefit the same person on successive occasions rather than
whether, by chance, the same person received several small gifts.
It should be noted that the goods must be business gifts to get the benefit of the
co
stipulated amount limit. Goods given to family members are unlikely to be

regarded as a business gift and as such the stipulated limit will not apply and
output tax will be due regardless of the value of the goods. Business gifts would
include gifts to suppliers and customers.
Cost means what it would cost the business to purchase the goods in question at
the time of the supply. If no such purchase price can be ascertained, value is what
it would cost the business to produce the goods at that time.
The other situation where the rules do not apply is where a business distributes
samples of any goods.

Where businesses provide samples of their products free of charge to individuals

for marketing purposes, as above, none of the samples are liable to VAT. Output
VAT is not normally payable on free meals or drinks to employees by way of
catering or the provision of accommodation for employees in a hotel.
Care needs to be taken in determining the correct VAT treatment if the gift is
given away as part of a business promotion scheme or by a business who is
promoting a sporting, entertainment or similar activity.
ht
So, to summarise, with a gift of goods up to the stipulated amount, the gift is
ignored and does not trigger an output tax charge and any input tax reclaimed
by the business is allowed. If the gift of goods costs over the stipulated amount
(can be cumulative) then input tax will effectively be clawed back as an output
tax charge, unless it is the gift of business samples.
7.5 Private Use of Business Assets
Where an asset owned by a VAT registered business is made available for private
use by an employee, a deemed supply has been made and businesses must
7.6
rig
account for output tax. The rules on gifts of goods do not apply in this instance as
no gift has been made. The asset is simply being used by the employee.
Private Use of Motor Dealers Stock in Trade
A motor dealer can reclaim input tax charged on used and unused cars
purchased as stock in trade for resale even where there is temporary private use.
Dealers must account for VAT on the private use by employees or similar persons of
cars which form part of the stock in trade. They are not obliged to account for VAT
on the private use of cars which they have loaned to third parties (e.g. cars
loaned to potential customers) for business purposes.
py
7.7 Private Use of Services Supplied to a Business
Where a person carrying on a business supplies services for no consideration, or

uses goods that are business assets for his own use, he is treated as having made a
deemed supply of services. The value of the supply of services is the cost to the
person of providing the services. Where the services are put to a private use on
more than one occasion, the total VAT liability cannot exceed the input tax
claimed when the services were obtained. There will not be a deemed supply
where the costs are necessarily incurred for a business purpose.
7.8 Motor Fuel Provided for Private Use
If a business buys petrol or diesel and allows private use of it by an employee or

co
the owner of the business, the partner or sole trader, then effectively the business
has four choices as to what it will do from a VAT point of view.
Choice 1
The first choice is to claim absolutely no input tax on all fuel purchased. As there
are no input tax issues there is no need for any output tax calculations.

Choice 2
The second choice is for a business to keep very detailed mileage records so that
it can prove that the fuel that it has bought is only used for business purposes and
effectively the business therefore does not pay anything towards the cost of fuel
used for private purposes. In such a case, input tax can be recovered on the
business proportion and there is no output tax charge.
ht
Choice 3
The third choice is to recover all input VAT and make a charge to the employee
for the cost of the private fuel element. In this case, VAT must be accounted for on
the amount charged to the employee (cost). Where the cost cannot be
determined VAT must be accounted for on the fair market value of the supply (Art.
26(4) of the Agreement).
In established jurisdiction in EU there is also a choice that the business could claim
all input tax incurred on all fuel purchased and then, using the VAT fuel scale
charge set by THE AUTHORITY, calculate the appropriate output tax.
7.9
7.10
rig
However, currently there are no such provision in the MEMBER STATES.
Goods Held on Deregistration
When a business deregisters for VAT this will mean that the assets contained in the
business, when eventually sold, will not have VAT charged on their sale. In this
situation, however, when a business deregisters for VAT there is a deemed supply
at the date of deregistration on all the assets that were held on the date the
business deregistered. The output tax is charged on the purchase value or market
value. (Art. 26(4) of the Agreement).
Motor Cars
py
The output VAT charge on motor cars applies where a car dealer purchases a car
from a manufacturer to put into stock. Because the car is part of his stock, he is
allowed to recover input tax in full on that car (new and for resale). Then the car
dealer takes the car out of stock for private use. Normally the input VAT on the
purchase of a car for private use is blocked which basically means input VAT on a
motor car cannot be recovered. The deemed supply legislation aims to stop a car
dealer being able to get a car into private use and yet still recover input tax.
The trader will have to account for output tax on the purchase value. There will be
no related input tax claim as the car is not wholly for a business purpose – it is
blocked.
These are some examples of deemed supplies; however, some other instances
co
might be deemed supplies. Refer to each MEMBER STATES VAT Laws and
Regulations for the implementation of Art. 8 of the Agreement.

APPENDIX 1
CHAPTER 7 DEEMED (OR NOMINAL) SUPPLIES
ht
7.1 Introduction
Deemed supplies in the KSA’s legislation are referred to as “Nominal Supplies”. We

will refer to nominal supply in this Appendix.
The KSA has implemented Art. 8 of the Agreement in Art. 6 of the VAT Law that
refers to Art. 15 of the Regulations. The Regulations provide the conditions and
limitations to determine whether a transaction is a nominal supply or a supply for
anti-avoidance purposes.
7.2
rig
Nominal Supplies
Nominal supplies can be of goods and services and are treated as taxable
supplies. (Art. 15(1) of the Regulations)
A supply of goods for no consideration is not a nominal supply, and therefore, it is

not taxable, in the following cases:

The supply of samples and gifts of a value not exceeding SAR 200 in a
calendar year supplied for no consideration to the same person.
Goods supplied to employees for business purposes without consideration of a

value not exceeding SAR 200 per employee per calendar year.
py
A supply of services is not a nominal supply, and therefore, it is not taxable, in the
following case:
 The services are provided without consideration to promote the business, or
 The services are provided for no consideration to employees for business

purposes.
The value of the services should not be greater than SAR 200 per person per
calendar year.
However, the supply of gifts, samples, goods and services can be made for no
consideration only up to a maximum fair market value of SAR 50,000 in a year. Up
co
to this value, the supplies shall not be considered to be a nominal supply and,
therefore, no output tax is to be accounted for by the supplier.
The output charge to be accounted for on the value of the nominal supplies is
only applicable if the input VAT in relation to the supplies of goods and services
has been deducted.
For supplies of goods and services made without consideration or used as non-
business, the value on which VAT is charged is the purchase price or cost to the
supplier if this is available; otherwise the value is the fair market value. VAT is always
charged on fair market value for deemed supply of goods held at deregistration. It

is important to note that VAT is only chargeable on the value of deemed supplies
of goods and services where input VAT was deducted. (Art. 39 of the Regulations)
Where input tax has been deducted on goods and services supplied as nominal
supplies only partly, the value of the supply to take into consideration for a charge
to output VAT is adjusted to reflect the amount of input tax claimed. (Art. 15(8) of
the Regulations)
ht
As per Art. 50(8) of the Regulations the formula to calculate the value of the
nominal supply of an asset that ceases to be used for taxable activities but on
which VAT has been recovered is as follows:
(Purchase value of Capital Asset x Initial Recovery Percentage x Remaining Useful Life)
Adjustment Period
The adjustment period is the useful life of the asset as either 6 or 10 years
depending on whether the asset is of a moveable tangible or intangible nature or
of immovable tangible nature respectively.
rig
The initial recovery percentage is the initial input tax deduction based over the
adjustment period of 6 or 10 years.
The remaining useful life is the adjustment period (6 or 10 years) minus the number
of years the asset has been used.
An example of nominal supply is where petrol or diesel for motor cars is purchased
by a business but then used for private purposes there is a nominal supply and
output tax is charged on the supply.
business and assigns it to an employee, this is treated as a nominal supply under
Art. 15 of the Regulations. As the dealer has recovered VAT on the purchase of the
py
car he will have to account for output tax on the value and declare it.
7.3 How to Account for VAT on Nominal Supplies
A business that makes a nominal supply will have to account for output tax on the
Nominal supplies will only be in point if the trader has recovered input tax on the
Nominal supplies, being taxable supplies, excluding those made within the
stipulated limit as explained above, count towards the registration limit when
co
looking at whether a business should register for VAT or not and are reported in a
VAT return. (Art. 62(2)(c) of the Regulations)
7.4 Gift of Goods
There is no supply (and no VAT liability arises) on a gift of goods made in the course
of an economic activity where the value of the gift was not more than the
stipulated amount of SAR 200 (excl. VAT) in any calendar year, per recipient, or on
a total value of gifts made up to an aggregate value of SAR 50,000 in a calendar
year.

It is worth remembering the following:
 Goods made available for business use to an employee are not gifts and are
nominal supplies.
 Promotional samples given away to any person for marketing purposes are not
nominal supplies if within the value of SAR 200.
ht
When a gift of goods is up to SAR 200 the gift is ignored and does not trigger an
output tax charge and any input tax reclaimed by the business is allowed.
If the gift of goods costs over SAR 200 (can be cumulative for the same person)
then input tax will effectively be clawed back as an output tax charge. Gifts can
be made by a taxable person up to a value of SAR 50,000 in a calendar year. Up
to this amount no output tax is chargeable.
7.5 Private Use of Business Assets
Consider the scenario of an asset owned by a VAT registered business which is
rig
made available for private use to an employee. Whilst the KSA legislation does not
mention this, the Agreement provides that this will be a deemed supply as the
asset is diverted to non-business use. Ordinarily where goods are acquired with the
expectation of some private use, the trader will apportion the initial input tax
recovery.
Illustration 1
Khalid Ltd is a small company running Desert Safari tours in the KSA. They own one
safari car which is used for business purposes 60 days per quarter and for private
purposes by the company employees 20 days per quarter.
Costs associated with maintaining the car are SAR 600 per quarter.
py
We have to work out the private cost of maintaining the car. That will be our
nominal supply for one quarter.
Nominal supply for one quarter: SAR

Maintenance costs: SAR 600 × 20/80 150
VAT = 5% × SAR 150 7.5
7.6 Private Use of Motor Dealers Stock in Trade
Where a motor dealer has reclaimed input tax charged on used and unused cars
forming his stock for resale even where there has been temporary private use, the
dealer must account for output VAT on the private use of any car used by
employees for business purposes.
co
Dealers are not obliged to account for VAT on the private use of cars which they
have loaned to third parties (e.g. cars loaned to potential customers) for business
purposes.

Services bought for business purposes that are put to private use, are treated as
having made a nominal supply of service. The value of the supply is the cost to the
taxable person in providing the services. Where the services are put to a private
use on more than one occasion, the total VAT liability cannot exceed the input tax
claimed when the services were obtained. There will not be a nominal supply
ht
If business in the KSA buys petrol or diesel and allows private use of it by an
employee, the following are the options in relation to VAT accounting on the
nominal supply of the petrol or diesel:
Choice 1
Choice 2
rig
Choice 3
py
the amount charged to the employee. However, in cases where the amount
charged to employees is not determined, VAT must be accounted for on the
market value of the diesel or petrol.
In established jurisdictions in the EU there is also a choice that the business could
claim all input tax incurred on all fuel purchased and then, using the VAT fuel scale
charge set by the Tax Authority, calculate the appropriate output tax.
However, currently there are no such provisions in the KSA.
7.9 Goods Held on Deregistration
When a business ceases to exist, it deregisters for VAT. When a business deregisters
co
for VAT and the assets are sold, there is a nominal supply made at the date of
deregistration on all the assets that were held on the date the business
deregistered. The output tax is charged on the fair market value. (Art. 15(7) of the
Regulations)
7.10 Motor Cars
Motor cars bought as part of stock for resale that are subsequently put to personal
use of the dealer are nominal supplies and input VAT is blocked by way of
accounting for output VAT on the purchase value of the car.

If the car was bought for personal use by a private individual, the VAT would not
be reclaimable; the nominal supply legislation aims to stop a car dealer being
able to get a car into private use and yet still recover input tax.
These are some examples of nominal supplies, however there could be other
examples. Please refer to the Agreement, VAT Law, Regulations and any other
ht
guidance that THE AUTHORITY publishes in due course.
rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 7 DEEMED SUPPLIES
ht
7.1 Introduction
The UAE has implemented Art. 8 of the Agreement in Art. 11 and Art. 12 of the VAT
Law and Art. 5 of the Regulations.
Deemed supplies are defined in the VAT Law and Regulations as “anything
considered as a supply and treated as a Taxable Supply” according to the
instances stipulated in the VAT Law. As such, deemed supplies are taxable supplies
and output VAT is accounted on their value.
7.2
rig
Deemed supplies are also taken into account in assessing whether the VAT
registration threshold has been met.
Deemed Supplies
Deemed supplies can be of goods and services and are supplies subject to VAT.
The VAT Law in Art. 11 considers a supply to be a deemed supply and subject to
an output tax charge on its value in the following cases:

A supply of business assets made for no consideration.
The transfer of goods forming part of the business assets transferred from/to
py
another MEMBER STATE, with the exception of a temporary transfer or a transfer
that is part of another taxable supply of the goods.
 The supply of goods or services that were bought for business purposes and on
which input tax was recovered, but they are subsequently used for non-
business purposes.
 Business assets held at the date of deregistration.
A supply is not a deemed supply, and therefore, no output tax has to be

accounted for on the value of the supply, in the following cases:
 No input tax has been recovered on the goods and services that are being
supplied. For example, fuel bought by the business for use by an employee
co
where no input tax was recovered in the first place.
 The supply is an exempt supply. Exempt supplies are not subject to an output
VAT charge in any case.
 Capital assets where VAT has been adjusted to reflect the business’s use. The
output charge is applied to the extent of the input VAT claimed.

 Samples or gifts up to the value of AED 500 per person in any 12 months
calculated going backwards from the end of the month in which the supply is
made (Art. 5(1)(d) of the Regulations). Any gift or sample made for a value
above the AED 500 is subject to output tax charge to claw back the input VAT
paid on the acquisition of the items.
 All deemed supplies made by a person in any 12 month period calculated

going backwards from the end of the month in which the output VAT on the
ht
supplies is less than AED 2,000 (Art. 5(1)(e) of the Regulations). If the output VAT
on all deemed supplies is AED 2,000 or more in the 12 months, output tax is due
to THE AUTHORITY.
The output charge to be accounted for on the value of the deemed supplies is
only applicable if the input VAT in relation to the supplies of goods and services
has been deducted.
Where input tax has been deducted on goods and services supplied as deemed
supplies only partly, the value of the supply to take into consideration for a charge
to output VAT is adjusted to reflect the amount of input tax claimed. This is the
supply.
rig
case of the sale of Capital Assets where the input tax is adjusted to reflect the
taxable use of the asset over its life.
An example of deemed supply is where petrol or diesel for motor cars is purchased
by a business, VAT is recovered on the acquisition, but then the fuel is used for
private purposes; there is a deemed supply and output tax is charged on the
business and assigns it to an employee, this is treated as a deemed supply under
Art. 11(1) of the VAT Law. As the dealer has recovered VAT on the purchase of the
car he will have to account for output tax on the value and declare it.
py
7.3 How to Account for VAT on Deemed Supplies
A business that makes a deemed supply will have to account for output tax on the
The value of the supply in the case of a deemed supply when a taxable person
purchases goods or services to make taxable supplies but does not use those
goods or services for that purpose, will be equal to the total cost incurred by the
taxable person to make this deemed supply of goods or services.
Deemed supplies will only be in point if the trader has recovered input tax on the
co
Deemed supplies, being taxable supplies, count towards the registration limit when
looking at whether a business should register for VAT; the output tax on these
supplies is also reported in a VAT return to offset the input VAT claimed.
Below are examples of the treatment of deemed supplies according to Arts. 11

and 12 of the VAT Law and the limitations set out in Art. 5 of the Regulations.

7.4 Gift of Goods
There is no supply (and no VAT liability arises) where goods are given away as a
sample or commercial gift where the total value of the gifts was not more than the
stipulated amount of AED 500 (excl. VAT) in a 12 month period per recipient.
It is worth remembering the following:
ht
 Goods made available for business use to an employee are not gifts and are
deemed supplies.
 Promotional samples given away to any person for marketing purposes are not
deemed supplies if within the value of AED 500.
When a gift of goods up to AED 500 is made, the gift is ignored and does not
trigger an output tax charge and any input tax reclaimed by the business is
allowed.
If the gift of goods costs over AED 500 (can be cumulative for the same person)
7.5
rig
then input tax will effectively be clawed back as an output tax charge.
Samples and commercial gifts can be made by a taxable person and be

disregarded where the total output tax AED 2,000 in any 12 months. Below this
amount the output tax is not due.
Private Use of Business Assets
Consider the scenario of an asset owned by a VAT registered business which is

made available for private use to an employee. Whilst the UAE Legislation does
not specifically mention this, Art. 11(3) of the VAT Law states that when goods or
services are used for any purpose other than business, this will be a deemed
supply.
py
Ordinarily where goods are acquired with the expectation of some private use,
the trader will apportion the initial input tax recovery.
Illustration 1
Khalid Ltd is a small company running Desert Safari tours in the UAE. They own one
safari car which is used for business purposes 60 days per quarter and for private
purposes by the company employees 20 days per quarter.
Costs associated with maintaining the car are AED 600 per quarter.
We have to work out the private cost of maintaining the car. That will be our
deemed supply for one quarter.
co
Deemed supply for one quarter: AED

Maintenance costs: AED 600 × 20/80 150
VAT = 5% × AED 150 7.5
7.6 Private Use of Motor Dealer’s Stock in Trade
Where a motor dealer has reclaimed input tax charged on used and unused cars
forming his stock for resale even where there has been temporary private use, the
dealer must account for output VAT on the private use of any car used by
employees for business purposes.

Dealers are not obliged to account for VAT on the private use of cars which they
have loaned to third parties (e.g. cars loaned to potential customers) for business
purposes.
Services bought for business purposes that are put to private use, are treated as a
nominal supply of a service. The value of the supply is the cost to the taxable
ht
person in providing the services. Where the services are put to a private use on
more than one occasion, the total VAT liability cannot exceed the input tax
claimed when the services were obtained. There will not be a deemed supply
If a business in the UAE buys petrol or diesel and allows private use of it by an
employee, the following are the options in relation to VAT accounting on the
deemed supply of the petrol or diesel:
Choice 1
rig
Choice 2
py
Choice 3
the amount charged to the employee. However, VAT could then be claimed on
the cost of the diesel or petrol as it is being used wholly for business purposes.
In established jurisdictions in the EU there is also a choice that the business could
claim all input tax incurred on all fuel purchased and then, using the VAT fuel scale
charge set by THE AUTHORITY, calculate the appropriate output tax.
However, currently there are no such provisions in the UAE.
7.9 Goods Held on Deregistration

co
When a business ceases to exist, it deregisters for VAT. When a business deregisters
for VAT and the assets are sold, there is a deemed supply made at the date of
deregistration on all the assets that were held on the date the business
deregistered. The output tax is charged on the fair market value. This is subject to
the AED 2,000 output tax limit in Art. 5(1)(e) of the Regulations.

7.10 Motor Cars
Motor cars bought as part of stock for resale that are subsequently put to personal
use of the dealer are deemed supplies and input VAT is blocked by way of
accounting for output VAT on the purchase value of the car.
If the car was bought for personal use by a private individual, the VAT would not
be reclaimable; the deemed supply legislation aims to stop a car dealer being
ht
able to get a car into private use and yet still recover input tax.
These are some examples of deemed supplies, however there could be other
examples.
rig
your Question Bank.
py
co

co
py
rig
ht
CHAPTER 8
VALUE OF THE SUPPLY
ht
In this chapter, we shall look at how you value a supply. The chapter will cover:
– the definition of consideration;
– special rules for valuing supplies in certain situations;
– prompt payment discount;
– mixed and composite supplies.
8.1 Introduction
8.2
•
• rig
The general rules for determining the value of a supply of goods or services are to
be divided in two parts:
Where the consideration for the supply is wholly in money; and
Where the consideration is not wholly in money.
These general rules are, however, subject to any special valuation rules as
considered in Art. 26 of the Agreement.
Consideration Wholly in Money
The gross value of the supply is the value of the consideration that is given for it.
Therefore, the starting point for VAT is what a trader receives for a supply rather
py
than what the trader actually supplies.
Consideration = Price of the item + the VAT
In many jurisdictions with established VAT systems trade prices and contracts
usually state that the price is VAT exclusive so this would mean that the price being
quoted is the value of the supply and that VAT will be added on top of this price at
the standard-rate. However, in practice, this procedure is actually the opposite of
the VAT rules because the VAT rules say that where a contract says nothing about
VAT then the starting point is the consideration so, in other words, if you are quoted
a certain price and VAT is not mentioned, that price is VAT inclusive and hence is
the consideration. This is what happens when people go shopping in supermarkets
and shops, the price they see, which never mentions VAT, is the price including
co
VAT.
8.3 Consideration Not Wholly in Money
If a supply is for a consideration not consisting, or not wholly consisting, of money,

its value is to be taken to be the fair market value of such consideration and then
multiply that amount by the VAT fraction to establish how much VAT is due.
It is important to distinguish between non-monetary consideration and no

consideration. Non-monetary consideration exists when a supply is made in return
for payment in the form of goods or services. Where there is only non-monetary

consideration, a barter transaction takes place. In some cases, there may be both
a monetary consideration and a non-monetary consideration.
When goods or services are provided for no payment in any form (monetary or
non-monetary), there has been no consideration. It is then only necessary to value
such a provision of goods or services where the Agreement deems a taxable
supply to have taken place. The most common cases are:
ht
• private or non-business use of business assets for no consideration;
• private or non-business use of services supplied to the business;
• supplies of business goods/assets for no consideration; and
• deemed supplies of business goods/assets on hand at the time of

deregistration.
8.4 Rules on the Value of Supply of Goods and Service
rig
Article 26 of the Agreement contains specific rules for valuing supplies of goods
and services. The Agreement directs that the fair market value is used for valuing
supplies in specific circumstances and defines the fair market price as “the
amount at which Goods or Services can be dealt in in an open market between
two independent parties under competitive conditions determined by each
Member State”.
The value of a supply is the consideration net of VAT. Where the consideration is
not wholly in money, then the portion of the consideration that is not in money is
valued at fair market value.
Included in the value of the supply are all the expenses that the supplier charges
to the recipient and any taxes, but excluding VAT.
py
The currency in which the value must be is the local currency of each MEMBER
STATE at the official exchange rate applied in the MEMBER STATE at the tax point.
The Agreement assigns discretion to each MEMBER STATE to determine the

conditions under which fair market value is applied. For certain transactions, such
as supplies between related persons, the MEMBER STATES will provide whether fair
market value or another value method will be applied to determine the value of
the supply and the tax chargeable thereon.
8.5 Exceptions to the Use of Fair Market Value
An exception to the use of fair market value is the use of purchase value or cost in
the following cases:
co
• Deemed supply of goods or services such as:
˗ Gifts of business assets;

˗ Private use of business assets;
˗ Sale of business assets on deregistration; etc.

• Transportation of goods from one MEMBER STATE to another.
The value of the supply is purchase value or cost. If the purchase value or cost
cannot be determined, then the value shall be the fair market value.
8.6 Reduction of the Supply Value
The value of a supply is reduced in some cases, for instance when a discount is
ht
applied to the price payable by the recipient.
For example, some traders offer a prompt payment discount to encourage

customers to pay on a timely basis.
When raising an invoice, VAT should be charged on the full price of the goods or
services. If the customer takes advantage of the prompt payment discount the
VAT would be adjusted to reflect the discount taken. This could be accounted for
in the invoice or on a separate credit note.
In the instance where the supply value includes subsidies received by the supplier
8.7
rig
from the MEMBER STATE, the value of the supply is the total value minus the
subsidy.
Another case where the supply value is reduced, is where the supplier has paid
expenses on behalf of the customer. In this case, the amount of expenses paid
can be deducted from the value of the supply; however, the input VAT incurred
by the supplier on the expenses cannot be deducted because the supply to the
customer is reduced by the amount of the expenses and output tax will not be
accounted on the reduction to allow an input tax deduction.
How to Determine the Value of a Supply – Special Cases
Below are two examples of special cases where determining the value of the
py
supply and related output tax may be difficult.
Barter Transactions
For a barter transaction, (i.e. I give you goods and in return you give me something
back, but not money), we are effectively looking at non-monetary consideration.
The legislation states that this non-monetary consideration must be valued and this
value is what the output tax is calculated in respect of. The value applied is the fair
market value. (Art. 26(2) of the Agreement)
Multiple and Single Supplies
There are two different types of supply: single and multiple supply.
co
A multiple supply is where there are individual elements within the supply that are
treated separately for VAT. An example is when a supply is made up of zero-rated
and standard-rated elements that can be separated to identify the individual
value to be treated separately for VAT.
This is different to the single supply where there is just one supply made up of lots of
different elements that are subjected to different VAT treatment; however, the
value of each individual element cannot be identified and the supply is treated as
one supply where the VAT liability of the main supply determines the treatment of
the whole supply. An example of this is a plane ticket to fly to New York. The
traveller will also be provided with a meal on the flight. International air transport is

zero-rated and catering is standard-rated. However, the traveller is buying a

complete package and it is difficult to separate the two elements plus, of course,
the meal is just a small insignificant piece of the overall flight to New York. In such a
case, this single supply would be treated as a zero-rated supply of a plane ticket
to New York as the main supply is the flight.
With multiple supply, there is the need to perform an apportionment calculation to

split the individual elements of the supply in order to calculate the VAT due. With a
ht
single supply only a single rate of VAT applies to the whole supply.
The Agreement does not make specific provisions for the treatment of single and
multiple supplies; however, in future this matter may arise as an issue. Referring to
the existing case law in other jurisdictions may be helpful in making a decision
regarding the VAT treatment of the supply.
The leading case in determining whether a supply is single or multiple is a Card

Protection Plan. This is primarily because the CJEU gave useful guidance on what
to use as a basis for these decisions. They were:
•
rig
Since it is not possible to give guidance that would cover all cases of
single/multiple supplies, when you are considering a transaction that consists of
a number of components regard must be given to all the circumstances in
which that transaction takes place.
Each supply of a service must normally be regarded as distinct and

independent.
A supply that comprises a single service from an economic point of view

should not be artificially split - the essential features of the transaction must be
ascertained to decide if the supply to a typical customer comprises several
distinct principal services or a single service.
There is a single supply in cases where one or more elements are to be

py
regarded as ancillary services. An ancillary service is defined as something that
does not constitute for customers an aim in itself but is a means of better
enjoying the principal service supplied.
• The fact that a single price is charged is not decisive. If the circumstances
indicate that customers intend to purchase two or more distinct services a
single price will not prevent these being treated as separate supplies with
different liabilities applying, if appropriate, to those services.
Each MEMBER STATE will implement the rules in relation to the Value of Supply
according to the discretion allowed in the Agreement.
co

APPENDIX 1
CHAPTER 8 VALUE OF THE SUPPLY
ht
8.1 Introduction
The KSA has adopted the principle in Art. 26 of the Agreement by implementing
Art. 15 and Art. 25 of the VAT Law and Art. 37 to Art. 40 of the Regulations.
The VAT Law makes provisions for determining the value of supply for reduced
consideration and adjustments to the value of the supply. The Regulations detail
the definition of fair market value and the condition to apply fair market value in
specific circumstances such as reduced consideration, supplies between
8.2
rig
connected parties, nominal supplies and adjustments to the value of supply.
Consideration Wholly in Money
Where the consideration is wholly in money, the value of the supply is the
consideration paid, that is the VAT inclusive price.
Fair market value, defined as “the Consideration that would be payable for a
Similar and Contemporaneous Supply of Goods or services freely offered and
made between Persons who are not related” is applied to the value of the supply
instead of consideration where:
 A supply is made between related persons, whether legal or natural persons

according to the definition provided in Art. 37 of the Regulations.
py
 The consideration for the supply is less than the fair market value of the supply.
 The customer is not entitled to a full input tax deduction in relation to the
supply.
Where it is not possible to establish the fair market value of the supply by looking at
a “similar and contemporaneous supply”, which is a similar supply taking place at
the same time for goods that are identical or similar, either an alternative market
value that looks at a closer transaction or the cost to the supplier in making the
supply can be used, whichever is greater.
The determination of the value of the supply for the calculation of output VAT is
co
rather straightforward when the consideration is wholly in money and none of the
exceptions above apply.

 Example 1
Outlined below are three items or services being sold in 2018.
You have to calculate the tax to the nearest Halalahs, assuming a standard VAT
rate of 5% where appropriate.
a) Marks & Spencer sells a ladies coat at SAR 99.00
ht
VAT due is SAR?
b) A plumber charges SAR 250 plus VAT to repair a leaky tap
VAT due is SAR?
c) A book costs SAR 12.00 in a bookshop
VAT due is SAR?
8.3
rig
Consideration Not Wholly in Money
When the consideration is not wholly in money but also in kind, the part of the
consideration paid in kind is valued at fair market price.
Where the consideration paid is wholly in kind, the supply is a barter transaction
and it is also valued at fair market value.
The fair market value is determined as prescribed by the Regulations and as

explained above.
Where consideration is paid neither in money nor in kind, then the supply could be
a deemed (or nominal) supply and valued at cost to the supplier.
py
8.4 Special Rules
The Regulations provide special rules for the value of deemed (or nominal)
supplies in Art. 39. When a supply is made for no consideration or used for
purposes other than business, the supply is a deemed supply and output tax is due
on its value if input tax was paid at purchase.
Output tax is paid on the purchase price or the cost of the goods. Where this
cannot be determined, the purchase price is the fair market value at the time of
supply determined in accordance with rules set in Art. 38 of the Regulation.
Also, the value of a deemed supply of goods held at de-registration is the fair
market value.
co
8.5 Adjustments to the Value of Supply
Art. 40 of the Regulations provide for all instances where the value of a supply can
be adjusted.
The value of a supply is adjusted in the following cases:
a) Cancellation of the supply;
b) Change in the nature of supply that affects the output VAT charged;

c) A discount agreed after the sale;
d) A return accepted by the supplier.
A change to the value of the supply as above requires a change in the invoice
and output tax originally calculated, as well as an adjustment to the output tax
reported in a VAT return.
ht
When the adjustment results in an increase of output tax, the increase must be
reported in the tax period relating to when the adjustment occurred.
If the adjustment results in a decrease of output tax then the supplier can amend
the VAT return relating to the period in which the adjustment occurs or the tax
return relating to when a credit note was issued whichever is later. Credit notes are
included among the input tax section of the return to offset the output tax and
reflect the amount of the adjustment.
In case no payment is received for a supply made, the amount of output tax
initially declared can be reduced to zero by writing off the bad debt. A bad debt
rig
can be written off after 12 months from the supply taking place and the supplier
must ensure that he has declared and paid the output tax initially charged on the
supply, the supply was made to a non-connected person, and the supplier has to
prove that the bad debt has been written off or if legal proceedings were initiated
for a high value supply, the suppler must provide evidence of the court ruling.
 Example 2
Jamal sells goods for SAR 1,000 (exclusive of VAT) to ABC Ltd.
Jamal offers a 2% discount for payment within 10 days.
Calculate the VAT due if ABC Ltd pays 30 days later.

py
8.6 Single and Multiple Supplies
The KSA VAT legislation does not make specific provision for the treatment of single
and multiple supplies. However, the same principles and considerations outlined in
Chapter 8 of this manual apply.
It is worth recalling that a multiple supply (or mixed supply, according to the
wording of the VAT Law and Regulations) is a supply where there are individual
elements to the supply that are treated separately for VAT as each element can
be easily identified. A single supply is just one supply, made up of lots of different
elements that cannot be identified and treated individually for VAT because they
are so much linked to each other that it is impossible to separate those elements
from the main supply and therefore, the supply has one value to include all
co
elements on which output tax is charged at the rate applicable to the main
supply.

 Example 3
For each of these supplies decide whether there is a mixed/multiple supply or a

compound/composite supply.
Multiple Single
Supply Supply
ht
a) A box of Earl Grey tea comes with a china
teapot as a special Ramadan promotion
b) A State school sells courses and books for extra-

curricular activities for a total fee of SAR 500.
c) Ticket to fly to Rome includes a standard lunch
Q
rig
your Question Bank.
py
co

ANSWERS
 Answer 1
a. SAR 4.71
The first item is for sale in Marks & Spencer and the price shown will be the
ht
consideration, i.e. the VAT inclusive price. Thus 1/21 of SAR 99 gives us SAR 4.71.
b. SAR 12.50
The second item is a plumber charging SAR 250 plus VAT for services, so the
price being shown is not the consideration because the VAT is not included
and has to be added on top to get to the consideration. To work out the VAT
we charge 5% of SAR 250 and get SAR 12.50.
c. SAR 0.57
rig
The third item is a book being sold for SAR 12. It is a shop, just like the Marks &
Spencer example, so the price being shown is the consideration. We take 1/21
for the VAT to give us a consideration of SAR 12 and SAR 0.57 VAT.
 Answer 2
The correct answer calculates VAT on the full amount. Joe will need to issue a
credit note for SAR 20 + VAT.
py
co

 Answer 3
A box of Earl Grey tea is the main supply here. The china teapot, which probably
costs a lot more than the tea, is just a promotional incidental supply. This is a single
supply, a compound/composite supply, of Earl Grey tea which will be zero-rated.
A language school selling a course and books for extra-curricular activities will
probably be making a mixed/multiple supply because you will be able to
ht
apportion VAT between the two elements provided, i.e. the course and the books.
If you buy a ticket to fly somewhere and they provide a meal, the meal is generally
just an incidental part of the main supply. So this would be a zero-rated single
compound supply of air transport services, with the standard-rated catering meal
being incidental to the main supply, and hence ignored.
rig
py
co

CHAPTER 8
CHAPTER 8 VALUE OF THE SUPPLY
ht
8.1 Introduction
The UAE has implemented Art. 26 of the Agreement in Chapter 4, Arts. 34-42 of the
VAT Law. The Regulations in Arts. 25-28 establish conditions and definitions and
rules applicable to determine the value of a supply.
8.2 Consideration Wholly in Money
Consideration is all that is received or expected to be received for the supply of
rig
goods or services, whether in money or other acceptable forms of payment.
Where the consideration is wholly in money, the value of the supply is the
consideration paid, less the tax.
The price shown must always include VAT (Art. 38 of the VAT Law), unless it is
clearly stated that the price shown is exclusive of VAT. However, the exception to
this rule, as set out in Art. 27 of the Regulations, concerns the following transactions:
a) Export of goods and services, where the value of the supply is always exclusive
of VAT.
b) Where the customer is registered for VAT.
c) The supply of oil, gas and hydrocarbons for producing energy that are supplied
py
to a registered person in another MEMBER STATE which will be subject to
reverse charge by the recipient in that MEMBER STATE.
When the consideration is wholly in money, the determination of the value of the
supply for the calculation of output VAT is rather straightforward, bearing in mind
the exceptions above.
 Example 1
Outlined below are three items or services being sold in 2018.
You have to calculate the tax to the nearest fils, assuming a standard VAT rate of
5% where appropriate.
co
a. Marks & Spencer sells a ladies coat at AED 99.00
VAT due is AED?
b. A plumber charges AED 250 plus VAT to repair a leaky tap
VAT due is AED?
c. A book costs AED 12.00 in a bookshop
VAT due is AED?

8.3 Consideration Not Wholly in Money
Where the consideration payable is not wholly in money but either in kind or partly
in kind, the market value principle is applied to determine the value of the supply.
Market value, is defined in Art. 25(2) of the Regulations as “the Consideration in

money which the supply would generally achieve if supplied in similar
circumstances at that date in the State, being a supply freely offered and made
ht
between Persons who are not connected in any manner”.
Where it is not possible to establish the market value of the supply by means
described above it is necessary to consider the market value of a similar supply
taking place at the same time. If this does not provide a value we next look at the
replacement cost of the same supply made by an unconnected supplier of
identical goods or services.
8.4 Special Rules

rig
Arts. 35-42 of the VAT Law makes provisions for the valuation of specific supplies as
follows:
Value of imported goods: this is the VAT exclusive customs value plus the cost
of insurance, customs fees, excise and other fees.
Value of supplies made between related parties: this is the market value if the
price payable is less than the market value and the recipient cannot recover
the VAT paid on the supply.
Deemed supplies: the value is the cost to the supplier in making the deemed
supply of goods and services originally bought for business purposes but
subsequently supplied for non-business use.
py
 Supply of vouchers: the value is the difference between the face value of the
voucher and the consideration received by the supplier.
 Postage stamp: the value is the amount on the stamp.
 Temporary transfer of goods to outside the UAE for repair or manufacturing

completion: the value of the services carried out on the goods is value of the
goods at re-importation.
8.5 Discount
The VAT treatment of supplies made at a discount is provided for in Art. 39 of the
VAT Law that also considers subsidies provided by the State. The value of discounts
co
and subsidies reduce the value of the supply in proportion according to the
condition and restrictions set out in Art. 28 of the Regulations.
However, Art. 28 of the Regulations excludes from a subsidy the consideration paid
by the State for a supply made to it. Where a supply is made at a discount the
output tax in relation to the supply should be reduced by way of issuing a credit
note and the output tax stated on the credit note is the reduction of the output
tax stated on the original invoice. The output tax adjustment should be made in
the VAT period in which the discount or subsidy is applied; which is when it
becomes apparent that the original VAT charge was wrong.

 Example 2
Jamal sells goods for AED 1,000 (exclusive of VAT) to ABC Ltd.
Jamal offers a 2% discount for payment within 10 days.
Calculate the VAT due.
ht
8.6 Single and Multiple Supplies
The UAE VAT legislation makes specific provision for the treatment of single and
multiple supplies in Art. 47 of the VAT Law, subject to Arts. 4, 22 and 47 of the
Regulations.
A single composite supply exists where there is supply of all of the following:
1) A principal component.
2) A component or components which either are necessary or essential to the
rig
making of the supply, including incidental elements which normally
accompany the supply but are not a significant part of it; or do not constitute
an aim in itself, but are instead a means of better enjoying the principal supply.
Where there is a supply which has two or more elements so closely linked as to
form a single supply which it would be impossible or unnatural to split it will usually
be a single composite supply. A single composite supply may exist if the price of
the different components of the supply is not separately identified or charged by
the supplier and all components of the supply are supplied by a single supplier.
Any supply of two or more elements that does not have the characteristics of a
single supply is a multiple supply.
Where a supply consisting of multiple components is not a single composite supply,

py
the supply of each component is to be treated as a separate supply. The supplier
must identify the value of each component using any method that produces a fair
and reasonable result. The value of the consideration is the market value.
However, if it is not possible to determine the market value, then the cost of the
supply must be used.
 Example 3
For each of these supplies decide whether there is a mixed/multiple supply or a

single/composite supply.
Multiple Single
Supply Supply
a) A State school supplies a curricular course and some
co
books for extracurricular activities for a total fee of

AED 500.
b) Ticket to fly to Italy includes a standard lunch.

co
py
rig
ht
ANSWERS
 Answer 1
a. AED 4.71
The first item is for sale in Marks & Spencer and the price shown will be the VAT
ht
inclusive price. Thus 1/21 of AED 99 gives us AED 4.71.
b. AED12.50
c. AED 0.57
The third item is a book being sold for AED 12. It is a shop, just like the Marks &
Spencer example, so the price being shown is VAT inclusive. We take 1/21 for
the VAT to give us a consideration of AED 12 and AED 0.57 VAT.
 Answer 2
 Answer 3
rig
The correct answer calculates VAT on the full amount. If the customer pays within
10 days they can reduce the amount due by the discount earned of AED 20.
Jamal will then need to issue a credit note for AED 20 + VAT.
A school selling a curricular course and books for extracurricular activities will
probably be making a mixed/multiple supply because the books for the
extracurricular activities are not a necessary component of the curricular course. It
will be necessary to apportion VAT between the two elements provided, i.e. the
py
course and the books.
If you buy a ticket to fly somewhere and they provide a meal, the meal is generally
just an incidental part of the main supply. So, this would be a zero-rated single
composite supply of air transport services, with the standard-rated catering meal
being incidental to the main supply, and hence ignored.
co

co
py
rig
ht
GCC FRAMEWORK AGREEMENT MODULE B CHAPTER 9
CHAPTER 9
TIME OF SUPPLY
ht
In this chapter we will have a look at the following:
– how the time of a supply is calculated;
– the time of supply where deposits are paid for a supply;
– special rules which fix tax points for unusual situations that the trader may incur.
9.1 Introduction
The time of supply is a very important piece of the VAT legislation because the
9.2
rig
time of supply gives you a date on which an item is purchased or an item is sold.
That date is crucial because it will determine in which tax return you account for
the output tax on a sale or you deduct (or recover) the input tax on a purchase.
The date is also crucial in cases where there is a change in the rate of VAT
because the date will determine which rate of VAT to charge – the old or the new
rate. It is also crucial if there was a change in the law because the date will fix
when the supply occurs and whether it happens under the old law or the new law.
The time of supply is very important especially when preparing your tax return since
it determines which items to put on a particular tax return. If a business puts a
transaction on the wrong tax return the business opens itself up to penalties.
Tax Point
py
Tax becomes due on the date of supply of goods or services, the date of issuance
of tax invoice or upon partial or full receipt of the consideration, whichever is the
earliest.
Tax Point for Goods
The date of supply for goods and the tax point can be elaborated based on
whether the goods supplied are with or without transportation.
Tax point for goods without transportation is determined as:
 The date on which the goods are placed at the customer’s disposal, or
co
 The date of issuance of tax invoice, or

 The date of receipt of payment
whichever is the earliest.
Tax point for goods with transportation is determined as:
 The date on which the transport or dispatch begins, or


Tax point for goods supplied with assembly or installation is determined as:
 The date on which the assembly or installation of goods is completed, or

ht
Tax Point for services is determined as:
 The date on which the performance of services is completed, or

The tax point for deemed supply is determined as:
 The date of occurrence of any of the events that are deemed supplies as per


rig
Art. 8 of the Agreement, or
The date of issuance of tax invoice, or
The date of receipt of payment
 Illustration 1
Fatima orders a wedding dress from Dresses Co on 1 November. The company

makes the dress in November and Fatima collects the dress on 1 December. The
company issues an invoice on 9 December, which Fatima pays on 20 December.
The tax point for goods without transportation is the date when the goods are
made available for the customer, i.e. when Fatima collects the dress on
py
1 December. If the payment had been made before this date or had tax invoice
been issued prior to 1 December, then an earlier tax point would apply.
9.3 Deposits
It is possible to have more than one tax point for the same supply – an example of
this would be where a deposit is paid upfront and then, when the goods are
delivered at a later date, the balance is paid.
Please note that payment of certain types of deposits, such as security deposits,
are not supplies for VAT purposes. The following illustration deals with deposits that
are treated as advance payments for a taxable supply of goods and services.
co

 Illustration 2
Let us have a look at how a deposit would affect the example with Fatima. Fatima
orders a dress on 1 November and pays a SAR 500 deposit when she orders the
dress on 1 November. She then collects the dress on 1 December. The company
then invoices Fatima for the balance due on 9 December and Fatima pays the
balance on 20 December.
ht
Starting with the deposit: The deposit was paid earlier than the supply of goods
and issue of invoice, it was paid on 1 November and the normal tax point rules
would say that the earlier date is the date used as the tax point.
Thus 1 November becomes the tax point for the deposit because it was earliest out
of the supply of goods or the issuing the invoice, even if the payment was only part
of the whole amount due.
When considering the balance of payment, the dress was placed at Fatima’s
disposal on 1 December and the invoice and balance payment has been made
thereafter. Thus 1 December is the tax point for the balance payment.
9.4
rig
There are two tax points for this supply, 1 November is the tax point for the deposit
and 1 December is the tax point for the balance.
Fatima:
Orders dress
Pays SAR 500 deposit
Collects dress
Invoice for balance
Pays balance
Special Rules
1 November
1 November
1 December
9 December
20 December
Tax point for deposit
Tax point for balance
py
Sometimes, with services, the service can be supplied continuously and never
actually finish or, as the legislation puts it be ‘performed’. An example of this would
be rent, a business is constantly being provided with the property for which it pays
rent. Another example is a supply of management charges, which are supplied on
a continuous basis. For a continuous supply of services one does not consider
completion of performance because performance of the service is never
completed (unless the contract is terminated). With a continuous supply of services
there is only payment and invoice, so the earlier of;
 the date of payment specified in the invoice; or

 the date of actual payment will determine the tax point.
Such tax point should arise at least once in every 12 months. Thus supplies which
co
are subject to the continuous supply rule generate a tax point only by the issue of
a tax invoice, or payment passing. (Art. 23(3) of the Agreement)
When these supplies are between connected parties, for example group
companies, charges may pass between companies for accounting purposes, but
no invoices are issued. In such a case, output tax is not declared nor is input tax
recoverable.

However, where the input tax would not be recoverable, for example because
the recipient is wholly or partially exempt, this causes a loss of revenue to THE
AUTHORITY. Therefore Art. 23(3) of the Agreement would apply to impose a
periodic tax point (every 12 months) on continuous supplies of specified services
between connected parties, generally leading to an annual VAT output tax
charge. The types of supplies affected by this rule are those for management
charges, telephone, electricity, piped gas and water and leasing of property and
equipment.
ht
Reference to each MEMBER STATES Legislation will determine additional tax points
in special circumstances.
rig
py
co

KINGDOM OF SAUDI ARABIA MODULE B CHAPTER 9 - APPENDIX 1
APPENDIX 1
CHAPTER 9 TIME OF SUPPLY
ht
9.1 Introduction
time of supply gives you a date on which an item is purchased or an item is sold, a
service rendered and subsequently when VAT obligations become due. As
outlined in the main chapter there are various other reasons why this is important.
The Agreement sets out the rules to be followed in relation to identifying the tax
point and the KSA VAT Legislation (the Law and Executive Regulations) prescribes
9.2
below.
rig
additional considerations when determining the date tax becomes due on
specific supplies not provided for in the provision of the Agreement, as outlined
Tax Point
The tax point rules are outlined in accordance with Art. 23 of the Agreement as set
out in the main chapter notes.
 Example 1
Same as Illustration 1 in the main chapter, except Fatima orders the dress on
1 November, pays for the dress on 1 December, collects the dress on 5 December
and the invoice is issued on 9 December.
py
Which of the following is the tax point for the supply?
a. 1 November
b. 1 December
c. 5 December
d. 9 December
9.3 Deposits
co
The rules pertaining to the identification of tax points for deposits or part payments
are in accordance with Art. 23 of the Agreement as set out in the main chapter
notes.

9.4 Special Rules
Tax point for goods or services with periodical instalments
In cases where the goods or services are supplied and the invoice or sales
agreement states that consideration is due and payable in periodical instalments,
Art. 20(1) of the Regulations states a separate supply in respect of each instalment
takes place at the earlier of:
ht
 The due date for instalment, or
 The date of actual payment
Other continuous supply
In other cases where goods or services are provided on a continuing basis, Art.
20(2) of the Regulations states that a separate supply takes place at the earlier of:

 The date of payment

rig
Art. 20(3) of the Regulations states that in cases where no payment has been
made or no invoice has been raised in relation to continuous supply, the supply is
deemed to take place on the date falling 12 months after the later of:
 The date of commencement of supply of goods or services, or
The previous date on which supply took place by virtue of an invoice being
issued or payment made
Supply of oil, gas, water or electricity through a distribution network, which is not
made on a continuing basis takes place, according to Art. 20(4) of the Regulations
at the earlier of:
py
 The date of payment
Nominal supplies
A nominal supply upon the Taxable Person ceasing to engage in an Economic

Activity shall, as per Art. 20(5) of the Regulations, be the date when that taxable
person is deregistered for VAT purposes.
co

 Example 2
Hanaa orders a toy over the telephone from a mail order supplier quoting her
debit card number on 12 November. On 14 November the supplier sends the toy
to Hanaa. On 16 November an invoice is issued showing full payment has been
made:
ht
a. 12 November
b. 14 November
c. 16 November
d. 1 December
rig
your Question Bank.
py
co

co
py
rig
ht
ANSWERS
 Answer 1
The correct answer is B
In this example a payment was made on 1 December which is earlier than the
ht
date the dress was collected (5 December) and the invoice being issued
(9 December), so 1 December becomes the tax point that we would use for this
supply.
 Answer 2
The correct answer is A
Because a payment was made earlier than the date of supply or invoice, on 12
rig
November, we use the earliest date as the tax point date for these supplies. The
tax point is therefore 12 November.
py
co

co
py
rig
ht
UNITED ARAB EMIRATES MODULE B CHAPTER 9 - APPENDIX 2
APPENDIX 2
CHAPTER 9 TIME OF SUPPLY
ht
9.1 Introduction
time of supply gives you a date on which an item is purchased or sold, a service
rendered and subsequently when VAT obligations become due. As outlined in the
main chapter there are various reason why this is important.
The Agreement sets out the rules to be followed in relation to identifying the tax
point and UAE Law and Regulations prescribe additional consideration to
9.2
rig
determine the date tax becomes due on specific supplies not provided for in the
provision of the Agreement, as outlined below.
Tax Point
The tax point rules are outlined in accordance with Art. 23 of the Agreement as set
out in the main chapter notes with additional clarification below in relation to
goods supplied with, or without, transport and for imported and returnable goods
per Art. 25 of the VAT Law, as follows:
Tax point for goods transferred not under the supervision of the supplier is
determined as follows:
 The date on which the recipient took possession of the goods, or

py
Tax point for goods transferred under the supervision of the supplier is determined
as follows:
 The date on which the goods were transferred; or


co
Imported Goods’ date of supply shall be:
 The date on which the goods are imported under the Customs Legislation, or

If the supply of goods is on a Returnable Basis the tax point will be:
 The date on which the recipient of the goods accepts the supply, or
 a date not later than 12 month after which the good were transferred, or
 placed at the customer’s disposal, or
ht
 Example 1
Same as Illustration 1 in the main chapter, except Fatima orders the dress on 1
November, pays for the dress on 1 December, collects the dress on 5 December
and the invoice is issued on 9 December.
a. 1 November
9.3
b.
c.
d. rig
1 December
5 December
9 December
Deposits
The rules pertaining to the identification of tax points for deposits or part payments
are in accordance with Art. 23 of the Agreement, again as outlined in the main
chapter text i.e., the date the deposit is received.
py
9.4 Special Rules
In cases where the goods or services are supplied under a contract containing
periodic payments (instalments) or consecutive invoices (continuous supply),
under Art. 26 of the VAT Law, a separate supply in respect of each instalment
takes place at the earliest of:

 The due date for payment as shown on the Tax Invoice, or
 The date of actual payment
Provided that it does not exceed one year from the date of provision of such
goods and services.
co
Vending Machines
The date of supply in relation to vending machines will be the date on which funds
are collected from the machine
Vouchers
The date of supply of a voucher is the date of issuance or any supply thereafter.

Deemed Supplies
The date a deemed supply of goods and services, as per Art. 26(3) of the VAT Law,
shall be the date;
 of their supply, or
 of their disposal, or
 of their change in usage, or
ht
 the date of Deregistration
 Example 2
Hanaa orders a toy over the telephone from a mail order supplier quoting her
debit card number on 12 November. On 14 November the supplier sends the toy
to Hanaa. On 16 November an invoice is issued showing full payment has been
made:
Q
a.
b.
c.
d.
rig
12 November
14 November
16 November
1 December
your Question Bank.
py

co

co
py
rig
ht
ANSWERS
 Answer 1
The correct answer is B
In this example a payment was made on 1 December which is earlier than the
ht
date the dress was collected (5 December) and the invoice being issued (9
December), so 1 December becomes the tax point that we would use for this
supply.
 Answer 2
Because a payment was made earlier than the date of supply or invoice, on 12
rig
November, we use the earliest date as the tax point date for these supplies. The
tax point is therefore 12 November.
py
co

co
py
rig
ht
CHAPTER 10
INPUT TAX – WHEN TO RECOVER
ht
In this chapter we will look at when to recover input tax including:
– the numerous conditions which must be satisfied before input tax can be claimed by
a business (deductible tax);
– the definition of a supply of goods or services;
– the definition of taxable persons;
– the definition of economic activity;
– the required evidence to show that input tax was correctly charged;
– how we determine a direct and immediate link with a taxable transaction;
– how much input tax (deductible tax) is available for deduction;
– the situations when input tax recovery is not available.
10.1
rig
Introduction
As a general rule, when input tax is incurred by a taxable person in a MEMBER

STATE it is available for credit in the same State (which basically means it is
included as input tax (deductible tax) on the Tax Return) for the tax period in
which it arises. It is deducted from tax due on any supplies made during the same
period and hence recovered from THE AUTHORITY.
If the input tax on a Tax Return exceeds the output tax, then THE AUTHORITY may
actually make a repayment of the net amount, according to the MEMBER STATE
Regulations.
py
This chapter is going to look at the conditions which have to be met before input
tax is available for credit under Art. 44 of the Agreement.
Each MEMBER STATE shall determine the specific terms and rules for the tax
deduction but the general conditions can be summarised as follows:
 A supply of goods or services is being made;
 This supply must be made to the taxable person;
 The supply of goods or services must have been made for business purposes,
that is, for the purpose of economic activities;
co
 The claimant must hold the required evidence of their purchase (typically a tax
invoice or customs documentation proving importation of goods);
 Input tax on the supply must have been correctly charged; and
 The goods or services being supplied must have a direct and immediate link
with a taxable transaction.
In addition to these conditions the input tax must not be specifically blocked from
credit.

10.2 A Supply of Goods or Services Has Been Made
The first condition is that a supply of goods or services has been made. The supply
must have actually taken place. If a supply does not take place for whatever
reason, then the VAT element of anything that has been paid is not recoverable
(Art. 47(1)(a) of the Agreement). If something was paid, then it is for the customer
to go back to the seller and try to get a refund. A refund cannot be obtained from
THE AUTHORITY because any payment made is not regarded as input tax.
ht
10.3 Supply Made to the Taxable Person
The fact that a taxable person pays an invoice does not guarantee input tax
recovery, the supply must also be made to them. That is to say that the supporting
evidence, namely the tax invoice, is issued in their name.
It is generally not acceptable for a supply to be made to somebody else but the
taxable person recovers the input VAT on that supply.
rig
Employee Expenses
Strictly, the condition that the supply must have been made to the taxable person,
means that if any input tax incurred on an employee's expenses which are then
reimbursed by the employer, this input tax is irrecoverable.
Thus if an employee is sent away to work and has to stay in a hotel overnight, and
the business reimburses his hotel bill, in the strict reading of the law, input tax on
that hotel bill cannot be recovered because the bill is made out to the employee;
the employee was provided with the service not the employer. However, THE
AUTHORITY would give credit in respect of expenses that are specifically
reimbursed to the exact value incurred.
Pre-Registration Input Tax

py
One of the conditions says that the supply must be made to the taxable person,
who was a taxable person at the time of the supply. However, there is an
exception to this rule to enable pre-registration input tax to be recovered on the
first Tax Return.
Per Art. 49 of the Agreement, a taxable person may deduct input tax on goods
and services supplied to him prior to the date of registration after meeting the
following requirements:
 Goods and Services are received for the purpose of making taxable supplies;
 Capital Assets were not fully depreciated before the date of registration;
co
 Goods were not supplied (i.e. disposed of) prior to the registration date;
 Services were received within a specific period of time prior to the date of
registration as determined by each MEMBER STATE;
 The Goods and Services are not subject to any restrictions related to the right
to make a deduction as stated in the Agreement.
The amount of input tax deductible on capital assets shall be in accordance with
the net book value of the assets at the date of registration, as specified by each
MEMBER STATE.

10.4 Supply for the Purpose of Economic Activities
The Agreement defines economic activity as “an activity that is conducted in an

ongoing and regular manner including commercial, industrial, agricultural or
professional activities or Services or any use of material or immaterial property and
any other similar activity”.
Where the connection between the expenditure and the economic activity is not
ht
clear, the following guidance should be used:
a. Determine the intention of the taxable person at the time of incurring the
expenditure. This is a subjective test and where there is no obvious association
between the economic activity and the expenditure concerned, care must
be taken
b. Establish whether or not there is a clear connection between the actual or

intended use of the goods or services and the economic activities. This is an
objective test of the use to which the goods are put.
10.5
rig
Goods and Services Only Partly Used for Business Purposes
Where a taxable person incurs VAT on goods and services that are intended for
both economic activities and non-economic activities (such as private use), it shall
not be possible to deduct the incurred input tax, for purposes other than the
economic activity (Art 45 (1) of the Agreement). It may be treated as follows:
• Wholly private. In this case, the VAT incurred is not deductible. But if an asset
treated in this way is later sold, no VAT is payable. Please note that if a business
chooses this option they cannot change their minds at a later date and elect
to treat them as a business asset in order to recover input tax. This treatment
does not prevent the business from using the asset to make supplies.
py
• Part business and part private. In which case, the VAT incurred is only
deductible to the extent that it relates to the taxable business activities. The
business will need to use a reasonable apportionment method in order to
calculate the amount of VAT that can be recovered on the business use of the
asset and the method to do so will be determined by each MEMBER STATE.
If an asset treated in this way is later sold, VAT is due on the ‘portion’ of the
asset which was originally treated as a business asset.
10.6 Claimant Holds Required Evidence
This condition states that input tax is available for credit if the required evidence is
available. A tax invoice for the supplies that have been purchased from another
co
taxable person is required (Art. 48 of the Agreement). Each MEMBER STATE

determines the contents required on a tax invoice.
An invoice is required from a foreign supplier for the services that are received
from overseas. These are the sorts of services to which the reverse charge under
Art. 41 of the Agreement applies.
For imported goods, customs documentation is required proving that the goods
have been imported in accordance with the Common Customs Law. If goods
have been acquired from another MEMBER STATE then the evidence required is
whatever relevant document is required by that MEMBER STATE.

In the event that a tax invoice is not available, or does not meet the necessary
requirements to be a tax invoice, (Art. 48(2) of the Agreement) each MEMBER
STATE may allow the right of deduction of tax where the value of the tax due can
be established by any other means
10.7 Input Tax was Correctly Charged
Credit for input tax is restricted to the amount properly chargeable on a supply. If
ht
VAT was incorrectly charged on a supply, that VAT cannot be recovered as input
tax.
One can only recover the correct amount of tax that should have been charged
so if the tax charged was overstated, the credit for input tax is restricted to the
amount that should have been charged. Input tax can only be recovered at the
correct amount on a correct type of supply.
An adjustment to input tax would also be required where there has been a
cancellation or rejection of the supply, a reduction of the supply consideration
after the date of the supply or non-payment of the supply consideration, whether
rig
in whole or part or change in use of a Capital Asset as per Art. 47(1) of the
Agreement.
Adjustments are not required to be made where the taxable person establishes
loss, damage or theft of the goods, according to the rules applicable to each
MEMBER STATE or where the goods are used as sampled or gifts of slight value. (Art.
47(2) of the Agreement)
If there are any corrections be necessary, the claimant of input tax must go back
to the supplier and try to get a refund through a Tax Credit Note. A refund cannot
be obtained from THE AUTHORITY because any excess payment made is not
regarded as input tax.
Blocked Input Tax

py
10.8
In certain cases, input tax is specifically irrecoverable. Input tax that has been
borne cannot be deducted if:
a. It is for purposes other than economic activities as determined by each

MEMBER STATE, or
b. It is paid on goods that are prohibited to deal in, in the MEMBER STATE,
according to the applicable laws.
Dual use
co
Where goods or services are used, or to be used, partly for non-economic activities
and partly for economic activities, an apportionment of the input tax must be
made so to recover only the proportion referable to taxable supplies.

APPENDIX 1
CHAPTER 10 INPUT TAX – WHEN TO RECOVER
ht
10.1 Introduction
When input tax is incurred by a taxable person it is typically available for credit
(which basically means it is included as input tax (deductible tax)) on the Tax
Return for the tax period in which it arises. It is deducted from tax due (output tax)
on supplies and hence recovered from THE AUTHORITY.
If the input tax on a Tax Return exceeds the output tax, then the taxable person
may apply to THE AUTHORITY for a repayment of the net amount.
•
rig
This chapter is going to look at the conditions which have to be met before input
tax is available for credit as follows:
A supply of goods or services is being made;
This supply must be made to the taxable person and they are a taxable person
at the time the supply was made;
The supply of goods or services must have been made for business purposes,
The claimant must hold the required evidence of their purchase;

py
• Input tax on the supply must have been correctly charged; and
• The goods or services being supplied must have a direct and immediate link
credit.
A taxable person may deduct input tax charged on goods or services supplied to
that taxable person if the input tax is incurred in the activities outlined in Art. 49(1)
of the Regulations, namely:
co
• Taxable supplies including zero-rated supplies;
• Internal supplies; and
• Supplies that would have been taxable supplies had they been made in the
Kingdom.
and in accordance with Art. 40 of the Regulations, an adjustment must be made

where the supply has been cancelled in whole or part.

It is not sufficient that the taxable person has paid for such goods or services; they
must be used by the taxable person in undertaking their own economic activities.
recovery, the supply must also be made to them in the course of carrying on an
economic activity.
ht
It is not acceptable for a supply to be made to somebody else but the taxable
person recovers the input VAT on that supply, with the exception of employee
expenses as referred to in the main GCC chapter.
Pre-registration input tax
One of the conditions says that the supply must be made to the taxable person,
who was a taxable person at the time of the supply for the input tax to be
deductible.
Services
rig
However, there is an exception to this rule to enable pre-registration input tax to
be recovered on the first Tax Return (Art. 49(2) to 49(4) of the Regulations). The
Agreement sets out the conditions which must be met to allow the recovery of
pre-registration input tax on goods and services and the Regulations provide
further specific conditions, dealing with services and goods separately as follows:
A taxable person may deduct input tax on services supplied to him during the
period of six months prior to the date of registration (Art. 49(2) of the Regulations)
provided that:
• The services are received for the purpose of making taxable supplies;
py
• The services have not been supplied onwards, or used in full, prior to the
registration date;
• The services do not relate to a supply of used goods.
Goods
A taxable person may deduct input tax on goods supplied to him or imported by
him prior to the effective date of registration (Art. 49(3) of the Regulations)
provided that:
• The goods are received for the purpose of making taxable supplies and where
this is not the case an apportionment is made;
co
• Where the goods are capital assets they have a positive book value at the
date of registration;
• The goods have not been supplied onwards, or used in full, prior to the
registration date;
• The input tax on the goods are not specifically blocked from recovery, as
explained further below.

The amount of input tax deductible on capital assets shall be in accordance with
the net book value of the assets at the date of registration (Art. 49(4) of the
Regulations).
10.4 Supply for Purposes of Economic Activities
Article 49(1) of the Regulations requires that the goods and services supplied must
have been received in the course of carrying on economic activity.
ht
professional activities or Services or any use of material or immaterial property and
Determining whether there is economic activity can be subjective and the facts of
each case must be considered in reaching a decision.
Certain expenditure on goods and services can be incurred which is not related to
making a taxable supply but which is instead incurred for the reasons noted
below.
•
rig
In these instances, the input tax is recoverable in accordance with the partial
exemption recovery rate, which allows input tax recovery in relation to the
proportion of taxable supplies made. Such situations are defined in Art. 51(11) of
the Regulations as follows:
the raising of capital to allow further making of taxable supplies;
expenditure related to the transfer of an economic activity as a going

concern;
any other one-off event which is incidental to the economic activity to the
extent that this constitutes the making of taxable supplies.
py
10.5 Goods and Services Only Partly Used for Business Purposes
both economic activities and non-economic activities (such as private use), there
is a choice as to how to treat the goods and services for VAT purposes. It may be
treated as follows:
co
business will need to use a reasonable apportionment method in order to
calculate the amount of VAT that can be recovered on the business use of the
asset and the method to do so will be determined by each MEMBER STATE.

Goods lost, damaged or stolen
Art. 49(5) of the Regulations also provides for an exemption with regards to goods
that have been lost, damaged or stolen. Of course input tax would have been
reclaimed when these were acquired. However, if these same goods are
subsequently lost, damaged or stolen, there is no need to make any adjustments
for the input tax previously claimed, despite these goods ultimately not going
towards any taxable supplies.
ht
The only prerequisite is that the necessary adjustments have been made in the
taxable person’s accounting records and that THE AUTHORITY may require further
evidence to be provided.
10.6 Claimant Holds Required Evidence
Input tax is available for credit if the required evidence is available. A tax invoice
in the form specified by the Agreement, for the supplies that have been
purchased from another taxable person, must be held.
10.7
•
•
rig
In the event that such document is not available, Art. 49(7) of the Regulations
allows for alternative evidence to be provided to THE AUTHORITY as follows:
A simplified tax invoice (which complies with the specified Regulations);
In relation to goods from another MEMBER STATE, a commercial document

specifying the value on which VAT is calculated at the transfer date;
Other commercial documentation permitted at the discretion of THE

AUTHORITY, evidencing that the person has received the supply and correctly
incurred the VAT in question.
Input Tax was Correctly Charged

py
tax. A common example of this is that at the Date of Supply a particular amount
was agreed as the value, however, a subsequent discount or part return of the
supply means the ultimate consideration paid will differ from that originally agreed,
implying the tax on that transaction will change as well.
In such cases the taxable supplier will typically issue a Tax Debit Note or a Tax
Credit Note to remedy the issue at hand. Subsequently, as per Art. 40(6) of the
Regulations, the taxable person claiming the input tax deduction is also obliged to
amend the input VAT so as to reflect the correct amount that should be claimed.
Blocked Input Tax

co
10.8
Art. 50 of the Regulations defines when goods and services are deemed to be
received outside of economic activity and so related input tax is blocked from
recovery from THE AUTHORITY.

These goods or services relate to business entertainment and motor cars and are
specifically noted as follows:
a) Any form of entertainment, sporting or cultural services;
b) Catering services in hotels, restaurants or similar venues;
c) The purchase or lease of a “restricted motor vehicle”;
ht
d) Repairs, alteration and maintenance of restricted vehicles;
e) Fuel for restricted vehicles; and
f) Goods or services used for private purposes.
A restricted motor vehicle is any vehicle designed to be used on the road that is
used for private purposes. Art. 50(2) of the Regulations specifically excludes from
the definition of “restricted vehicles” any vehicle which is used exclusively by the
taxable person or its employees for business purposes, without being made
rig
available for private use, or any vehicle that is primarily intended to be onwards
sold as a taxable supply itself.
Where a restricted vehicle, on which input VAT recovery has been blocked, is
subsequently sold, this sale will not be considered to be in the course of economic
activity and therefore will not be subject to an output VAT charge.
This input tax blocking order does not apply where any of the above noted goods
and services are purchased and are intended for onward sale, without use by that
taxable person.
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 10 INPUT TAX – WHEN TO RECOVER
ht
10.1 Introduction
When input tax is incurred by a taxable person it is typically available for credit
(which basically means it is included as input tax (deductible tax)) on the tax
return for the tax period in which it arises. It is deducted from tax due on supplies
(output tax) and hence recovered from THE AUTHORITY.
If the input tax on a Tax Return exceeds the output tax, where the taxable person
makes a request to THE AUTHORITY for repayment of the excess, then THE
•
rig
AUTHORITY will make repayment to the taxable person of the net amount due.
This chapter will look at the conditions which have to be met before input tax is
available for credit as follows:
• A supply of goods or services is being made;
This supply must be made to the taxable person;
The supply of goods or services must have been made for business purposes,
The claimant must hold the required evidence of their purchase;

py
• Input tax on the supply must have been correctly charged; and
• The goods or services being supplied must have a direct and immediate link
credit.
A taxable person may deduct input tax charged on goods or services supplied to
that taxable person where these are used, or intended to be used, for:
co
• Taxable supplies;
• Supplies that are made outside the State which would have been taxable
supplies had they been made in the State; and
• Supplies specified in the Regulations that are made outside the State, which
would have been treated as exempt had they been made inside the State.
(Art. 54 of the VAT Law)

The supplies referred to in the last point are exempt financial services exempted
under Art. 46 of the VAT Law where the place of supply of these services is treated
as outside the state and the recipient of services is outside the state at the time
when the services are performed
ht
recovery, the supply must also be made to them in the course of carrying on an
economic activity.
It is not acceptable for a supply to be made to somebody else but the taxable
person recovers the input VAT on that supply, with the exception of employee
expenses as referred to in the main GCC chapter.
Pre-registration input tax
A claim can be made on the tax return submitted for the first period following
registration in relation to a payment for the supply of goods and services prior to
rig
registration and to the importation of goods prior to registration provided they
were used to make supplies that give the right to input tax recovery upon
registration. This is on the basis that such goods and services are used to make
taxable supplies. (Art. 56 of the Law)
In relation to goods, the amount of input tax deductible on capital assets shall be
in accordance with the net book value of the assets at the date of registration.
In addition the goods must not have been moved to another MEMBER STATE prior
to the date of tax registration.
In relation to services they must have been received within five years prior to the
date of tax registration.
py
10.4 Supply for Purposes of Economic Activities
The goods and services supplied must have been received in the course of
carrying on economic activity.

professional activities or Services or any use of material or non-material property or
Determining whether there is economic activity can be subjective and the facts of
each case must be considered in reaching a decision.
co

10.5 Goods and Services Only Partly Used for Business Purposes
both economic activities and non-economic activities (such as private use), it shall
not be possible to deduct the incurred input tax, for purposes other than the
economic activity. It may be treated as follows:
ht
business will need to use the calculation set out in Art. 55.6 of the Regulations
i.e., using the proportion of recoverable input tax to recoverable and non-
recoverable input tax. Art. 55.7 refers.
10.6
rig
Claimant Holds Required Evidence
Input tax is available for credit in the first VAT period in which the required
evidence is available.
The taxable person must receive and keep a valid tax invoice (Art. 55(1) of the VAT
Law) which contains the appropriate information as detailed in Art. 54(3) of the
Regulations. In the absence of a tax invoice other documents may be acceptable
as per the Regulations.
py
The amount of tax that can be reclaimed by a taxable person in the tax period in
relation to the supply of goods or services made to him, is the amount of input tax
that relates to the portion of consideration in respect of the supply that has been
paid during that tax period.
10.7 Input Tax was Correctly Charged
tax.
The Agreement has provision for adjustments which must be made to input tax
where there has been a reduction of the supply consideration after the date of
co
the supply or non-payment of the supply consideration, whether in whole or part

or change in use of a Capital Asset on which input VAT was claimed as per Art.
47(1) of the Agreement and Art. 59 of the VAT Law.
Art. 56 of the Regulations sets out in detail the circumstances in which repayment
of input tax claimed in relation to taxable supplies must be made if, before they
are used, the intended use of the goods or services changes so that the input tax is
no longer recoverable. Equally, where input tax is not recovered because the
goods or services are expected to be used to make exempt or non-business
supplies, but before they are used, the intended use changes, the input tax can
be recovered.

10.8 Blocked Input Tax
Art. 53 of the Regulations specifies that input tax is blocked from recovery from THE
AUTHORITY in relation to:
• The provision of entertainment services. The phrase “entertainment services”

means hospitality of any kind, including the provision of accommodation, food
and drinks which are not provided in a normal course of a meeting, access to
ht
shows or events, or trips provided for the purposes of pleasure or entertainment
• The purchase, rent or lease of a motor vehicle for use in the business where
that vehicle is available for private use by any person.
A motor vehicle for the purposes of this Article is “a road vehicle which is designed
or adapted for the conveyance of no more than 10 people including the driver. A
motor vehicle excludes a truck, forklift, hoist or other similar vehicle”.
Furthermore a vehicle shall not be deemed to be available for private use where it
is:
Q
•
• rig
a taxi, licenced by the State;
an emergency vehicle, including police, fire ambulance or similar;
a vehicle which is used in a vehicle renting business where it is rented to a

customer.
your Question Bank.
py
co

CHAPTER 11
PARTIAL EXEMPTION
ht
In this chapter you will look at:
– partial exemption, where a business makes both taxable and exempt supplies;
– determining the amount of input tax that the business can recover;
– input tax attribution;
– the apportionment of input VAT;
– the special methods of apportionment available to businesses;
– the de minimis input VAT limits, if applicable;
– the annual adjustment required by partially exempt businesses.
11.1
rig
Introduction
A partially exempt business is simply a business which makes taxable supplies and
exempt supplies, i.e. part of its business is taxable and part of it is exempt. The issue
with partially exempt businesses is how much input tax they can reclaim.
Initially the taxable person needs to identify input tax which is used exclusively to
make taxable supplies and input tax which is used exclusively to make exempt
supplies. This is known as direct attribution. Input tax used exclusively to make
taxable supplies is fully recoverable. (Art. 46 of the Agreement)
Of course, input tax incurred on supplies attributable exclusively to the exempt

supplies cannot be claimed back.
py
Some of the input tax cannot be directly attributed as it could relate to both
taxable and exempt supplies (for example, on overheads such as light and heat,
professional fees like audit fees, etc). This is ‘residual’ input tax and special rules
exist to determine how the input tax is allocated.
Art. 46(2) of the Agreement obliges each MEMBER STATE to make regulations for
securing a fair and reasonable attribution of the ‘residual’ input tax.
For the purposes of attribution the following supplies are regarded as taxable:
a. ‘Taxable supplies’, i.e. supplies of goods and services made in the MEMBER
STATE other than exempt supplies.
co
b. Supplies outside the MEMBER STATE which would be taxable supplies if made in
the MEMBER STATE.
THE AUTHORITY in each MEMBER STATE must make regulations for securing a fair
and reasonable attribution of input tax to the supplies within (a) and (b) above.
(Art. 46(2) of the Agreement)

 Illustration 1
ABC is partially exempt, i.e. some of the company's turnover is standard-rated and
some is exempt.
Taxable turnover Exempt turnover

SAR 400,000 SAR 60,000
ht
↑ ↑ ↑ ↑
Input tax ↑ ↑ ↑
SAR 15,000 SAR 5,000 SAR 3,000
√ ? X
The input tax relating to the taxable business of SAR 15,000 is fully recoverable.
rig
SAR 3,000 of input tax relating to the exempt business would not be recoverable.
This could be input tax incurred on expenses (such as telephone bills,
accountancy fees, legal fees, and repairs) that are directly attributable to the
exempt supplies.
There is also residual input tax which relates to both the taxable and exempt
business – this SAR 5,000 is effectively attributable to both. The business will need to
apportion the SAR 5,000 between the taxable and exempt supplies to determine
recoverability of the SAR 5,000.
Direct attribution will always be undertaken before consideration is given to the

apportionment of the residual input tax. The apportionment of residual input tax
will then be under the method determined by each MEMBER STATE.
py
11.2 Non-Business Activities
Any VAT incurred relating to non-business activities is not deductible input tax for
these purposes. Where a business also carries on non-business activities, it must
normally first determine the proportion of VAT incurred relating to those activities
and disregard any such VAT before applying the rules in this chapter.
11.3 Standard Method of Apportioning Residual Input Tax
Each MEMBER STATE shall specify their standard method of apportionment which
will be used throughout the four quarters of the taxable persons VAT year. These
will allow the taxable persons to establish their provisional proportion of residual
co
input tax that is recoverable for the year.
Once the taxable person has reached the end of the VAT year they must perform
an annual adjustment to determine their definitive proportion of recoverable
residual input VAT. If their provisional recovery varies from their final recovery rate,
the taxable person must make an adjustment as per the MEMBER STATES
provisions.

11.4 Special Methods of Apportioning Residual Input Tax
The standard method of residual apportionment applies by default. If a taxable

person is partially exempt, they should apply the standard method, unless a
special method is agreed with THE AUTHORITY. It should be noted that direct
attribution will be the same under the standard or special method. It is the
apportionment of residual input tax that will vary between the two methods.
ht
A special method is usually opted for where it produces a fairer apportionment of
the residual input VAT. It may be that the standard method of apportionment does
not give a fair fraction, so therefore a special method is agreed. A business may
apply to THE AUTHORITY to use a special method if it considers that the standard
method does not provide a fair and reasonable result. THE AUTHORITY requires
precise details of how the proposed method will work in practice and may be
prepared to discuss proposals before a formal application is submitted. THE
AUTHORITY will normally approve a special method provided it is fair and
reasonable.
Special methods can be based on a variety of criteria, such as:
a.
b.
c.
rig
The number of transactions, for example the number of taxable transactions in
a quarter over the total number of transactions in the quarter;
Floor area, for example, the floor area used to make taxable supplies and the
floor area used to make exempt supplies;
Staff numbers, for example, the total staff employed on the taxable business
compared to the staff numbers used in the exempt business.
In practice, special methods can be quite complicated; every business is different

and they have their own idiosyncrasies.
py
A business using a special method approved by THE AUTHORITY must continue to
use it until THE AUTHORITY approves the termination of its use.
Written approval from THE AUTHORITY is required before starting to use a special
scheme. Any specific conditions will be set out in the letter of approval.
11.5 De Minimis Input VAT
It is possible to reclaim residual input VAT if the amounts involved are below a
certain limit. Such input tax is normally irrecoverable, but the MEMBER STATE in
question may allow that if the amounts are low enough. They will allow the taxable
person to reclaim the input tax even though it relates to making exempt supplies.
Each MEMBER STATE will decide whether de minimis limits will apply and will define
co
these limits accordingly.
11.6 Annual Adjustment
The partial exemption calculations are made using historical information and may
not reflect current level of supplies. These calculations are however not final.
At the end of the taxable person’s VAT year, he must perform an annual
calculation. This is the same calculation again, but this time using annual supplies
and annual input tax figures for the year in question.

The trader should calculate the correct reclaim for the year based on these
annual figures. The trader then compares the quarterly reclaims to the correct
annual claim.
When the annual adjustment is accounted for it is prescribed by the legislation in

each MEMBER STATE.
ht
rig
py
co

APPENDIX 1
CHAPTER 11 PARTIAL EXEMPTION

11.1 Introduction
ht
The legislation requires that a business which makes both taxable and exempt
sales, i.e. part of its business is taxable and part of it is exempt must use a
prescribed method in order to determine how much input tax they can reclaim.
Initially the taxable person needs to identify input tax which is used exclusively to
make taxable supplies and input tax which is used exclusively to make exempt
supplies. This is known as direct attribution. Input tax used exclusively to make
taxable supplies is recoverable. Some of the input tax cannot be directly
rig
attributed as it could relate to both taxable and exempt supplies (for example, on
overheads such as light and heat etc). This is ‘residual’ input tax and special rules
exist to determine how the input tax is allocated. (Art. 51 of the Regulations)
For the purposes of attribution the following supplies are regarded as taxable:
a) ‘Taxable supplies’, i.e. supplies of goods and services made in the KSA other
than exempt supplies.
b) Supplies of goods or services to a customer who resides in another MEMBER

STATE.
c) Supplies outside the KSA which would be taxable supplies if made in the KSA.
py
 Illustration 1
some is exempt.

SAR 400,000 SAR 60,000
↑ ↑ ↑ ↑
SAR 15,000 SAR 5,000 SAR 3,000

co
√ ? X
The input tax relating to the taxable business of SAR 15,000 is fully recoverable.
SAR 3,000 of input tax relating to the exempt business would not be recoverable as
it is incurred on expenses (such as consultancy fees, and overheads) that are
directly and exclusively attributable to the exempt supplies.
There is also input tax (residual input tax) which relates to both the taxable and
exempt supplies. The business will need to apportion the SAR 5,000 between the
taxable and exempt supplies to determine recoverability of the SAR 5,000.

Direct attribution will always be undertaken before consideration is given to the

apportionment of the residual input tax as determined by the Regulations.
11.2 Non-Business Activities
Any VAT incurred relating to non-business activities is not input tax for these
purposes. Where a business also carries on non-business activities, it must normally
first determine the proportion of VAT incurred relating to those activities and
ht
disregard any such VAT before applying the rules in this chapter.
Values Based
The values based standard method of apportionment of residual input tax is as

follows. (Art. 51(4) of the Regulations)
Taxable supplies in last calendar year
rig Taxable and exempt supplies in last calendar year
The value of taxable supplies or exempt supplies used here include those supplies
that do not take place in KSA but that would have been taxable or exempt
supplies if they had taken place in KSA.
In making the calculation, the value of all the following supplies must be excluded
(Art. 51(5) of the Regulations):
a) Any sum received/receivable in respect of a supply of capital assets used for

the purposes of the business.
b) Supplies taking place outside KSA which are supplied from an establishment of
the taxable person outside of KSA.
py
This fraction is then expressed as a percentage which is then applied to the
residual input tax.
 Illustration 2

SAR 400,000 SAR 60,000
↑ ↑ ↑ ↑
co
SAR 15,000 SAR 5,000 SAR 3,000
Taxable supplies Residual Exempt supplies
400,000 x 100 = 86.96%

400,000 + 60,000
Applying the formula to the illustration, SAR 400,000 over SAR 460,000 × 100 equals
86.96%.

Consequently 86.96% of the SAR 5,000 relates to the taxable business and 13.04%
relates to the exempt business.
This equates to SAR 4,348 on the taxable side and SAR 652 on the exempt side.
The input tax that relates to the taxable supplies, is recoverable, and the input tax
relating to the exempt business is irrecoverable.
ht
SAR 400,000 SAR 60,000
↑ ↑ ↑ ↑
SAR 15,000 SAR 5,000 SAR 3,000
↓ ↓
rig 86.96%
= SAR 4,348
√
↓ ↓
13.04%
= SAR 652
X
X
Consequently in this calendar year the business will recover SAR 19,348 (SAR 15,000
+ SAR 4,348) of input tax.
py
11.4 Special Methods of Apportioning Residual Input Tax
The standard method of residual apportionment applies by default. If a trader is

partially exempt, they should apply the standard method, unless a special method
is agreed with THE AUTHORITY. It should be noted that direct attribution will be the
same under the standard or special method. It is the apportionment of residual
input tax that will vary between the two methods.
A special method is usually opted for where it produces a fairer apportionment of

the residual input VAT. It may be that the standard method of apportionment does
not reflect the actual extent to which costs relate to making taxable supplies,
therefore a business may apply to THE AUTHORITY to use a special method.
co
THE AUTHORITY requires an application to be submitted in writing to use an

alternative method. THE AUTHORIY may agree or reject an application to use a
method other than the default method by issuing a formal notification.
If THE AUTHORITY accepts the proposed special method THE AUTHORITY will
prescribe a time period, up to a maximum of five years, during which the
alternative method may be used. After the prescribed time period expires, a new
application must be submitted.

Special methods can be based on a variety of criteria, such as:
a) The number of transactions, for example the number of taxable transactions in

a quarter over the total number of transactions in the quarter;
b) Floor area, for example, the floor area used to make taxable supplies and the
ht
c) Staff numbers, for example, the total staff employed on the taxable business
In practice, special methods can be quite complicated; every business is different

and they have their own idiosyncrasies.
 Example 1
In the quarter to 31 March, Zap had the following:

SAR
Taxable supplies (excluding VAT) 292,000
Residualrig
Exempt supplies
Input tax:
Directly attributable to taxable supplies
Directly attributable to exempt supplies
40,000
7,000
4,000
14,000
Taxable supplies include SAR 12,000 (excluding VAT) for the sale of equipment
during the quarter.
You are required to calculate the recoverable input tax assuming a values based
method is used.
De Minimis Input VAT

py
11.5
KSA does not allow recovery of exempt VAT via de minimis limits.
The partial exemption calculations are made using historical information and may
not reflect current level of supplies. Furthermore, if where the taxable person was
not registered for VAT in the last calendar year, they must calculate the default
method fraction based on estimated values for the current calendar year.
Given that the calculations performed during the year are not definitive and likely
to change, Art. 51(7) of the Regulations obliges the taxable person to re-calculate
co
the deductions made during that year using the actual values of supplies made
during that year.
At the end of the trader's VAT year, he must perform an annual calculation. This is
the same calculation again, but this time using the annual taxable and exempt
supplies in that calendar year.
The trader should calculate the correct reclaim for the year based on these
annual figures. The trader then compares the quarterly reclaims to the correct
annual claim. The difference is known as the ‘annual adjustment’.

The annual adjustment is accounted for on the final VAT return for that calendar
year.
 Illustration 3
A trader has results for the last 4 VAT quarters as follows. The taxable supplies are
stated exclusive of VAT.
ht
Qtr to Qtr to Qtr to Qtr to Year to
31 Mar 18 31 Jun 18 31 Sep 18 31 Dec 18 31 Dec 18
Provisional
Taxable % 64% 64% 64% 64%
Actual
Taxable % 58%
Input Tax: SAR SAR SAR SAR SAR

Direct Taxable 6,000 7,500 7,000 6,750 27,250
Direct Exempt 2,000 1,500 9,000 1,800 14,300
Residual
Taxable
Exempt
rig
Total taxable
Total exempt
Claimed
1,500
960
540
6,960
2,540
6,960
1,800
1,152
648
8,652
2,148
8,652
21,650
13,856
7,794
20,856
16,794
20,856
700
448
252
7,198
2,052
7,198
In the first quarter we multiply the residual input tax of SAR 1,500 by the
percentage based on last year’s figures:
25,650
14,877
10,773
42,127
25,073
42,127
py
Qtr1 SAR 1,500 x 64% = deductible SAR 960 & non-deductible residual = SAR 540
Similar calculations done to calculate the amounts for quarters 2, 3 and 4:
Qtr2: SAR 1,800 × 64% = deductible SAR 1,152 & balance = SAR 648
Qtr3: SAR 21,650 × 64% = deductible SAR 13,856 & balance = SAR 7,794
Qtr4: SAR 700 × 64% = deductible SAR 448 & balance = SAR 252
For the annual calculation we use the annual percentage of 58% and apply that
to the annual residual, SAR 25,650:
i.e. SAR 25,650 × 58% = SAR 14,877 balance exempt = SAR 10,773
co
At year-end, the directly attributable input tax of SAR 27,250 will remain
unchanged. However, the total residual of SAR 25, 650 needs to be adjusted in line
with the final apportionment ration – i.e. 58% x SAR 25,650 = SAR 14,877. Hence the
final deducible input tax is (SAR 27,250 + SAR 14,877) SAR 42,127.
However, during the year (6,960 + 8,652 + 20,856 + 7,198) SAR 43,666 was
deducted.
This means that too much VAT has been reclaimed during the year, and so an
annual adjustment of SAR 1,539 is required. That will be negative input tax in the
quarter to 31 December 2016.

Effectively the trader owes another SAR 1,539 to THE AUTHORITY in the last quarter
of that VAT calendar year. That is the annual adjustment.
 Example 2

SAR SAR SAR SAR SAR
ht
Supplies:
Taxable 60,000 63,000 61,000 70,000 254,000
Exempt 9,000 7,000 14,000 10,000 40,000
Total 69,000 70,000 75,000 80,000 294,000
% _______ _______ _______ _______ _______
Input tax:
Residual
Taxable
Exempt rig
Direct Taxable
Direct Exempt
Total taxable
Total exempt
Claim
4,000
1,500
2,700
3,000
1,200
2,500
500
1,500
1,000
3,500
2,000
1,900
11,000
6,200
8,100
py
Note: The taxable supplies are exclusive of VAT.
The partial exemption recovery rate for the previous calendar year is 80%.
You are required to fill in the missing figures in the above example, using the
values based standard method
co

ANSWERS
 Answer 1
Total Taxable Exempt

SAR SAR SAR
Inputs:
ht
Direct taxable 7,000 7,000
Direct exempt 4,000 4,000
Residual 14,000 12,320 1,680
25,000 19,320 5,680
Taxable supplies – exclude Capital Items i.e. equipment
292,000 − 12,000 = SAR 280,000
Fraction
rig
Taxable supplies
Total supplies
280,000
320,000
× 100
× 100
=?
= 88% (rounded up from 87.5%)
88% × 14,000 = SAR 12,320
The direct taxable input tax, i.e. the input tax relating directly to the taxable sales
was SAR 7,000 so SAR 7,000 goes into the taxable column. The direct exempt input
tax was SAR 4,000 so SAR 4,000 goes into the exempt column.
py
The residual is SAR 14,000. This is the amount which must be apportioned between
taxable and exempt supplies (remembering to exclude the capital items i.e. sale
of equipment). The fraction is taxable supplies over total supplies times 100, which
equals 88% (rounded up from 87.5%). This percentage is then applied to the
residual input tax of SAR 14,000.
The residual input tax which relates to taxable sales thus amounts to SAR 12,320.
(i.e. 88% times the SAR 14,000) The balance of residual input tax is exempt, i.e. SAR
1,680.
The total figures for the quarter are therefore SAR 25,000 worth of total input tax,
SAR 19,320 of taxable input tax and SAR 5,680 of exempt input tax. The trader will
be able to claim SAR 19,320 of input tax. The SAR 5,680 is irrecoverable as it relates
co
to exempt sales.

 Answer 2

SAR SAR SAR SAR SAR
Supplies
Taxable 60,000 63,000 61,000 70,000 254,000
Exempt 9,000 7,000 14,000 10,000 40,000
ht
Total 69,000 70,000 75,000 80,000 294,000
% 80 80 80 80 86
Input tax:
Direct Taxable 4,000 3,000 500 3,500 11,000
Direct Exempt 1,500 1,200 1,500 2,000 6,200
Residual 2,700 2,500 1,000 1,900 8,100
Taxable 2,160 2,000 800 1,520 6,966
Exempt
Claim rig
Total taxable
Total exempt
540
6,160
2,040
6,160
500
5,000
1,700
5,000
200
1,300
1,700
1,300
Claimed in year SAR 17,480

380
5,020
2,380
5,020
Annual Adjustment SAR 486 (add to input tax) – Qtr. ended 31.12.18
The percentages used for each quarter is 80% based on the previous calendar
year recovery rate.
1,134
17,966
7,334
17,966
py
In quarter 1, the taxable apportionment of residual is SAR 2,160, i.e. SAR 2,700 x 80%
 The balance of residual of SAR 540 is treated as the exempt proportion.
 This gives a total taxable for the quarter of SAR 6,160 i.e. SAR 4,000 + SAR 2,160
 The total exempt is SAR 1,500 for the quarter plus the SAR 540.
 Similar calculations have been performed for quarters 2, 3 & 4
Then, the annual figures:

 Calculate the actual recovery percentage of taxable supplies over taxable
 SAR 254,000 / SAR 294,000 = 87% (rounded up from 86.39%)
 Calculate the annual apportionment of SAR 7,047 by multiplying the residual
for the year of SAR 8,100 by 67%.
co
Next consider the total figures for the year.

 The SAR 17,966 is SAR 11,000 plus the apportioned residual of SAR 6,966.
 This same principle applies for the total exempt – SAR 6,200 plus the SAR 1,134,
giving SAR 7,334.
Therefore, we claimed during the year SAR 17,480 but were allowed to claim up to
SAR 17,966. That means that in the VAT Return for the last quarter of 2018, the
taxable person can increase deductible input tax by SAR 486.

APPENDIX 2
CHAPTER 11 PARTIAL EXEMPTION

11.1 Introduction
ht
Art. 58 of the Legislation requires that a business which makes both taxable and
exempt sales, i.e. part of its business is taxable and part of it is exempt must use a
prescribed method in order to determine how much input tax they can reclaim.
Art. 55 of the Regulations explains how to identify recoverable input tax. Initially
the taxable person needs to identify input tax which is used wholly to make
taxable supplies. For this purpose, taxable supplies include supplies that are made
outside the MEMBER STATE, which would have been taxable supplies had they
been made in the MEMBER STATE and supplies specified in the Executive
rig
Regulations that are made outside the MEMBER STATE, which would have been
treated as exempt had they been made inside the State). It also needs to identify
input tax which is not used wholly to make the supplies set out above.
Input tax used wholly to make taxable supplies is recoverable. Some of the
remaining input tax must be apportioned as it relates to both taxable and non-
taxable supplies (for example, on overheads such as light and heat, etc). This is
known as ‘residual’ input tax and special rules exist to determine how the input tax
is allocated. (Art. 55 of the Regulations).
 Illustration 1
some is exempt.
py
AED 400,000 AED 60,000
↑ ↑ ↑ ↑
AED 15,000 AED 5,000 AED 3,000
√ ? X
co
The input tax relating to the taxable business of AED 15,000 is fully recoverable.
AED 3,000 of input tax relating to the exempt business would not be recoverable.
This could be input tax incurred on expenses (such as consultancy fees, and
overheads) that are wholly attributable to the exempt supplies.
There is also residual input tax which relates to both the taxable and exempt
business. This AED 5,000 is effectively attributable to both. The business will need to
apportion the AED 5,000 between the taxable and exempt supplies to determine
recoverability of the AED 5,000.

Apportionment between taxable and non-taxable supplies will always be

undertaken before consideration is given to the apportionment of the residual
input tax as determined by the Regulations.
Input Tax Method
ht
This method of apportionment of residual input tax is as follows:
Recoverable input tax *

Recoverable and non-recoverable input tax
* Recoverable input tax is calculated by reference to Art. 55 of the Regulations
This fraction is then expressed as a percentage. The percentage is then rounded

up to the next whole number. For example, if it came out to 83.1%, it would round
up to 84%. This percentage is applied to the residual input tax.
rig
 Illustration 2
AED 15,000
Taxable turnover
Input tax
Taxable supplies
↑
↑
AED 5,000
Residual
↑
↑
Exempt turnover
AED 3,000
↑
↑
Exempt supplies
py
15,000
x 100 = 83.33%
15,000 + 3,000
Consequently 84% of the AED 5,000 relates to the taxable business and 16% relates
to the exempt business, i.e. AED 4,200 on the taxable side and AED 850 on the
exempt side.
The input tax that relates to the taxable supplies, is recoverable, and the input tax
relating to the exempt business is irrecoverable.

co
↑ ↑ ↑ ↑
Input tax Residual Input Tax Input Tax
AED 15,000 AED 5,000 AED 3,000
↓ ↓
↓ ↓
√ 84% 16% X
AED 4,200 AED 800
√ X

Consequently this quarter the business will recover AED 19,200 (AED 15,000 +
AED 4,200) of input tax.
11.3 Alternative Methods of Apportioning Residual Input Tax
The standard method of residual apportionment applies by default. If a taxable

person is partially exempt, it should apply the standard method, unless an
alternative method is agreed with THE AUTHORITY. It should be noted that
ht
apportionment will be the same under the standard or special methods. It is the
apportionment of the residual input tax that will vary between the two methods.
Art. 55 of the Regulations states that where a taxable person considers the
standard method would not reflect the actual extent to which the input tax relates
to making taxable supplies, he may apply to THE AUTHORITY to authorise the use of
an alternative basis of calculation based on a list of accepted mechanisms issued
by THE AUTHORITY. If accepted, the taxable person may use the alternative
mechanism of apportionment from such future date and as per any further
conditions as determined by THE AUTHORITY. THE AUTHORITY requires a full
explanation of the reasons why the standard method does not reflect the extent
rig
to which goods and services are used in making taxable supplies and THE
AUTHORITY may request such information from the taxable person as it believes is
necessary in determining whether it accepts the application.
If THE AUTHORITY accepts the proposed alternative method, it shall issue a

notification to the taxable person setting out the alternative calculation and the
conditions for continuing use of such calculation.
Usually, alternative methods are based on a variety of criteria, such as;
a. The number of transactions, for example the number of taxable transactions in

a quarter over total number of transactions in the quarter;
b. Floor area, for example, the floor area used to make taxable supplies and the
py
c. Staff numbers, for example, the total staff employed on the taxable business
A business using a special method approved by THE AUTHORITY must continue to

use it until THE AUTHORITY approves the termination of its use but for at least two
years.
Further, Art. 55(10) of the Regulations sets out what must be done if the difference
in any tax year between the recoverable tax as calculated under the standard
method and the recoverable tax which would arise if a calculation was made
which reflects the actual use of the goods and services to which the input tax
co
relates, exceeds AED 250,000. In such a case, the taxable person must, at the end
of its tax year, make an adjustment to the input tax in respect of the difference.

11.4 De Minimis Input VAT
Although early versions of the Regulations indicated there would be a de minimis

limit, below which input tax that did not relate to taxable supplies would be
recoverable, this has not appeared in the final version of the Regulations therefore,
it appears that there will be no threshold beneath which input tax that does not
relate to taxable supplies can be recovered in full.
ht
 Example 1
In the quarter to 31 March, Zap had the following:
AED
Taxable supplies (excluding VAT) 292,000
Exempt supplies 40,000
Input tax:
Directly attributable to taxable supplies 7,000
Residual
method.
 Example 2
rig
In the quarter to 30 June, Zap had the following:
Input tax:
Directly attributable to taxable supplies
Residual
4,000
14,000
You are required to calculate the recoverable input tax using the input tax based
AED
19,000
1,000
24,000
py
You are required to calculate the recoverable input tax using the input tax based
standard method.
The quarterly partial exemption calculations are provisional as the taxable and
non-taxable usage may fluctuate over the course of the year. A more accurate
reflection of the usage can be made over a 12 month period therefore, Art. 55(8)
of the Regulations obliges the taxable person to recalculate the deductions made
during that year using the actual values of the entire year rather than just those of
the quarter in question.
co
Once the person has calculated the input tax deductible for the VAT year just
ended the result must be compared to the actual input tax deducted in all the tax
periods making up the VAT year and any difference should be adjusted on the
first tax return of the subsequent tax year.

 Illustration 3
A taxable person has results for the last 4 VAT quarters as follows.

31 Mar 18 30 Jun 18 30 Sept 18 31 Dec 18 31 Dec 18
Input tax: AED AED AED AED AED
Recoverable 6,000 7,500 7,000 6,750 27,250
ht
Recoverable 8,000 9,000 16,000 8,550 41,550
and non-
recoverable
% 75 84 44 79 66
The correct percentages are calculated as follows:
Qtr 1: 75% i.e. AED 6,000 / AED 8,000 x 100 = 75%

Qtr 2: 84%, i.e. AED 7,500 / AED 9,000 x 100 = 84%
Qtr 3: 79% i.e. AED 7,000 / AED 16,000 x 100 = 44%.
Qtr 4:
Input tax:
Taxable
Exempt
rig
66% i.e. AED 6,750 / AED 8,550
Qtr to
31 Mar 19
AED
6,000
2,000
Qtr to
30 Jun 18
AED
7,500
1,500
x 100
To calculate the annual percentage apply the same method:
i.e. AED 27,250 / AED 41,550 x100 = 66%.
AED
7,000
9,000
= 79%
Now we have our percentages, we can move on to the input tax reclaims.
Qtr to
30 Sept 18
Qtr to
31 Dec 18
AED
6,750
1,800
Year to
31 Dec 18
AED
27,250
14,300
py
Residual 1,500 1,800 21,650 700 25,650
Taxable 1,125 1,512 9,526 553 16,929
Exempt 375 288 12,124 147 8,721
Total taxable 7125 9,012 16,526 7,303 44,179

Total exempt 2,375 1,788 21,124 1,947 23,021
Claim 7,125 9,012 16,526 7,303
Total claim 44,179
In the first quarter we multiply the residual input tax of AED 1,500 by the
percentage for that quarter – i.e. AED 1,500 x 75% = AED 1,125 (balance = AED
375).
co
Similarly, for quarters 2, 3 and 4:
Qtr 2: AED 1,800 × 84% = taxable supplies AED 1,512 (exempt = AED 288)
Qtr 3: AED 21,650 × 44% = taxable supplies AED 9,526 (exempt = AED 12,124)
Qtr 4: AED 700 × 79% = taxable supplies AED 553 (exempt = AED 147)

At this point there is a great temptation to add right the way across to find the
annual figures, but that would be incorrect.
 For the annual calculation we use the annual percentage of 66% and apply
that to the annual residual, AED 25,650;
 i.e.: AED 25,650 × 66% = taxable supplies AED 16,929 (exempt = AED 8,721)
ht
On the annual calculation, again we do not add across. To get AED 44,179 as the
total taxable for the year, add the AED 27,250 to the allocated residual for the
year of AED 16,929.
The AED 23,021 is the AED 14,300 for the year of direct exempt plus the residual
allocation of AED 8,721.
The final line is the claim figure for the four quarters.
In quarter 1 the total exempt is AED 2,375. In quarter 2 the AED 1,788 is exempt.
rig
In quarter 3 the AED 21,124 is exempt.
In quarter 4 the exempt input tax of AED 1,947 is exempt.
Finally, on the annual adjustment we consider whether the AED 23,021 is exempt.
AED 44,179
AED 39,966
AED 4,213
Allowable claim for the year then ended
Total claimed during the year
(AED 7,125+ AED 9,012 + AED 16,526 + AED 7,303)
The adjustment that needs to be passed in the first VAT return for
py
year ended 2019
co

 Example 3

31 Mar 18 30 Jun 18 30 Sept 18 31 Dec 18 31 Dec 18

Taxable 4,000 3,000 500 3,500 11,000
Exempt 1,500 1,200 1,500 15,000 6,200
ht
Residual 2,700 2,500 1,000 1,900 8,100
Total _______ _______ _______ _______ _______
Taxable % _______ _______ _______ _______ _______
Input tax:
Taxable 4,000 3,000 500 3,500 11,000
Exempt 1,500 1,200 1,500 15,000 6,200
Residual 2,700 2,500 1,000 1,900 8,100
Taxable
Exempt
Claim
rig
Total taxable
Total exempt
______
______
______
______
______
______
______
______
______
______
You are required to fill in the missing figures in the above example, using the input
tax based standard method
py
co

co
py
rig
ht
ANSWERS
 Answer 1

AED AED AED
Input Tax
ht
Residual 14,000 8,960 5,040
25,000 15,960 9,040
Fraction
Recoverable input tax

Recoverable and non- × 100 = ?
rig
recoverable input tax
7,000
(7,000 + 4,000)
× 100
= 63.6% = 64%
(rounded to nearest whole number)
The direct taxable input tax, i.e. the input tax relating directly to the taxable sales
was AED 7,000 − AED 7,000 goes into the taxable column.
The input tax directly attributable to exempt supplies was AED 4,000 − AED 4,000
goes into the non-taxable column.
The residual is AED 14,000. This is the amount which must be apportioned between
taxable and exempt supplies.
py
 The residual input tax which relates to taxable sales thus amounts to
AED 8,960  i.e. 64% x AED 14,000
 The balance of residual input tax that is exempt  i.e. 36% of AED 14,000 = 5040
The total figures for the quarter are therefore:

 AED 25,000 worth of total input tax;
 AED 15,960 of taxable input tax; and
 AED 9,040 of exempt input tax.
The trader will be able to claim AED 15,960 of input tax but not the AED 9,040, there
is no de minimis threshold.
co

 Answer 2

AED AED AED
Inputs:
Residual 24,000 22,800 1,200
ht
44,000 41,800 2,200
Fraction
Recoverable input tax

Recoverable and non- × 100 = ?
recoverable input tax
rig 19,000
(19,000 + 1,000)
The input tax directly attributable:

× 100
 to taxable supplies is AED 19,000; and

 to exempt supplies is AED 1,000.
= 95%
The residual of AED 24,000 needs to be apportioned between taxable and exempt
supplies.
 The residual input tax which relates to taxable sales thus amounts to
AED 22,800  i.e. 95% x AED 24,000
py
 The balance of residual input tax is exempt  i.e. 5% x AED 24,000 = 1,200
This gives totals of:

 AED 44,000 for the total input tax in the quarter;
 AED 41,800 of input tax relating to taxable supplies; and
 AED 2,200 of input tax relating to exempt supplies.
 As there is no de minimis limit, the 2,200 AED cannot be recovered.
co

 Answer 3

31/Mar/18 30/Jun/18 30/Sept/18 31/Dec/18 31/Dec/18
Taxable 4,000 3,000 500 3,500 11,000
Exempt 1,500 1,200 1,500 15,000 19,200
Residual 2,700 2,500 1,000 1,900 8,100
ht
Taxable &
Exempt 5,500 4,200 2,000 18,500 30,200
Taxable % 73 72 25 19 37
Input tax:
Taxable 4,000 3,000 500 3,500 11,000
Exempt
Residual
Taxable
Exempt
Total
taxable
Total
exempt
Claim
rig 1,500
2,700
1,971
729
5,971
2,229
5,971
1,200
2,500
1,800
700
4,800
1,900
4,800
1,500
1,000
250
750
750
2,250
750
Claimed in year AED 15,382

15,000
1,900
361
1,539
3,861
16,539
3,861
19,200
8,100
2,997
5,103
13,997
24,303
13,997
py
Annual Adjustment AED 13,997 Qtr to 31.3.19
The correct percentages are 73%, 72%, 25%, 19% and 37%. The calculation each
quarter is recoverable input tax over recoverable and non-recoverable input tax
times 100 rounded up. For example, in quarter 1:
 4,000 / (4,000+1,500) x 100 = 72.7% rounded up to 73%.

 The taxable apportionment of the residual is AED 1,971  AED 2,700 x 73%.
 The balance of residual of AED 729 is treated as the exempt proportion.
 Thus total taxable deduction for Q1 of AED 5, 971  AED 4,000 + AED 1,971
 The total exempt is AED 1,500 for the quarter plus the AED 729
Similar calculations have been performed for quarters 2, 3 and 4.

co
Finally, the annual figures:
 Calculate the annual apportionment of AED 2,997by multiplying the residual

for the year of AED 8,100 by 37%.
 Next consider the total figures for the year. The AED 13,997 is AED 11,000 plus
the apportioned residual of AED 2,997.
 This same principle applies for the total exempt  AED 19,200 plus the AED
5,103, giving AED 24,303.

 As there is no de minimis limit, the amount claimable for the year was AED
13,997
The business actually claimed in the year AED 15,382:
 This leaves an annual adjustment of AED 1,385to repay to THE AUTHORITY on

the quarter to 31 March 2019.
ht
rig
py
co

CHAPTER 12
VAT RECORDS AND RETURNS
ht
In this chapter we will look at the records which must be kept by a VAT registered person
including:
– the VAT account and the time limit for retention;
– special record-keeping requirements for special schemes;
– the VAT invoice;
– when a less detailed VAT invoice may be used;
– electronic invoicing;
– self-billing;
– VAT returns.
12.1
12.2
rig
Introduction
This chapter looks at how important records and returns are in the VAT system.
Because VAT is collected at every level along a chain of a supply, it is important
that records should exist of all transactions made and received by a business. The
importance of records is paramount when the business wants to claim a refund of
input tax because it will need to be able to prove that the tax it is reclaiming was,
in the first place, paid by the business. The best proof of this is the records that the
business keeps.
Records
py
THE AUTHORITY have a general power to require taxable persons to keep such
records as they require and these general requirements are set out in Art. 59 of the
Agreement.
Tax invoices, books, records and accounting documents must be kept for a
minimum of 5 years from the end of the year to which the records relate, albeit this
period can be extended by each MEMBER STATE. This period shall be extended to
fifteen years for the retention of tax invoices, book records and accounting
documents relating to real estate.
Each MEMBER STATE shall prescribe the specific records required to be maintained.
12.3 Special Record Keeping Requirements

co
Apart from the records needed by all taxable persons, if a taxable person
operates a special scheme then he is usually subject to additional record keeping
requirements. These requirements will be specified by THE AUTHORITY usually in their
Regulations, which have the force of law for this purpose. Special record keeping
requirements arise for retail schemes, margin schemes (for example the profit
margin scheme), for bad debt relief claims and for traders using the cash
accounting scheme.

12.4 Tax Invoices
With certain exceptions, or unless THE AUTHORITY allows otherwise, a taxable

person must issue a tax invoice (or a similar document) when supplying taxable
goods or services (including when he makes deemed supplies). A taxable person is
also obliged to issue a tax invoice when he is in receipt (in full or in part) of the
consideration prior to the actual supply of the goods or service.
ht
Each MEMBER STATE may except the taxable person from issuing a tax invoice for
exempt supplies other than relating to internal transactions between MEMBER
STATES. (Art. 55(2) of the Agreement)
Each MEMBER STATE shall determine the contents of the tax invoice and the period
within which it must be issued, subject to meeting minimum requirements as
determined by the Ministerial Committee of the GCC. (Art. 56 of the Agreement)
Tax invoices can be issued in any currency, provided that the value of the tax is
written in the currency of the MEMBER STATE where the place of supply is located
based on the official currency exchange rate in force in that MEMBER STATE on the
12.5
rig
tax due date.
Where a tax invoice is required the trader has an obligation to issue the tax invoice
within specified time limits, as set out in each MEMBER STATE Regulations.
The Agreement also allows each MEMBER STATE to grant the issuing of summary
tax invoices, including all the supplies of taxable goods or services made to a
single customer over the period of a month. (Art. 55(3) of the Agreement)
Simplified Invoices
Where a supply does not exceed a certain level, as specified by each MEMBER
STATE, and the supply is other than to a person in another MEMBER STATE or an
py
export of goods, the MEMBER STATE may allow the issuance of a simplified tax
invoice containing fewer particulars.
These particulars are defined by each MEMBER STATE.
12.6 Electronic Invoices
The Agreement allows for tax invoices to be issued in either paper format or by
electronic means in accordance with the conditions and procedures determined
by each MEMBER STATE.
It will be for businesses to decide whether to invoice by traditional paper methods

or electronically. Indeed some businesses may use both methods for separate
co
supplies/suppliers.
12.7 Self-Billing
Self-billing is an established practice where the customer prepares a tax invoice in

the name of, and on behalf of, the supplier and then sends it to the supplier,
usually with the payment. There must be an agreement in place at the outset
between the supplier and the customer which includes a clause that the supplier
shall not issue a tax invoice in respect of any supply which is subject to a self-billing
arrangement.

The Agreement allows for a self-billing arrangement provided that the supplier has
agreed to use self-billing and that the customer is authorised to raise self-billed
invoices (Art. 58(1) of the Agreement). In addition, the tax invoice must be marked
as self-billing and prior confirmation must be sought from the Competent Tax
Administration.
If the conditions of self-billing are not met, any self-billed invoices issued are not
proper tax invoices. As such, they cannot be used as evidence of entitlement to
ht
input tax recovery and the supplier will have to issue his own invoice.
12.8 Tax Return
A taxable person must furnish a tax return, in respect of each tax period, as
determined by each MEMBER STATE and which shall be no less than one month
(Art. 60 of the Agreement). In addition to determining the periods, each MEMBER
STATE shall determine the rules and conditions for submission of tax returns,
provided these adhere to the minimum data required to be included, as
determined by the Ministerial Committee.
rig
The tax return deals with all of the taxable person’s transactions within its MEMBER
STATE that fall within the charging provision of VAT and also includes entries for
intra-GCC trade as well as tax on imported goods which have to be dealt with on
the VAT return.
py
co

co
py
rig
ht
APPENDIX 1
CHAPTER 12 VAT RECORDS AND RETURNS
ht
12.1 Introduction
The Agreement sets out general conditions that must be adhered to in relation to
which VAT records a taxable person must maintain and for how long these must
be held. There are also prescribed format and timings in relation to the submission
of tax returns.
The VAT Law and Regulations provide further specific conditions in relation to this
and these will be covered in this chapter.
12.2 Records
rig
In accordance with Art. 36 of the VAT Law and Art. 66 of the Regulations, the
taxable person shall maintain all tax invoices, books, records and accounting
documents relating to their taxable activities and these should include the
following examples:
a) Tax invoices, credit notes and debit notes received;
b) Tax invoices, credit notes and debit notes issued;
c) Customs documentation relating to imports and exports.

py
This is not an exhaustive list and THE AUTHORITY has the right to request additional
records where necessary and will issue a request with reasonable time to submit
such additional records.
As per the Agreement, business records must be held for at least 5 years from the
end of the year to which the records relate. This is extended to 15 years for real
estate activities.
The VAT Law and Regulations further require the records to be maintained for a
minimum of 6 years from the end of the tax period to which they relate. (Art. 66(1)
of the Regulations)
With regards to capital assets, records must be kept for a minimum of the
co
adjustment period plus five years from the date those capital assets were
acquired. (Art. 66(1) of the Regulations)
Records must be kept in hard copies, physically present in the KSA, or

electronically, whereby such records can be accessed through the relevant
server. The tax records must be kept in Arabic language.
A taxable person can engage a third party to comply with the record storage
requirements, however, the taxable person remains directly responsible for such
compliance.

The tax representative of a non-resident person is required to maintain the

accounting records, as specified above, for the non-resident person.
If the records are to be kept electronically there are a number of conditions to be

met:
a) The computer system or server must be physically located in the KSA;
ht
b) The data entered into the system must be in Arabic and be an identical copy
of the said books;
c) Original supporting documentation for all entries in accounting books must be

kept locally;
d) Final accounts and balance sheet must be generated directly by computer;
e) The computer entry and accounting systems must be documented for

reference, when needed;
12.3
f)
rig
Sufficient security and adequate controls must be maintained;
g) THE AUTHORITY may review electronically the systems and programs used to
prepare computerised accounts.
Art. 66(3) of the Regulations
Special Record Keeping Requirements
Apart from the records needed by all traders, if a trader operates a special
scheme then he is usually subject to additional record keeping requirements.
These requirements will be specified by THE AUTHORITY usually in notices which
have the force of law for this purpose. Special record keeping requirements arise
py
for retail schemes, margin schemes (for example the profit margin schemes), for
bad debt relief claims and for taxable persons using the cash accounting scheme.
In fact, Art. 48(10) of the Regulations, provide that taxable persons who account
for tax under the profit margin scheme are required to keep records of all eligible
used goods purchased and supplied by the taxable person.
Such documentation is in addition to the tax records specified in Art. 66 of the

Regulations.
12.4 Tax Invoices
The Agreement requires a tax invoice to be issued in relation to the supply of

taxable goods or services, including a deemed supply, and in cases where there is
co
either full or partial receipt of consideration prior to the supply.
The GCC Ministerial Committee determines the minimum details required on a tax
invoice, and the VAT Law and Regulations specify both the content and timings
for the issuing of invoices.
The taxable person must issue, or arrange for the issue, of a valid tax invoice which
must show the following:
 The date when this tax invoice is being issued;

 A sequential, unique number based on one or more series which uniquely

identifies the document invoice number;
 The supplier's Tax Identification Number;
 Where the customer is required to account for VAT, e.g. reverse charge, then
the customer’s Tax Identification Number and a statement that the customer
must account for the tax;
ht
 The name and address of both the supplier and the customer;
 The invoice must also show the quantity and nature of goods supplied or the
extent and nature of services supplied;
 The date of the supply i.e. tax point, if different from the invoice date;
 The taxable amount per rate, the unit price exclusive of VAT and any discounts
or rebates if not included in the unit prices;

rig
The rate of tax applied;
The tax amount payable, shown in SAR;
In the case where tax is not charged at the basic rate, a narration explaining
the tax treatment applied;
In cases where the margin scheme for used goods is applied, reference to the
fact that VAT is charged on the margin of those goods.
A tax invoice must be issued by the fifteenth day of the month following the month
in which the supply took place.
12.5 Simplified Invoices

py
The Regulations prescribe that a simplified tax invoice can be issued if the
consideration does not exceed SAR 1,000, showing the following:
 The date when this Tax invoice is being issued;
 The supplier's name and address and Tax Identification Number;
 There must also be a description sufficient to identify the goods or services

being supplied;
 The consideration payable for the goods or services;

co
 The tax payable or a statement that the consideration is inclusive of tax in

respect of the supply of goods or services.
A simplified tax invoice may not be issued in respect of a supply to a customer in

another MEMBER STATE or an export of goods.

Art. 53(6) of the Regulations sets out that taxable persons shall issue invoices in
electronic format in cases where there is a prescribed regulation issued by the
Minister of Finance surrounding the requirements and conditions for issue of a tax
invoice.
12.7 Self-Billing
ht
Art. 53(2) of the Regulations allows self-billed tax invoices to be issued by the
customer on behalf of the supplier in relation to a taxable supply made to the
customer, provided that a prior self-billing agreement has been made.
This agreement should be in writing and confirm the procedures required for the
acceptance of each invoice by the supplier.
The supplier must undertake that, in light of this agreement, he will not issue a tax
invoice in respect of these supplies.
12.8
rig
Tax Returns
A taxable person must submit a tax return electronically to THE AUTHORITY for each
tax period detailing all supplies made and received in that period.
For a taxable person whose annual value of taxable supplies exceeds SAR
40,0000,000 during the previous 12 months, the tax period shall be one month.
For all other taxable persons the tax period shall be three months, albeit an
application can be made electronically to THE AUTHORITY to submit monthly
returns, if preferred.
If an application to submit monthly returns is accepted by THE AUTHORITY, a formal

py
notification will be issued detailing the effective date of the change which will be
the start of the next tax period following the period in which approval is granted.
A taxable person having submitted monthly returns for two years can apply
electronically to return to three monthly returns, provided their turnover in the
previous 12 month period does not exceed SAR 40,000,000.
If an application to use a three month tax period is accepted by THE AUTHORITY, a

formal notification will be issued detailing the effective date of the change which
will be the start of the next tax period following the period in which approval is
granted.
THE AUTHORITY has discretion to direct a taxable person to use a certain tax period
co
and in doing so will issue a formal reasoned notification including the effective
date of the change.
THE AUTHORTY will have a prescribed form for a tax return submission which must
contain the following information: (Art. 62(2) of the Regulations)
a) The name and address of the registered person;
b) The total value of all the goods and services made by the taxable person
subject to the basic-rate and zero-rate of tax and the total output tax on those
supplies;

c) The total value of all goods and services supplied to the taxable person and
the total deductible input tax;
d) The total value of all nominal supplies of goods and services;
e) The total value of all supplies of goods or services to the taxable person where
the tax is payable by the taxable person under the Reverse Charge
Mechanism;
ht
f) The total value of supplies made to customers in MEMBER STATES (internal
supplies);
g) The total value of tax on imports and the total deductible tax relating to all
imports of goods;
h) The total value of exempt supplies made;
i) The value of any other supplies made;
j)
k)
rig
The value of any adjustments made to input tax as a result of partial
exemption calculations or in relation to adjustment for capital assets;
Any corrections of previous tax returns that amount to less than SAR 5,000 and
so are eligible for correction through the tax return.
The deadline for submitting a tax return to THE AUTHORITY is by the last day of the
month following the end of the tax period.
In the event that a tax return is not filed, THE AUTHORITY will issue an assessment
based on its best judgement of the tax due for the tax period. The taxable person
however remains obliged to submit the outstanding return.
Any payable tax due for the tax period must be received by THE AUTHORITY by the
py
last day of the month following the last day of the relevant tax period.
 Example 1
JJ was newly VAT registered on 1 February 2018 and expects turnover to be SAR
20,000,000 in the first year. The business has not applied to THE AUTHORITY to alter
the tax periods.
VAT returns to which tax period should be made?
a) 30.04.2018 31.07.2018 31.10.2018 31.01.2018
b) 31.03.2018 30.06.2018 30.09.2018 31.12.2018

co
c) 28.02.2018 31.03.2018 30.04.2018 31.05.2018

co
py
rig
ht
ANSWERS
 Answer 1
Since turnover is expected to be SAR 20,000,000 and, as a newly VAT registered
ht
business will not have turnover in excess of SAR 40,000,000 in the previous year, the
tax period will default to three months, the first return period will be for the three
months from 1 February 2018 to 30 April 2018.
rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 12 VAT RECORDS AND RETURNS
ht
12.1 Introduction
The Agreement sets out general conditions that must be adhered to in relation to
which VAT records a trader must maintain and for how long these must be held.
There are also prescribed formats and timings in relation to the submission of VAT
returns.
The VAT Law and Regulations provide further specific conditions in relation to this
and these will be covered in this chapter.
12.2 Records
rig
In accordance with Art. 78 of the VAT Law, the taxable person must keep the
following documents:
a) Records of all supplies and imports of goods and services;
b) All tax invoices and alternative documents related to the receipt of goods and
services;
c) All tax credit notes and alternative documents received;
d) All tax invoices and alternative documents issued;

py
e) All tax credit notes and alternative documents issued;
f) Records of goods and services disposed of or taken for a usage not related to
the business, displaying the tax paid thereon;
g) Records of goods and services purchased, for which the input tax was not
deducted;
h) Records of exported goods and services;
i) Records of amendments and corrections made on accounts and amended

tax invoices;
co
j) Records of any taxable supplies made or received for oil (crude or refined),
natural gas (processed or unprocessed) or any hydrocarbons made under the
reverse charge mechanism (Art. 48(3) of the VAT Law), including any
declarations provided or received in respect of these supplies;
k) Tax record (VAT account) including:
1) Tax due on taxable supplies;
2) Tax due on taxable supplies subject to reverse charge;

3) Tax due after rectifying or amending an error;
4) Recoverable tax on supplies or imports;
5) Recoverable tax after rectifying or correcting an error.
As per the Agreement, business records must be kept for a minimum of 5 years
and must also comply with the timeframes, limitations and conditions for retention
ht
of records per the VAT Law. The minimum retention period is extended to 15 years
for real estate.
12.3 Special Record Keeping Requirements
Apart from the records needed by all taxable persons, if a taxable person
operates a special scheme then he is usually subject to additional record keeping
requirements. These requirements will be specified by THE AUTHORITY usually in their
Regulations. Special record keeping requirements arise for margin schemes (for
example the Profit Margin Scheme) and for bad debt relief claims.
12.4
•
•
rig
The Regulations, provide that taxable persons who account for tax under the Profit
Margin Scheme are required to keep records of the following:
A stock book (or a similar document) showing details of goods purchased and
sold under the profit margin scheme;
Purchase invoices showing details of the goods purchased under the profit
margin scheme.
Such documentation is in addition to the tax records specified in the VAT Law and
listed above.
Tax Invoices
py
The Agreement requires tax invoices to be issued in relation to the supply of
taxable goods or services, including a deemed supply, and in cases where there is
either full or partial receipt of consideration prior to the supply.
The GCC Ministerial Committee determines the minimum details required, and the
VAT Law and Regulations specify both the content and timings for the issuing of
invoices.
The VAT Law requires that the taxable person must issue an original invoice and
deliver it to the recipient of the goods and services, including where the taxable
person has made a deemed supply, unless there is no recipient, in which case it
must be kept in the taxable person’s records.
co
A valid tax invoice must show the following:
a) The words ‘tax invoice’ in Arabic and in a prominent place;
b) The supplier's name, address and Tax Registration Number;
c) Where the recipient is VAT registered, it must show the recipient's name,
address and Tax Registration Number;
d) A sequential, number based on one or more series which uniquely identifies the
document invoice number;

e) The date when this Tax invoice is being issued;
f) The date of the supply i.e. tax point, if different from the invoice date;
g) There must also be a description sufficient to identify the goods or services

being supplied;
h) The invoice must also for each description of goods or services on that invoice
ht
show the unit price, the quantity or volume supplied, the rate of tax and the
amount payable expressed in AED .
i) The amount of any discount offered;
j) The gross amount payable, expressed in AED;
k) The tax amount payable, expressed in AED together with the rate of any
exchange applied and the source of the exchange rate applied where the
currency is converted from any currency other than UAE dirhams;
l)
rig
Where the customer is required to account for VAT, e.g. reverse charge, then a
statement to that fact and a reference to the relevant provision of the law.
Art. 67 of the VAT Law requires that a tax invoice must be issued within 14 days of
the date of supply.
If the currency stated on the invoice is not AED then the amount stated will be
converted into AED, according to the exchange rate approved by the Central
Bank at the date of supply.
If there are or will be sufficient records available to establish the particulars of a

supply, a taxable person is not required to issue a tax invoice where the supply is a
wholly zero-rated supply. (Art. 59(3) of the Regulations)
py
12.5 Simplified Invoices
The Regulations prescribe that a simplified tax invoice may be issued where the
recipient of goods or services is not registered or where the recipient of goods or
services is registered but the consideration for the supply does not exceed AED
10,000. In such cases a simplified invoice may be issued showing the following:
• The words ‘tax invoice’ in a prominent place;
• The supplier's name, address and Tax Registration Number;
• The date when the tax invoice is issued;

co
• There must also be a description sufficient to identify the goods or services

being supplied;
• The total amount payable including the total tax chargeable.
In certain circumstances and on application to THE AUTHORITY, where there are

sufficient records to establish the type of supply being made and it would be
impractical for a tax invoice to be issued by the taxable person, THE AUTHORITY
may determine that some or all of the particulars required on either a tax invoice,
or simplified invoice are not required or that a tax invoice does not require to be
issued at all. (Art. 59(7) of the Regulations)

Art. 65(3)(b) of the VAT Law requires conditions and procedures to be in place in
relation to issuing electronic tax invoices and accordingly the Regulations allow
that an electronic tax invoice may be issued provided:
• That the taxable person is capable of securely storing a copy of it in line with
the record keeping requirements, and
ht
• The authenticity of origin and integrity of content is guaranteed.
(Art. 59(8) of the Regulations)
12.7 Self-Billing
Art. 59(9) of the Regulations allows self-billed tax invoices to be issued by a taxable
customer on behalf of the supplier in relation to a taxable supply made to the
customer, provided the supplier and the customer agree in writing that the
12.8
invoice.
rig
supplier will not issue a tax invoice in respect of the supply. The tax invoice must
contain the same details as required for a normal tax invoice together with the
words “tax Invoice raised by buyer” clearly displayed on it. Where a self-billed tax
Invoice is issued by the customer in agreement with the supplier, any invoice
issued by the supplier in respect of that supply will be deemed not to be a tax
Tax Returns
A taxable person must submit a tax return to THE AUTHORITY for a tax period of
three calendar months detailing all supplies made and received in that period.
It is possible to request the month in which your tax period ends, otherwise THE
AUTHORITY will allocate a month.
py
THE AUTHORITY has discretion to allow, or require, a taxable person to furnish a tax
return for a longer or shorter period, or to have a tax period that does not align
with its year end.
A period of longer or shorter than three months can also occur in the first tax
period following registration.
The tax return issued by THE AUTHORITY must contain the following information:
a) The name and address of the registered person;
b) The Tax Registration Number of the registered person;

co
c) The tax period to which the tax return relates;
d) The date of submission;
e) The value of taxable supplies made in the tax period and the output tax
charged;
f) The value of taxable supplies subject to the zero-rate made in the tax period;
g) The value of exempt supplies made by the person in the tax period;

h) The value of any supplies subject to Clauses (1) and (3) of Art. 48 of the
Decree-Law – reverse charge supplies;
i) The value of expenses incurred in respect of which the person seeks to recover
input tax and the amount of recoverable tax;
j) The total value of due tax and recoverable tax for the Period;
ht
k) The tax payable for the period.
The deadline for submitting a tax return to THE AUTHORITY is no later than the 28th
day of the month following the last day of the relevant tax period.
Any payable tax due for the tax period must be received by THE AUTHORITY no
later than the 28th day of the month following the last day of the relevant tax
period.
 Example 1
a)
b)
c)
rig
JJ registered for VAT on 1 January 2018 and has requested that his tax periods
align with this year end of 31 January 2019.
VAT returns for which tax periods will be required?
30.04.2018
31.03.2018
28.02.2018
31.07.2018
30.06.2018
31.05.2018
31.10.2018
30.09.2018
31.08.2018
31.01.2019
31.12.2018
30.11.2018
py
co

co
py
rig
ht
ANSWERS
 Answer 1
These are the tax periods a taxable person would have if you were aligning with
ht
an accounting year end of 31 January and this was requested at the time of
registration. The first return will be for a four month period.
rig
py
co

co
py
rig
ht
CHAPTER 13
ACCOUNTING FOR VAT
ht
This chapter looks at the payment and repayment of VAT dealing with the following:
– when VAT should be paid;
– in which circumstances VAT will be repaid;
– the cash accounting scheme which allows businesses to account for VAT ignoring the
normal tax point rules but instead looking at transactions passing through the cash
book.
13.1 Introduction
13.2 rig
This chapter looks at the payment of VAT to THE AUTHORITY as well as possible
payment of VAT Refunds. The chapter will also look at different schemes which
have the aim of simplifying accounting for VAT for the smaller taxable persons.
Payment/Repayment of VAT
VAT returns must be submitted to THE AUTHORITY in line with the deadlines set out in
each MEMBER STATE’s VAT legislation. If and when available, electronic submission
and payment of the relevant VAT for a tax period should be availed of, usually
within the default timescale. Late tax returns and late payments of VAT due can
result in penalties.
Aside from the VAT that must be paid when submitting a tax return, there may be
py
specific provisions when it comes to paying VAT upon an importation into that
MEMBER STATE. It is not uncommon to have to pay such VAT directly to customs
when getting the goods released.
If a repayment of VAT is due, one is expected to carry this forward so as to deduct

it against future tax amounts payable. It is then up to the MEMBER STATE to
prescribe how such a tax refund may be paid out by THE AUTHORITY. (Art. 65 of the
Agreement)
13.3 Invoice Accounting Basis
It is usual practice for VAT to be accounted for according to the “time of supply”,
(identification of the time of supply was covered in detail in chapter 9). The time of
co
supply or tax point determines when tax point of a transaction occurs, and
correspondingly in which VAT accounting period the transaction should be
accounted for. The date of supply is the earliest of:
 the date of supply of goods or services;
 the date of issuance of tax invoice; or
 upon partial or full receipt of the consideration.
VAT on a transaction is accounted for in the accounting period in which the date
of supply occurs.

Under the normal rules of VAT, we use “tax points” to decide which tax return
period a taxable person accounts for items in. Taxable persons with supplies under
a certain amount are allowed to apply and use the cash accounting scheme,
rather than the normal rules for accounting for VAT.
The GCC framework remains silent with respect to any special schemes for paying
ht
or accounting for VAT. In other jurisdictions the idea of a cash accounting scheme
is to allow a taxable person to account for VAT in respect of when money is
received for a sale and when money is paid for a purchase. We therefore use the
cashbook to decide when input tax can be reclaimed and output tax is
accounted for. What is important is the date cash is paid or received, not the time
of supply - the tax point.
One of the major advantages of the cash accounting scheme is a cash flow one.
For most taxable persons that sell on credit it is possible that the time comes for
them to pay over the output tax to THE AUTHORITY before it has even been
collected from the customer. This means if the cash was never received from the
13.5
rig
customer, then the output tax is not paid to THE AUTHORITY.
Obviously there are some conditions to satisfy before operating the cash
accounting scheme and each MEMBER STATE shall determine such conditions
accordingly.
Receipts and Payments for Cash Accounting
If a taxable person receives cash then the date used to decide whether an item
falls into a particular tax return is the date the cash was received.
If it is a cheque that the taxable person receives then the date of interest is the
later of the date on the cheque or the date the cheque was received. If a
py
cheque bounces then do not treat it as a receipt until it is honoured.
If it is a credit card sale use the date on the sales voucher.
If money comes as part of a bank transfer then it is the date the bank account
was credited.
Payments are effectively a mirror image of receipts. If it is cash that the taxable
person is paying then use the date on the invoice that you are paying.
If it is a cheque then it is the later of the date the cheque was dispatched or the
date on the cheque.
For a credit card payment, it is the date on the voucher.

co
For a bank transfer, it is the date the bank account was debited.
It is still necessary to meet all the other conditions for VAT and so if the taxable
persons wants an input tax deduction, he must hold a valid tax invoice etc.

When using the cash accounting scheme in established jurisdictions it is usual to

have a very detailed cashbook (an analysed cash book) to show how much VAT
is included in receipts and payments. The tax return may be completed using the
information in the analysed cashbook.
13.6 Leaving the Cash Accounting Scheme
There will be situations when a taxable person will leave the cash accounting
ht
scheme. This will either be because he has failed to be eligible to use the scheme,
on account of the value of supplies being more than a certain limit, with such limits
being determined by each MEMBER STATE.
A taxable person may also leave the scheme voluntarily at the end of a return
period, (albeit some MEMBER STATES may impose a minimum period of time for
which cash accounting has to be operated for before they can voluntarily leave),
if the taxable person feels it is not beneficial or if the taxable person feels he is
unable to meet the requirements for cash accounting scheme.
THE AUTHORITY themselves can expel a taxable person from the scheme if it
13.7
rig
appears necessary to do so for the protection of the revenue.
Taxable persons that leave the cash accounting scheme either voluntarily or
because they have exceeded the turnover limit must ensure that they account for
outstanding VAT on supplies made and received, whilst using the cash accounting
scheme, but not yet paid at the date of the change, in accordance with the
MEMBER STATE’s rules.
Profit Margin (Second Hand Goods) Scheme
Profit Margin Schemes exist for taxable persons who typically buy goods to sell
from unregistered people, in other words, the public. They are therefore not
charged input tax on their purchases. If such taxable persons charged output tax
py
on the whole sale price, then the VAT that they would account for to THE
AUTHORITY would be disproportionately large. Normal taxable persons pay VAT on
purchases, charge VAT on sales but, because of offset of input tax against output
tax, they only account for VAT on the gross profits they have made.
Art. 37 of the framework allows for the Imposition of tax on the supply of second-
hand goods at the discretion of each MEMBER STATE. It is up to the MEMBER STATE
to determine the necessary conditions and modalities to impose tax on the supply
of second-hand goods by the taxable person, based on a profit margin.
co

co
py
rig
ht
APPENDIX 1
CHAPTER 13 ACCOUNTING FOR VAT
ht
13.1 Introduction
This chapter looks at when VAT must be accounted for in relation to payments or
repayments of VAT for submitted tax returns, and also a different scheme which
has the aim of simplifying accounting for VAT for the smaller taxable persons – the
cash accounting scheme.
13.2 Payment/Repayment of VAT
rig
The default Tax period in the KSA is three months. However, if annual supplies
exceed SAR 40,000,000, one must submit a tax return every month. Taxable Persons
below this threshold may also apply for a monthly submission of their Tax Returns.
These returns, along with any vat payable, must be submitted by the last day of
the month following the end of the Tax Period to which the Tax Return relates (Art.
59(1) of the Regulations), specifically requires all payments to be made into the
designated bank account of THE AUTHORITY and state the Tax Identification
Number of the Taxable Person and the Tax Period or Tax Periods to which the
payment relates.
In accordance with Art. 69 of the Regulations, if a submitted tax return results in a

VAT repayment being due to the taxable person, he can request that this be
refunded to him, otherwise it will be carried forward in the VAT account to offset
future amounts due from further submitted tax returns. THE AUTHORITY may reject a
py
repayment if there are any outstanding tax returns due to be submitted. THE
AUTHORITY may also set VAT refunds due against any other taxes, penalties or
amounts due to THE AUTHORITY, before considering repayment to the taxable
person. THE AUTHORITY may request additional information from the taxable
person to support repayment and if satisfied may approve the request for
repayment, following which the repayment must be made to the taxable person’s
bank account within 60 days of the approval to repay.
(the identification of the time of supply was covered in detail in chapter 9). The
time of supply or tax point determines when tax point of a transaction occurs, and
co

 the date of issuance of tax invoice; or
VAT is accounted for on a transaction in the accounting period in which the date
of supply occurs.

Art. 45 of the regulations provide that “The Net Tax payable by a Taxable Person in
respect of a Tax Period is calculated by deducting the total Input Tax, including
Input Tax on imports, allowed to the Taxable Person during the Tax Period from the
total of Output Tax payable in respect of all Taxable Supplies made by the Taxable
Person in the Kingdom during the Tax Period. This calculation method is known as
the invoice accounting basis”.
ht
Art. 46 of the Regulations require certain conditions to be satisfied before
operating the cash accounting scheme.
The main condition is that the value of taxable supplies in the past calendar year
does not exceed SAR 5,000,000. At the same time, there must be reasonable
grounds for believing that the value of taxable supplies will not exceed SAR
5,000,000 in the next calendar year.
In addition to this all tax returns must have been made up to date and submitted
as well as any outstanding VAT must have been paid so that there are no VAT
rig
violations in the past 12 months. (Art. 46(2) of the Regulations).
Application for the scheme can either be made to THE AUTHORITY at the time of
registration or at any subsequent time thereafter, so long as the taxable person is
eligible. THE AUTHORITY may require evidence of the taxable person’s turnover
and may reject an application if it is not satisfied that the taxable person is eligible
to use cash accounting.
A change to the cash accounting basis takes effect from the start of the tax
period following that in which the application is approved. Notification of
approval will be issued by THE AUTHORITY and this will specify the effective date.
The way the scheme works is that output tax is accounted for when the customer
pays. Input tax is only accounted for when the trader pays the creditor or the
py
seller.
When the scheme is first used after transitioning from the ‘invoice accounting
basis’, it is necessary to identify separately receipts from debtors outstanding (and
any creditors still due) at the beginning of the period. Art. 46(6) of the Regulations
allows for any VAT on these outstanding balances to be reversed, so as to then
account for them in line with the new methodology, once the amounts have been
received from the debtor or paid to the creditor.
13.5 Receipts and Payments for Cash Accounting
The VAT Legislation does not elaborate significantly on payment mechanisms and
what date one should consider. The only clarification on this comes from Art. 46(3)
co
of the Regulations whereby the obligation to include a transaction in a VAT Return

shall arise once “payment had been made”.
To this extent, the provision in the chapter of when a payment is made shall apply
to transactions within the KSA. Of course, a degree of prudence is advised –
especially when it comes to certain contentious issues such as when payment is
made with a cheque but not cashed immediately.

There will be situations when a trader will leave the cash accounting scheme.
A taxable person is required to leave the cash accounting scheme if they fail to be
eligible by no longer satisfying the criteria that taxable supplies in the past
calendar year do not exceed SAR 5,000,000 and there are reasonable grounds for
believing that the value of taxable supplies will exceed SAR 5,000,000 in the next
ht
calendar year.
The taxable person must inform THE AUTHORITY within 20 days of finding he is no
longer eligible, by submitting an application to use the invoice basis. If after using
cash accounting for a minimum of two years, a taxable person wishes to leave the
scheme he can do so voluntarily by submitting an application to THE AUTHORITY.
A change back to the invoice accounting basis takes effect from the start of the
tax period following that in which the application is approved. Notification of
approval will be issued by THE AUTHORITY and this will specify the effective date.
13.7
rig
Businesses that leave the cash accounting scheme, either voluntarily or because
they are obliged to, must make an adjustment to bring output tax and input tax
into account on taxable supplies for which invoices have been raised or received,
prior to the change and not yet paid by the effective date of change. This
adjustment must go on the first return for the tax period following the change from
cash accounting to invoice accounting.
Profit Margin (Second hand goods) Scheme
py
AUTHORITY would be disproportionately large. Normal taxable persons pay VAT on
purchases, charge VAT on sales but, because of offset of input tax against output
tax, they only account for VAT on the gross profits they have made. (Art. 48 KSA
Regulations)
The details of the profit margin scheme are covered in Module D, Chapter 24.
co

co
py
rig
ht
APPENDIX 2
CHAPTER 13 ACCOUNTING FOR VAT
ht
13.1 Introduction
This chapter looks at when VAT must be accounted for in relation to payments or
repayments of VAT for submitted tax returns.
13.2 Payment/Repayment of VAT
The standard tax return period in the UAE is three months, ending as requested by
the taxable person or else as prescribed by THE AUTHORITY if no specification is
rig
made. The completed tax return must be received by THE AUTHORITY no later than
the 28th day of the month following the last day of the tax period concerned.
Any payable tax due for the tax period must also be received by THE AUTHORITY
by the 28th day of the month following the last day of the tax period.
Guidance issued by the FTA indicates that VAT return submissions and VAT
payments are to be online.
In accordance with Art. 65 of the Regulations, if a submitted tax return results in a

VAT repayment being due to the taxable person, THE AUTHORITY shall refund such
tax, electronically, in accordance with the timelines set out in the Regulations.
THE AUTHORITY may reject a repayment if there are any outstanding tax returns
py
due to be submitted or any balances/penalties/amounts still due to THE
AUTHORITY. The request for repayment may have to be substantiated with
additional information.
(the identification of the time of supply was covered in detail in chapter 9). The
time of supply or tax point determines when tax point of a transaction occurs, and

co
 the date of issuance of tax invoice or;
VAT is accounted for on a transaction in the accounting period in which the date
of supply occurs.
Art. 53 of the Legislation provides that “The Payable Tax for any Tax Period shall be
calculated as being equal to the total Output Tax payable pursuant to this
Decree-Law and which has been done in the Tax Period less the total Recoverable
Tax by said Taxable Person over the same Tax Period.”

In the UAE, the law does not provide for any cash accounting mechanism.
13.5 Receipts and Payments for Cash Accounting
ht
13.7 Profit Margin (Second Hand Goods) Scheme
Q
rig
AUTHORITY would be disproportionately large. Normally taxable persons pay VAT
on purchases, charge VAT on sales but, because of the offset of input tax against
output tax, they only account for VAT on the gross profits they have made. (Art. 29
of the Regulations)
The details of the Profit Margin Scheme are covered in Module D, Chapter 24.
your Question Bank.
py

co

CHAPTER 14
BAD DEBT RELIEF
ht
In this chapter you will cover the way in which relief is given in respect of VAT where a
trader has a bad debt.
14.1 Introduction
Consider the situation with two taxable persons, taxable person A (TP A), taxable
person B (TP B), and THE AUTHORITY. TP A sells goods to TP B in 2018. TP A also raises
14.2
rig
an invoice for the goods at SAR 1,000 plus VAT. TP B pays the invoice fairly promptly
so SAR 1,050 is paid to TP A. On TP A’s tax return there is output VAT of SAR 50, and
this will be paid to THE AUTHORITY. On TP B's tax return there is input tax of SAR 50
and this will be reclaimed from THE AUTHORITY. Thus the output and input position is
circular. No one has actually yet borne the output VAT and this is quite right
because it is only the final consumer that bears the VAT. The final consumer has
not yet been introduced into the chain.
THE AUTHORITY have balanced their books, they have received output tax from TP
A, but they have given it back to TP B by way of an input tax reclaim.
The Problem
Problems arise where TP B fails to settle the invoice promptly. Using the same
py
example, with THE AUTHORITY, TP A and TP B, goods are sold from TP A to TP B and
TP A raises an invoice for SAR 1,000 plus VAT. TP B in this example is a late payer, so
no cash actually goes across from TP B to TP A. Assuming that both persons are
using invoice accounting, TP A will still have an obligation to pay output tax to THE
AUTHORITY of SAR 50. As far as TP A is concerned the tax point has passed and
output VAT is due.
In TP B's books they again account for VAT on an invoice basis so therefore they
are entitled to reclaim from THE AUTHORITY SAR 50 by way of input tax. This is
regardless of whether or not they have actually paid TP A. So at the moment there
is inequity. THE AUTHORITY are in the same position as before because they receive
money from TP A and have paid it out to TP B.
co
TP A is not entirely happy. They have accounted for output tax of SAR 50 without
receiving anything from TP B. TP B however, is extremely happy. THE AUTHORITY
have allocated to him SAR 50 in input tax reclaim and he has not paid TP A.
In this respect Art. 27(3) of the Agreement allows for an adjustment in the taxable
value of TP A in accordance with certain conditions and provisions applicable to
bad debts listed in the applicable laws of each MEMBER STATE.
After the passage of a defined time period, as stated in the legislation of each
MEMBER STATE TP A is entitled to claim bad debt relief. A bad debt claim is where
TP A claims back output tax SAR 50 (in this example) from THE AUTHORITY. This
claim will be recorded as part of the input tax on TP A's tax return in the period of

this claim, (as stated this cannot be made until a defined period of time has
passed since the original due date, and other conditions as detailed in the
MEMBER STATES legislation have been satisfied). THE AUTHORITY are now out of
pocket, they have paid back SAR 50 to TP A.
In order for THE AUTHORITY to balance their books, there is a requirement for TP B to
repay the original input tax claim to THE AUTHORITY once 6 months has passed. If
TP B does eventually pay TP A it will account for the output tax, and TP B can then
ht
claim back the input tax again.
14.3 Conditions
To claim bad debt relief certain conditions must be satisfied, including:
• Goods or services must have been supplied and the output VAT must have
been charged and paid to THE AUTHORITY;
• Consideration for the supply has been written off in full, or part, as a bad debt
in the accounts of the supplier;
14.4
•
rig
A defined time period has passed from the date of supply;
The supplier has notified the recipient, of the goods or services, of the amount
as consideration for the supply that has been written off.
The specific relevant conditions required to apply bad debts relief can be found in
the respective MEMBER STATE laws and regulations.
Records Required
The Agreement does not prescribe the record required to support a claim for bad
debt relief, however the following records would usually be required to support a
py
claim for bad debt relief in many established jurisdictions:
• A copy of the original tax invoice provided or, where there was no obligation
to provide a tax invoice, a document showing the time and nature of the
supply, purchaser and consideration.
• Records, or any other document, showing that VAT has been accounted for
and paid on the supply and that the consideration has been written off in his
accounts as a bad debt.
• A record of that claim and including the following information in respect of

each relevant supply for that claim:
i. the amount of the VAT chargeable;

co
ii. the tax period in which the VAT chargeable was accounted for and paid
to THE AUTHORITY;
iii. the date and number of any invoice issued or, where there is no such
invoice, such information as is necessary to identify the time, nature and
purchaser; and
iv. any payment received for the supply (including any payment received by
the claimant or by a person to whom a right to receive it has been
assigned, and any payment made by any person by way of consideration

for the supply regardless of whether such payment extinguishes the

purchaser's debt to the claimant or not).
• The ‘outstanding amount’ to which the claim relates.
• The amount of the claim.
• The tax period in which the claim was made.
ht
Such records may be kept in a single account the ‘refunds for bad debts
account’. Records to support the claim should be retained and available for
inspection by an authorised person if requested.
14.5 Debtor Obligations
Where a taxable person has:
• claimed deduction of the whole or part of the VAT on the supply as input tax;
and
14.6
•
rig
not paid the whole or any part of the consideration for that supply within a
reasonable time frame of it falling due.
He should make a negative entry in the VAT allowable portion of his VAT account
for the VAT period in which the end of the relevant time period falls. This
adjustment is required by virtue of the fact that input tax may be recovered where
a taxable person is liable to settle input tax in a MEMBER STATE where the liability to
settle has been written off, the corresponding input tax, previously recovered
should be repaid to the relevant AUTHORITY.
Part Payments
py
Quite often traders pay sums on account, they have an account running with a
particular trader and they pay an amount every now and then, and this comes off
invoices that are outstanding. With regards to bad debt claims there is a general
understanding that cash received is allocated to the older invoices first, unless the
purchaser identifies the payment as relating to a particular invoice. This will be
important when the trader raises invoices which have different VAT rates, or
invoices are disputed.
 Illustration 1
A taxable person has the following debtors as at 31 January 2019:
Invoices Net VAT Gross

co
SAR SAR SAR

4.1.18 600 30 630
10.1.18 1,000 - 1,000
15.2.18 400 20 420
19.3.18 800 40 840
20.4.18 2,000 100 2,100
The due date is 7 days after the invoice date, hence all of these balances are
significantly overdue. Cash was paid on 1 February 2019 of SAR 2,000, without any
specific invoice allocation.

As the payment was not invoice specific, cash is allocated to the older invoices
first. Consequently SAR 630 clears the invoice on 4 January 2018, SAR 1,000 clears
the invoice on 10 January 2018 and the balance of SAR 370 goes against the
invoice dated 15 February 2018.
After this allocation the amounts outstanding are:
Invoices Net VAT Gross Cash paid Outstanding
ht
SAR SAR SAR SAR SAR
4.1.18 600 30 630 630 -
10.1.18 1,000 - 1,000 1,000 -
15.2.18 400 20 420 370 50
19.3.18 800 40 840 - 840
20.4.18 2,000 100 2,100 - 2,100
When the taxable person prepares the VAT return to 31 March 2019, there are
invoices which have been outstanding for over 12 months. If we assume that relief
for bad debts may be taken after 12 months(1) (subject to conditions prescribed by
the MEMBER STATE being satisfied). The invoice dated 15 February 2018 would
rig
have had a due date of 22 February 2018. Consequently, that is over 12 months
old and bad debt relief is available in the quarter to 31 March 2019. So therefore
1/21ths of the outstanding amount gives us a bad debt claim of SAR 2.38. The
invoice dated 19 March 2018 has a due date of 26 March 2018, so again is more
than 12 months outstanding, therefore full bad debt claim of SAR 840 × 1/21ths
which is SAR 40. That gives a bad debt claim of SAR 42.38, and that will be treated
as input tax in box 4 in the return to 31 March 2019.
The invoice dated 20 April 2018 is not 12 months old until 27 April 2019 therefore the
business should not at this stage claim bad debt relief in respect of that invoice.
(1) In the above illustration the period of 12 months is used for illustrative purposes,
each MEMBER STATE has defined the time period that must elapse prior to relief
for bad debts being claimed. In KSA the period is 12 months, in UAE the period
py
is 6 months.
co

APPENDIX 1
CHAPTER 14 BAD DEBT RELIEF
ht
14.1 Introduction
an invoice for the goods at SAR 1,000 plus VAT. TP B pays the invoice fairly promptly
so SAR 1,050 is paid to TP A. On TP A’s tax return there is output VAT of SAR 50, and
this will be paid to THE AUTHORITY. On TP B's tax return there is input tax of SAR 50
and this will be reclaimed from THE AUTHORITY. Thus the output and input position is
circular. No one has actually yet borne the output VAT and this is quite right
14.2
rig
because it is only the final consumer that bears the VAT. The final consumer has
not yet been introduced into the chain.
THE AUTHORITY has balanced their books, they have received output tax from TP
The Problem
TP A raises an invoice for SAR 1,000 plus VAT. TP B in this example is a late payer, so
no cash actually goes across from TP B to TP A. Assuming that both persons are
AUTHORITY of SAR 50. As far as TP A is concerned the tax point has passed and
py
output VAT is due.
In TP B's books they again account for VAT on an invoice basis so therefore they
are entitled to reclaim from THE AUTHORITY SAR 50 by way of input tax. This is
regardless of whether or not they have paid TP A. So at the moment there is
inequity. THE AUTHORITY are in the same position as before because they receive
money from TP A and have paid it out to TP B.
TP A is not entirely happy. They have accounted for output tax of SAR 50 without
receiving anything from TP B. TP B however, is extremely happy. THE AUTHORITY
have allocated to him SAR 50 in input tax reclaim and he has not paid TP A.
Let us assume 12 months have passed from the due date of the invoice. At this
co
point TP A is entitled to claim bad debt relief (Art. 40(7) of the Regulations). A bad
debt claim is where TP A claims back SAR 50 from THE AUTHORITY and this claim will
be as part of the input tax on TP A's tax return, but this cannot be made until 12
months have passed since the original date of supply. THE AUTHORITY are now out
of pocket, they have allocated SAR 50 in input tax reclaim to TP A.
In order for THE AUTHORITY to balance their books, there is a requirement for TP B to
repay the original input tax claim to THE AUTHORITY once 12 months has passed.
When TP B does eventually pay TP A it will account for the output tax, and TP B can
then claim back the input tax again.

14.3 Conditions
Art. 40(7) of the Regulations specifies the conditions that must be met in order to
make an adjustment for bad debts:
• The output VAT must have been charged and paid to THE AUTHORITY;
• The supply made and outstanding consideration due is not from a related
ht
taxable person;
• At least 12 months from the date of supply has passed;
• The supplier holds a certificate from his certified accountant indicating that
the unpaid amount of consideration for the supply has been written off; and
• If the total unpaid consideration exceeds SAR 100,000, formal legal

procedures have been taken to collect the debt without success and
evidence can be provided to THE AUTHORITY. Evidence should include
issuance of judicial ruling, evidence of debtor’s bankruptcy or court order
14.4
rig
initiating any formal recovery proceedings.
It is important to note that taxable persons using the cash accounting basis are not
eligible to avail of the above bad debts relief as prescribed in Art. 40(8) of the
Regulations.
Records Required
The VAT Law and Regulations do not provide specific details regarding records to
be maintained with respect to bad debt relief. Records including the following
would be relevant to support a claim for bad debt relief:
• A copy of the original tax invoice provided or, where there was no obligation
py
to provide a tax invoice, a document showing the time and nature of the
supply, purchaser and consideration.
• Records, or any other document, showing that VAT has been accounted for
and paid on the supply and that the consideration has been written off in the
accounts as a bad debt.
• A record of that claim and including the following information in respect of

each relevant supply for that claim:
i. the amount of the VAT chargeable;
ii. the tax period in which the VAT chargeable was accounted for and paid
to THE AUTHORITY;
co
iii. the date and number of any invoice issued or, where there is no such
invoice, such information as is necessary to identify the time, nature and
purchaser; and
iv. any payment received for the supply (including any payment received by
the claimant or by a person to whom a right to receive it has been
assigned, and any payment made by any person by way of consideration
for the supply regardless of whether such payment extinguishes the
purchaser's debt to the claimant or not).

• The ‘outstanding amount’ to which the claim relates.
• The amount of the claim.
• The tax period in which the claim was made.
ht
Art. 40(10) of the Regulations also provides that a taxable person shall reduce the
relevant recoverable input tax for the current period with any input VAT claimed
on supplies the taxable person received 12 months before, and for which no
consideration has been paid to date.
Clearly the reduction in output tax made by the supplier must equate to the
reduction in input tax made by the recipient.
A subsequent payment of a consideration for which input tax was deducted as

per Art. 40(10) of the Regulations, the taxable person may increase the input tax to
be claimed to reflect the tax and consideration paid.
14.6
rig
Part Payments
The VAT Law remains silent with respect to the treatment of part payments of bad
debts. It is quite common for a taxable person to pay sums on account where they
have an account running with a particular trader. They pay an amount every now
and then, and this is allocated against invoices that are outstanding. On bad debt
claims there is a general rule that cash received is allocated to the older invoices
first, unless the purchaser identifies the payment as relating to a particular invoice
and that invoice is paid in full. This will be important when the taxable person raises
invoices which have different VAT rates. Supplies made on the same day are
aggregated and treated as one and any payments are apportioned between
those two invoices.
py
co

co
py
rig
ht
EXAMPLES
 Example 1
Thud raised the following invoices on Lex:
ht
SAR SAR SAR
15.3.18 1,000 - 1,000
20.4.18 200 10 210
24.4.18 600 30 630
29.5.18 2,000 100 2,100
29.5.18 500 - 500
16.6.18 800 40 840
Lex paid SAR 210 on 15.5.18 and stated that the payment was in respect of the
invoice raised on 20.4.18.
rig
Lex paid a further SAR 3,000 on 31.8.18.
Calculate the bad debt relief claim to be made on the return to 30 June 2019.
py
co

co
py
rig
ht
ANSWERS
 Answer 1

SAR SAR SAR SAR SAR
15.3.18 1,000 - 1,000 1,000 -
ht
20.4.18 200 10 210 210 -
24.4.18 600 30 630 630 -
29.5.18 2,000 100 2,100 See below
29.5.18 500 - 500 See below
16.7.18 800 40 840 - 840
The cash paid on 15 May 2018 was specifically allocated against the invoice
dated 20 April 2018 as the invoice was specified and paid in full. The second
payment on 31 August 2018 is allocated in the normal way that is against older
invoices first. SAR 1,000 goes against the invoice dated 15 March 2018. SAR 630
rig
goes against the invoice dated 24 April 2018, and finally, SAR 1,370 goes against
the invoices dated 29 May 2018. Those invoices have been raised on the same
day so they are effectively treated as one invoice.
The bad debt claim is therefore on the taxable amount outstanding on the
invoices dated 29 May 2018. To calculate what proportion of the SAR 2,100 is still
outstanding, apportion the cash allocation of SAR 1,370 to these two invoices as
follows:
Invoice 1: SAR 1,370 x (SAR 2,100/SAR 2,600) = SAR 1,106
Therefore the remaining outstanding balance on this invoice is:
SAR 2,100 – SAR 1,106 = SAR 994

py
The outstanding VAT element is SAR 994 x 5/105 = SAR 47.33
Invoice 2: SAR 1,370 x (SAR 500/SAR 2,600) = SAR 264
SAR 500 – SAR 264 = SAR 236
There was no VAT element on this second invoice.
Thus the bad debt relief claim on the return to 30 June 2018 will be SAR 47.33.
Given that the outstanding invoice (raised on 16.7.18) is not 12 months overdue at
co
30 June 2019 it does not qualify for bad debt relief.

co
py
rig
ht
APPENDIX 2
CHAPTER 14 BAD DEBT RELIEF
ht
14.1 Introduction
an invoice for the goods at AED 1,000 plus VAT. TP B pays the invoice fairly
promptly so AED 1,050 is paid to TP A. On TP A’s tax return there is output VAT of
AED 50, and this will be paid to THE AUTHORITY. On TP B's tax return there is input tax
of AED 50 and this will be reclaimed from THE AUTHORITY. Thus the output and input
position is circular. No one has actually yet borne the output VAT and this is quite
14.2
rig
right because it is only the final consumer that bears the VAT. The final consumer
has not yet been introduced into the chain.
THE AUTHORITY has balanced their books, they have received output tax from TP
The Problem
TP A raises an invoice for AED 1,000 plus VAT. TP B in this example is a late payer, so
no cash actually goes across from TP B to TP A. Assuming that both traders are
AUTHORITY of AED 50. As far as TP A is concerned the tax point has passed and
py
output VAT is due.
Art. 55 of the Law states that TP B can only claim input tax to the extent that it pays
the consideration for the supply or any part thereof. So THE AUTHORITY is protected
from repaying VAT to TP B where it has not paid its supplier. TP A is not entirely
happy. It has accounted for output tax of AED 50 without receiving anything from
TP B. Let us assume more than 6 months have passed from the due date of the
invoice. At this point TP A is entitled to claim bad debt relief. A bad debt claim is
where TP A claims back AED 50 from THE AUTHORITY and this claim will be
recorded as part of the input tax on TP A's tax return, but this cannot be made until
at least 6 months have passed since the original due date. Even though TP B
should not have reclaimed input tax in relation to consideration it had not paid
there is still a requirement for TP B to notify TP B that is making a claim for bad debt
co
relief. Art. 64 of the Law states that TP B must reduce its recoverable input tax for
the current tax period related to a supply received during any previous tax period
where the consideration has not been paid and all of the following conditions are
met:
a) TP A reduced the output tax and TP B received a notification from TP A of the

consideration being written off.
b) TP B received the goods and services and the relevant input tax was
deducted.

c) The consideration was not paid in full or in part for the supply for over six
months.
d) TP B’s reduction stated must be equal to the tax related to the consideration
which has been written off.
14.3 Conditions
ht
Art. 64 of the Legislation specifies the conditions that must be met in order to make
an adjustment for bad debts:
• Goods or services must have been supplied and the output VAT must have
been charged and paid to THE AUTHORITY;
• Consideration for the supply has been written off in full, or part, as a bad debt
in the accounts of the supplier;
• More than 6 months from the date of supply has passed;
14.4
•
rig
The supplier has notified the recipient, of the goods or services, of the amount
as consideration for the supply that has been written off.
Records Required
The VAT Law and Regulations do not provide specific details as to records to be
maintained with respect to bad debt relief. The record keeping requirements
make it clear that the following must be kept:
•
Records of all supplies of goods and services;
All tax invoices and alternative documents relating to supplies made and
supplies received;
py
• Records of goods and services received on which input tax has not been
recovered;
• Records of adjustments made to tax invoices or accounts;
• Record that shows the tax due or recoverable after any correction or
adjustments.
In addition it would be advisable to keep a record of any payment received for

the supply (including any payment received by the claimant or by a person to
whom a right to receive it has been assigned, and any payment made by any
person by way of consideration for the supply regardless of whether such payment
extinguishes the purchaser's debt to the claimant or not), the ‘outstanding
co
amount’ to which the claim relates, the amount of the claim and he tax period in
which the claim was made.

Art. 64(2) of the Law also provides that on notification from the supplier of the
goods or services, the recipient shall reduce the relevant recoverable input tax for
the current period provided:
• The supplier has reduced the output tax accordingly and has properly notified
the recipient of the amount being written off;
ht
• The recipient has previously accounted for input tax in his tax return submitted
to THE AUTHORITY; and
• The consideration was not paid by the recipient for over six months.
Clearly the reduction in output tax made by the supplier must equate to the
reduction in input tax made by the recipient.
14.6 Part Payments
rig
Apart from allowing input tax recovery only to the extent of the consideration paid
for a supply, the UAE Law remains silent with respect to the treatment of part
payments of bad debts. It is quite common for a taxable person to pay sums on
account where they have an account running with a particular trader. They pay
an amount every now and then, and this is allocated against invoices that are
outstanding. On bad debt claims there is a general rule that cash received is
allocated to the older invoices first, unless the purchaser identifies the payment as
relating to a particular invoice and that invoice is paid in full. This will be important
when the taxable person raises invoices which have different VAT rates. Supplies
made on the same day are aggregated and treated as one and any payments
are apportioned between those two invoices.
py
co

co
py
rig
ht
EXAMPLES
 Example 1
Thud raised the following invoices on Lex:
ht
AED AED AED
15.3.18 1,000 - 1,000
20.4.18 200 10 210
24.4.18 600 30 630
29.5.18 2,000 100 2,100
29.5.18 500 - 500
16.6.18 800 40 840
Lex paid AED 210 on 15.5.18 and stated that the payment was in respect of the
invoice raised on 20.4.18.
rig
Lex Ltd paid a further AED 3,000 on 31.8.18.
Calculate the bad debt relief claim to be made on the return to 30 November
2018.
py
co

co
py
rig
ht
ANSWERS
 Answer 1

AED AED AED AED AED
15.3.18 1,000 - 1,000 1,000 -
ht
20.4.18 200 10 210 210 -
24.4.18 600 30 630 630 -
29.5.18 2,000 100 2,100 See below
29.5.18 500 - 500 See below
16.6.18 800 40 840 - 840
The cash paid on 15 May 2018 was specifically allocated against the invoice
dated 20 April 2018 as the invoice was specified and paid in full. The second
payment on 31 August 2018 is allocated in the normal way that is against older
invoices first. AED 1,000 goes against the invoice dated 15 March 2018. AED 630
rig
goes against the invoice dated 24 April 2018, and finally, AED 1,370 goes against
the invoices dated 29 May 2018. Those invoices have been raised on the same
day so they are effectively treated as one invoice.
The bad debt claim is therefore on the taxable amount outstanding on the invoice
dated 29 May 2018. To calculate what proportion of the AED 2,600 is still
outstanding, apportion the cash allocation of AED 1,370 to these two invoices as
follows:
Invoice 1: AED 1,370 x (AED 2,100/AED 2,600) = AED 1,106
AED 2,100 – AED 1,106 = AED 994

py
The outstanding VAT element is AED 994 x 5/105 = AED 47.33
Invoice 2: AED 1,370 x (AED 500/AED 2,600) = AED 264
AED 500 – AED 264 = AED 236
There was no VAT element on this second invoice.
Thus the bad debt relief claim on the return to 30 November 2018 will be AED
47.33.
co
The invoice raised 16.6.18 is not 6 months overdue at 30 November 2018 so does
not qualify for bad debt relief.

co
py
rig
ht
GCC FRAMEWORK AGREEMENT MODULE C CHAPTER 15
CHAPTER 15
THE AUTHORITY POWERS, APPEALS AND ASSESSMENTS
ht
In this chapter you will look at the powers of THE AUTHORITY covering in particular:
– powers to obtain information and documents;
– powers to inspect premises;
– what a VAT assurance visit is;
– what happens if any irregularities are discovered;
– the time limits for VAT Officers to raise assessments;
– the formalities in respect of an appeal to the VAT Authority.
15.1
15.2
rig
Introduction
This chapter looks at how THE AUTHORITY enforces compliance with the VAT
legislation.
New rules with respect to VAT will be introduced with effect from 1 January 2018 in
KSA and UAE with other MEMBER STATES expected to follow at a later date.
Powers to Obtain Information and Documentation
The Framework is silent as to what powers each MEMBER STATE will have to obtain
information from taxpayers, but it makes provision, at Art. 72 of the Agreement, for
MEMBER STATES to cooperate with each other for the purposes of determining the
correct amount of tax payable by taxpayers.
py
15.3 Inspection of Premises
The Framework is also silent on what powers THE AUTHORITY will have to inspect
premises but it seems likely that each MEMBER STATE will bring in their own
procedures around the notification of visits from THE AUTHORITY. THE AUTHORITY will
have the legal right to enter a taxable person’s premises.
15.4 The Tax Audit
Each MEMBER STATE will bring in their own procedures around timing and
notification of visits from THE AUTHORITY. We expect there to be a mandatory
minimum notice given to the taxable person.
co
Visits will take place at the place of business of the taxable person or in the office
of THE AUTHORITY.
15.5 Examination of Records
A tax audit will normally take place at the taxable person’s main place of business.
This is so that the officer can not only examine the business records, but can also
view the business activities carried on. All of the records which the taxable person
is obliged by law to keep should be made available for the tax audit.

Art. 59 of the Agreement specifies minimum retention times, therefore longer

retention times are allowed by MEMBER STATES. Tax invoices as well as all the
accounting books, records and documents are required to be kept for no less
than a 5 year period from the end of the year to which such tax invoices, books,
records and documents relate. The period is extended to 15 years with respect to
keeping tax invoices, books, records and documents related to real estate
properties.
ht
15.6 Assessments and time limits
Although the framework is silent on the specifics, it is clear that THE AUTHORITY will
have the right to raise assessments on a taxable person where they believe there
to be an error or underpayment of tax due.
Each MEMBER STATE will set out their own rules and these will be detailed in the
Appendices to this document.
15.7 Appeals
15.8
rig
Art. 74 of the Agreement states that each MEMBER STATE shall determine how and
under what conditions the taxable person will have the right to object against
decisions made by THE AUTHORITY, including the right to appeal to the relevant
local court in each MEMBER STATE. The Appendices to this document will provide
details of how to appeal in respect of each MEMBER STATE.
Before an Appeal can be Made
The Agreement remains silent on this subject, however, we would expect local Law
and Regulations to set out rules and timelines around what has to happen before
an appeal can be made.
We would expect this to include that all tax due to THE AUTHORITY should be
py
settled, and any penalties due paid before an appeal can be launched.
15.9 Procedure
The Agreement allows the MEMBER STATES to set the procedures to be followed
and these are covered in the Appendices for each MEMBER STATE.

co

KINGDOM OF SAUDI ARABIA MODULE C CHAPTER 15 - APPENDIX 1
APPENDIX 1
CHAPTER 15 THE AUTHORITY POWERS, APPEALS AND ASSESSMENTS
ht
15.1 Introduction
This chapter looks at how THE AUTHORITY enforces compliance with the VAT law.
New VAT law and regulations are introduced for the implementation of VAT from 1
January 2018 to bring THE AUTHORITY powers regarding compliance for VAT
purposes within the same statutory framework as the Agreement.
15.2 Powers to Obtain Information and Documentation
rig
Art. 56 of the Regulations sets out the right of THE AUTHORITY to obtain information.
It states that all persons must provide THE AUTHORITY with any information it requests
for the purposes of establishing whether that person is complying fully with its tax
obligation.
Art. 56 also provides THE AUTHORITY with powers to request access to relevant
information held by third parties directly from those third parties including requiring
direct access to records generally on an ongoing basis.
Third parties are listed as government entities, banks and other financial institutions
regulated in the KSA by the Saudi Arabian Monetary Authority or by the Capital
Markets Authority.
py
Should a third party fail to provide access to information requested by THE
AUTHORITY, it will be in breach of its obligation to provide THE AUTHORITY with
information and may be subject to penalties.
15.3 Inspection of Premises
Art. 64(7) of the Regulations says that as part of an examination, employees of THE
AUTHORITY may visit any premises of the taxable person to verify that the taxable
person is complying with its tax obligations. An examination of the business premises
will be carried out during working hours. Twenty days’ notice will be provided before
the inspection takes place.
Where invoices, books, records and accounting documentation of a taxable

co
person are kept on a computer system or electronically, the taxable person shall
during an examination provide, upon request by the employee of THE AUTHORITY,
physical copies or electronic files containing the requested information. (Art. 64(8)
of the Regulations)
Should a taxable person fail to cooperate fully with THE AUTHORITY’s request for
information, THE AUTHORITY can take additional measures to obtain the documents
requested. This may include seizing the documentation should THE AUTHORITY
believe that the documents are being hidden, damaged or tampered with by the
taxable person.

THE AUTHORITY may also carry out a search of the taxable person’s premises and
collect evidence where it is suspected that there is a violation of the law as defined
in the regulations. (Art. 64(9) of the Regulations)
15.4 The VAT Assurance Visit
The Regulations explain the process of a VAT Assurance visit. Taxable persons are
expected to cooperate with an examination carried out by THE AUTHORITY.
ht
Art. 64(6) of the Regulations set out the following conditions with respect to a VAT
assurance visit:
 The examination shall be performed at the premises of the taxable person, or

the premises of THE AUTHORITY, pursuant to a notice issued by THE AUTHORITY
twenty days before the first date of the examination.
 THE AUTHORITY may conduct an examination without prior notice in a case

where it has reason to suspect violations of the VAT Law or Regulations or in the
case when a taxable person has refused to cooperate or they believe a refusal

rig
is likely to occur.
An examination of the person’s premises shall be carried out during the working
hours of the taxable person. All the invoices, books, records and accounting
documents, as required to be kept under the VAT Law and Regulations must be
made available for examination.
If THE AUTHORITY transfers invoices, books, records and accounting documents

from the taxable person’s premises, a receipt for the transferred documents
must be given to the taxable person.
There is also an obligation of THE AUTHORITY to return transferred documents

back to the taxable person within twenty days from the end of the examination.
However, THE AUTHORITY can retain copies if they consider it necessary.
py
15.5 The Examination of Records and Assessments
THE AUTHORITY may assess a taxable person in respect of errors in accounting for
VAT. They are required to notify the taxable person of the assessment. (Art. 64(1) of
the Regulations)
The assessment must show the net tax payable, the due date for payment and the
basis for the calculation. It must also notify the taxable person of the right to appeal.
Where an assessment is issued because a tax return has not been filed, THE
AUTHORITY may withdraw the assessment after the return has been filed by the
co
taxable person or a person authorised to act on his behalf. (Art 64(5) of the
Regulations)
15.6 Assessments and Time Limits
Art. 64(3) of the Regulations states that THE AUTHORITY cannot issue or amend an
assessment in respect of any tax period after five years has elapsed from the end of
the calendar year in which the period falls.

Where any transaction is carried out with the intention of breaching the provisions
of the VAT Law or the Regulations, or where the taxable person is required to register
but fails to do so THE AUTHORITY can issue or amend an assessment for a period of
up to twenty years from the end of the calendar year in which the period falls.
15.7 Appeals
Art. 68(1) of the Regulations provides that appeals shall be made to the competent
ht
judicial authority in accordance with the local legislation.
Moreover, Art. 68(2) of the Regulations, gives the Ministry of Finance the power to
set up a mediation procedure to resolve disputes between THE AUTHORITY and the
taxpayer in circumstances where THE AUTHORITY and the taxpayer agree to use
such procedure.

Q
rig
your Question Bank.
py
co

co
py
rig
ht
EXAMPLES
 Example 1
How many days’ notice is THE AUTHORITY required to give a taxable person?
ht
 Example 2
What article overrides the answer to question 1?
 Example 3
 Example 4
rig
If documents are seized during a VAT Assurance visit, how many days after the
completion of the examination is THE AUTHORITY required to return the records?
How is the taxpayer notified of its right to appeal?
 Example 5
Who has the right to set up the mediation procedure?

py

co

co
py
rig
ht
ANSWERS
 Answer 1
20 business days’ notice before the first day of the examination must be given to the
taxable person.
ht
 Answer 2
Art. 64(6)(b) overrides the notice period. Therefore THE AUTHORITY may conduct an
examination without prior notice in cases where it has reason to suspect violations of
the VAT Law or the Regulations or when a taxable person refuses to cooperate or they
believe a refusal is likely to occur.
 Answer 3
rig
THE AUTHORITY has the obligation to return any seized documents within 20 business
days from the end of the examination. Copies can still be retained by THE AUTHORITY.
 Answer 4
THE AUTHORITY must notify the taxpayer of the right to appeal when it issues the
assessment.
py
 Answer 5
The Minister of Finance has the right to set up mediation procedures subject to both
parties agreeing to use such mediation procedure.

co

co
py
rig
ht
UNITED ARAB EMIRATES MODULE C CHAPTER 15 - APPENDIX 2
APPENDIX 2
CHAPTER 15 POWERS, APPEALS AND ASSESSMENTS
ht
15.1 Introduction
This chapter looks at how THE AUTHORITY enforces compliance with the VAT
legislation.
New rules are introduced for implementation of VAT from 1 January 2018 to bring
THE AUTHORITY’s powers regarding compliance with VAT under the GCC
Framework.
15.2
15.3
rig
Powers to Obtain Information and Documentation
Art. 18 of the Tax Procedure Law says that whilst conducting a tax audit the tax
auditor may obtain original records or copies of the original or take samples of the
stock, equipment or other assets from the place where the person subject to tax
carries on his business or are in his possession.
The tax auditor also has the right to seize any of the above in accordance with the
Regulations of this law.
Inspection of Premises and Tax Audit
THE AUTHORTIY has the right to perform a tax audit on any taxable person to
ascertain the extent of that person’s compliance with the Tax Laws. (Art. 17(1) of
py
the Tax Procedure Law)
The tax audit can be completed either at the office of THE AUTHORITY, the place
of business of the taxable person or any other place the taxable person carries on
business, stores goods or keeps records. If THE AUTHORITY decides to perform the
tax audit at the place of business of the taxable person or any other place where
the taxable person carries on his business, stores goods or keeps records, THE
AUTHORITY must inform him at least five business days prior to the tax audit. (Art.
17(2)-(3) of the Tax Procedure Law)
As an exception to its powers set out above, the tax auditor has the right of entry
to any place where the taxable person subject to the tax audit carries on his
business, stores goods, or keeps records, and, as the case may be, it will be
co
temporarily closed in order to perform the tax audit for a period not exceeding 72
hours without prior notice in any of the following cases:
a) THE AUTHORITY has serious grounds to believe that the person subject to the tax
audit is participating or involved in tax evasion;
b) THE AUTHORTIY has serious grounds to believe that not temporarily closing the
place where the Tax Audit is conducted will hinder the completion of the tax
audit;
c) The person who has been given notice of the tax audit, attempts to hinder the
tax auditors access to the place where the tax audit is to be performed.

In addition, the tax auditor must obtain prior written consent of the Director
General prior to entering into any place, and if the place to be accessed is a
place of residence then a permit from the Public Prosecutor must also be
obtained. (Art. 17(5) of the Tax Procedure Law)
If the taxable person’s place will be temporarily closed in order to perform the tax
audit. The place must be reopened within 72 hours, unless THE AUTHORITY obtains
a permit from the Public Prosecutor to extend the closure time limit for a similar
ht
period, prior to the expiry of the preceding 72 hours.
A criminal case can be initiated only upon an application from the Director
General.
15.4 Examination of Records and Assessments
Art. 21 of the Tax Procedure Law provides that any person subject to a tax audit,
his agent or legal representative must facilitate and offer assistance to the tax
auditor to enable him to perform his duties.

rig
The audited person has the right to:
 Request the tax auditors to show their job identification cards;
Obtain a copy of the tax audit notification;
Attend the tax audit which takes place outside THE AUTHORITY; and
Obtain copies of any original paper or digital documents seized or obtained

by THE AUTHORITY during the time limit and according to the procedure
specified in the Regulations.
THE AUTHORITY must tell the taxable person the final results of the tax audit within
10 business days from the completion of the tax audit. (Art. 23 of the Tax Procedure
py
Law)
If the taxable person is assessed to underpaid tax, it can view or obtain the
documents and data on which THE AUTHORITY based its assessment.
15.5 Assessments
Once the tax audit is completed THE AUTHORITY may issue an assessment if errors
have been found. Art. 24 of the Tax Procedure Law sets out the timing of these
and the use of the estimated tax assessment.
Art. 24(1) of the Tax Procedure Law says that THE AUTHORITY shall issue a tax
assessment to determine payable tax and administrative penalties and notify the
co
taxable person within 5 business days of its issue, in any of the following cases:
a) The taxable person failing to apply for registration within the timeframe
specified by the VAT Law;
b) The registered taxable person failing to submit a tax return within the timeframe
specified in the Tax Law;
c) The registered taxable person failing to pay the payable tax stated on the tax
return submitted in the time limit specified by the Tax Law;

d) The taxable person submitting an incorrect tax return;
e) The registrant failing to account for tax on behalf of another person when he is
obligated to do so under the VAT Law;
f) Where there is an underpayment of tax by the taxable person as a result of tax

evasion in which the person was involved.
ht
In addition, THE AUTHORITY can issue an estimated tax assessment when it has not
been possible to determine the amount of tax deemed to be payable or
refundable tax that was not due to be refunded, as the case may be. (Art. 24(2) of
the Tax Procedure Law)
THE AUTHORITY may also amend an estimated tax assessment based on new
information that is made available after the estimated tax assessment was issued.
It must notify the concerned person of the amendments within five business days
from the date of amendment (Art. 24(3) of the Tax Procedure Law)
It is expected that the following information or data will be required to be included

rig
in the tax assessment:
 The taxable person’s name and address;
The taxable person’s Tax Registration Number;
The tax assessment reference number;
The tax to which this assessment relates;
A tax summary, which includes details of the tax declared and adjustment
made;
The rationale behind the tax assessment;

py
 Net tax due to THE AUTHORITY or refundable by THE AUTHORITY;
 The date any due tax is payable and the method of payment.
15.6 Administrative Penalties Assessment
In addition to the above, THE AUTHORITY is also empowered to issue administrative

penalties assessments against a Taxable Person and must notify him of such within
5 business days should the said person be in violation of an administrative
procedure listed in Art. 25 of the Tax Procedure Law.
co
An administrative penalties assessment should be issued by THE AUTHORITY if:
 The taxable person fails to keep the required tax records and other information
as specified in the VAT Law;
 The taxable person fails to submit data, records and documents related to tax
in Arabic to THE AUTHORITY when requested;
 The taxable person fails to register (or de-register) for VAT within the timeframe
specified in the VAT Law;

 The taxable person fails to inform THE AUTHORITY of any circumstance that
require an adjustment of the information pertaining to his tax record kept by
THE AUTHORITY;
 The person appointed as a legal representative for the taxable person fails to
inform THE AUTHORITY of such appointment within the specified timeframe, in
which case the penalties will be due from the legal representative’s own funds;
ht
 The taxable person (or his legal representative) fails to file a tax return within
the specified timeframe or submits an incorrect tax return;
 The taxable person fails to settle the payable tax stated in the tax return or tax
assessment he was notified of, within the specified timeframe;
 The taxable person fails to voluntarily disclose errors in the tax return, tax
assessment or refund application before being notified that he will be subject
to a tax audit;
 The taxable persons fails to offer facilitation and assistance to the tax auditor;

rig
The taxable person fails to calculate tax on behalf of another person when the
registered taxable person is obligated to do so under the VAT Law; or
Any other violation for which the Cabinet issues a resolution.
Such administrative assessments carry specific administrative penalties in respect

of each violation, which shall be no less than AED 500, but shall not exceed three
times the amount of tax due in respect of which the administrative penalty was
levied. (Art. 25(3) of the Tax Procedure Law)
Also, the imposition of an administrative penalty shall not exempt a taxable person
of his liability to settle and payable tax which is still outstanding in accordance with
the VAT Law.
py
15.7 Tax Evasion Penalties
In addition to the administrative penalties listed above, THE AUTHORITY can impose
a tax evasion penalty, in the form of a prison sentence, a monetary penalty (not
exceeding 5 times the amounts of tax evaded) or a combination of the two, with
respect to the following instances, when:
 A taxable person deliberately fails to settle any payable tax or administrative

penalties;
 A taxable person deliberately understates the actual value of his business or

fails to consolidate his related businesses with the intent of remaining below the
co
required registration threshold;
 A person charges and collects amounts from his clients claiming them to be
tax without being registered;
 A person deliberately provides false information, data and incorrect

documents to THE AUTHORITY;
 A person deliberately conceals or destroys documents or other material that

he is required to keep and provide to THE AUTHORITY;

 A person deliberately steals, misuses, or causes the destruction of documents

or other materials that are in the possession of THE AUTHORITY;
 A person prevents or hinders THE AUTHORITY’s employees from performing their

duties; or
 A person deliberately decreases the payable tax through tax evasion or

conspiring to evade tax.
ht
The competent court shall impose the said tax evasion penalties against other
persons who were directly involved or instrumental to the carrying out of any of the
listed tax evasion, provided that THE AUTHORITY has proven such direct
involvement. Any person who is proven to have been directly involved or
instrumental in Tax Evasion pursuant to Art 26 (3) shall be jointly and severally liable
with the Person whom he has assisted, to pay the Payable Tax and Administrative
Penalties. (Art. 26(3)-(4) of the Tax Procedure Law)
15.8 Reconsideration, Dispute resolution and Appeals
rig
Any person may submit a request to THE AUTHORITY to reconsider any of its
decisions issued in connection with him in whole or in part, provided that reasons
are included, within 20 business days from him being notified of the decision.
THE AUTHORITY is required to review a request for reconsideration if the request

fulfils the requirements and it must issue its decision, with reasons, within 20 business
days from receipt of the application. THE AUTHORITY must inform the applicant of
its decision within five business days of issuing the decision.
One or more permanent committees are required to be formed, to be known as

the “Tax Disputes Resolution Committee”. The committee will be chaired by a
member of the judicial authority and two expert members, being persons
registered on the register of tax experts to be appointed by a decision by the
Minister of Justice in coordination with the Minister.
py
The committee will have the following jurisdiction:
1) to decide in respect of objections submitted regarding THE AUTHORITY’s

decisions in relation to reconsideration requests;
2) to decide in respect of reconsideration requests submitted to THE AUTHORITY

where THE AUTHORITY has not made a decision according to provisions of this
Law;
3) any other jurisdictions entrusted to the committee by the Cabinet.
The committee is required to review any objection submitted and make a decision
co
within 20 business days from receipt of the objection. It may extend the time for
making its decision for no more than additional 20 business days after the end of
this time limit, if it sees that there are reasonable grounds for that extension. THE
AUTHORITY must inform the person submitting the objection of its decision within
five business days of its issue.
The committee’s decision on the objection shall be treated as final if the total
amount of the tax and administrative penalties due is not more than AED 100,000.
In no case may tax disputes be brought before the Competent Court if an
objection has not first been submitted to the committee.

THE AUTHORITY and a person may challenge any of the committee’s decisions
before the Competent Court within 20 business days from the objector being
notified of the committee’s decision. Challenges may be made to the Competent
Court in the following instances:
 There is an objection to the whole or part of the decision of the committee;
 A decision not having been issued by the committee regarding an objection
ht
submitted to it in accordance with the provisions of this Law.
15.9 Before an Appeal can be Made
To allow a taxable person to appeal a decision there are steps that must be
undertaken these are set out below and are prescriptive.
Objection to THE AUTHORITY’s decision cannot be accepted by the committee in

the following circumstances
a) If a reconsideration request has not been previously submitted to THE

Q
rig
AUTHORITY.
b) If the tax and penalties have not been paid.
(Art. 30(1) and (2a)-(2b) of the Tax Procedure Law)
your Question Bank.
py

co

EXAMPLES
 Example 1
How many days’ notice is THE AUTHORITY required to give a taxable person of a
Tax Audit?
ht
 Example 2
What is the longest period of time a premises can be closed by THE AUTHORTIY?
 Example 3
 Example 4
rig
What is the time limit for THE AUTHORITY to notify a taxable person of the issue of an
assessment?
How many business days does a person have to ask for a decision to be
reconsidered?
 Example 5
py
What is the maximum time the Tax Dispute Committee can take to deliver its
decision?
co

co
py
rig
ht
ANSWERS
 Answer 1
5 business days
ht
 Answer 2
Maximum in total 144 hours. Standard is 72 hours an extension can be given of an

additional 72 hours.
 Answer 3
rig
5 business days
 Answer 4
20 business days from receipt of the notification of decisions
 Answer 5
40 Business days (20 day plus an extension period 20 days)

py
co

co
py
rig
ht
CHAPTER 16
PENALTIES FOR ERRORS, FAILURE TO NOTIFY AND OTHER PENALITES
ht
In this chapter, and the following appendices, you will cover the new penalty regime for
errors, failure to notify, default surcharges and other penalties.
16.1 Introduction
The Agreement does not specifically cover this subject, and as such it is for each
MEMBER STATE to legislate for this. The MEMBER STATE Appendices will give the
current status in each country and will cover the following topics:



rig
Penalties for Errors, Penalties for Failure to Notify and Other Penalties, and in each
case the following will be considered:
When the Penalties will Apply
The Amount of the Penalty
Appeals
Other Points
py
co

co
py
rig
ht
APPENDIX 1
CHAPTER 16 PENALTIES FOR ERRORS, FAILURE TO NOTIFY AND

OTHER PENALITES
ht
PENALITES FOR ERRORS
16.1 Introduction
The VAT Law and Regulations set out the overriding position of THE AUTHORITY
regarding penalties.
16.2 When the Penalties will Apply
16.3
rig
Art. 48(1) of the VAT Law requires that THE AUTHORITY shall impose penalties in
accordance with the “classification of the violations and the determination of the
penalties prescribed by the board, taking into account the proportionality
between the violations and the penalty.”
The penalty shall be imposed by a decision of the Governor of THE AUTHORITY or

by a person authorised by the Board of Directors. (Art. 48(2) of the VAT Law)
The Amount of the Penalty
Any person who has filed an incorrect tax return or has amended a tax return after
it has been filed, or submitted any document to THE AUTHORITY relevant to
py
payable tax which resulted in errors in calculating the tax so that too little tax is
paid, shall be fined 50% of the difference between the calculated tax and the tax
actually due. (Art. 42(1) of the VAT Law)
THE AUTHORITY may, according to the rules determined by the Board of Directors,
exempt any person from the penalty stated above, or reduce the same. (Art. 42(2)
of the VAT Law)
Any person who fails to submit the tax return within the period specified by the
Regulations shall be liable to a fine not less than 5% and not to exceed 25% of the
value of the tax due on the return. (Art. 42(3) of the VAT Law)
16.4 Appeals
co
Art. 49 of the VAT Law states that any person against whom a penalty is issued
may file a grievance before the judicial authority with 30 days from the date of
notification thereof, otherwise the decision shall be considered final with no right to
appeal to any other judicial authority.
16.5 Other Points
Finally Art. 42(3) of the VAT Law says that if the violation is repeated within three
years from the date of the final decision certifying the previous violation, THE
AUTHORITY can double the fine imposed on the offender under that decision.

PENALTIES FOR FAILURE TO NOTIFY
16.6 Introduction
A penalty applies where a person has not applied for registration for VAT within the
correct time limits. (Art. 41 of the VAT Law)
16.7 When The Penalties Will Apply
ht
Art. 48(1) of the VAT Law provides THE AUTHORITY with its general power to impose
penalties. Where a person fails to register within 30 days of the end of the month in
which it becomes due to register, it is liable to a penalty.
16.8 The Amount of the Penalty
Any person who has not applied for registration within the period specified shall be
fined SAR 10,000. (Art. 41 of the VAT Law)
16.9 Appeals
rig
Any person against whom a penalty is issued may file a grievance before the
judicial authority with 30 days from the date of notification thereof, otherwise the
decision shall be considered final with no right to appeal to any other judicial
authority. (Art. 49 of the VAT Law)
16.10 Introduction
OTHER PENALTIES
In addition to penalties for making errors on a VAT return and failing to register for
VAT at the correct time, there are a number of other penalties, most notably for
py
tax evasion but also for regulatory failings and a general power to issue penalties
for any other violations of the VAT Law or Regulations. Any penalties charged are
in addition to the tax due.
Art. 39 of the VAT Law sets out what is considered to be tax evasion. In addition to
penalties for tax evasion, Art. 44 of the VAT Law sets out the penalty that applies to
unregistered persons who issue tax invoices and Art. 45 of the VAT Law deals with
penalties for the failure to keep the VAT records required, preventing officers of THE
AUTHORITY from performing their duties and also for violating any other provisions
of the VAT Law or Regulations.
co
Any person who is found to be evading tax shall be liable to a fine of not less than
the amount of the tax due and not more than three times the value of the goods
or the services which are the subject of the evasion. (Art. 40 of the VAT Law.)
Art. 44 of the VAT Law states that a non-registered person shall be liable to a fine
not exceeding SAR 100,000 if he issues a tax invoice, without prejudice to any
heavier penalty provided for in any other law.

Art. 45 of the VAT Law provides that a fine of not more than SAR 50,000 shall be
imposed on any person who:
1. Fails to keep tax invoices, books, records and accounting documents within
the period stipulated by the Regulations. The fine shall be for each tax period;
2. Prevents or obstructs the employees of THE AUTHORITY or any of its employees

from preforming their duty;
ht
3. Violates any other provisions of the VAT Law or Regulations.
Art. 46 of the VAT Law further states that fines imposed by this Law shall be in
addition to the tax due. Further to this, the implementation of any penalty set out
in the law shall not prejudice the imposition of any other penalty set out in any
other law.
Finally, Art. 47 of the VAT Law provides that if the violation is repeated within three
years from the date of the final decision certifying the previous violation, it is
permissible to double the fine imposed on the offender under that decision.
16.13 Appeals
Q
rig
Art. 49 of the VAT Law states that any person against whom a penalty is issued
may file a grievance before the judicial authority with 30 days from the date of
notification thereof, otherwise the decision shall be considered final with no right to
appeal to any other judicial authority.
your Question Bank.
py
co

co
py
rig
ht
EXAMPLE
 Example 1
After a penalty has been issued, how many days does a taxable person have to
file a grievance?
ht

rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
30 days from date of notification.
ht
rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 16 PENALTIES FOR ADMINISTRATIVE ISSUES
ht
ADMINISTRATIVE PENALTIES
16.1 Introduction
This chapter covers Administrative issues, including Administrative Penalties and Tax
Evasion. The VAT Law and Regulations set out the overriding position of THE
AUTHORITY regarding penalties.
rig
Art. 76 of the VAT Law sets out the position regarding Administrative Penalties
Assessments.
Without prejudice to the provisions the of Tax Procedure Law, THE AUTHORITY shall
issue an Administrative Penalty Assessment to a taxable person and notify the
person of the same within 5 business days from the date of issuance in any of the
following cases:
1) Failure by the taxable person to display prices inclusive of tax;
2) Failure by the taxable person to notify THE AUTHORITY of applying tax based on
the Profit Margin Scheme;
py
3) Failure by the taxable person to comply with the conditions and procedures
related to keeping the goods in a designated zone or moving them to another
designated zone;
4) Failure of a taxable person to issue the tax invoice or an alternative document

when making any supply;
5) Failure by the taxable person to issue a tax credit note or an alternative

document;
6) Failure by the taxable person to comply with the conditions and procedures
regarding the issuance of electronic tax Invoices and electronic tax credit
notes.
co
The above must be read together with Art. 25 of the Tax Procedure Law on
Administrative Penalties.
The following penalties apply as per the Cabinet Resolution on Administrative

Penalties for the violation of Tax Laws in the UAE. All penalties are in AED.
The failure of the person conducting business to keep the required records and
other information specified in Tax Procedures Law and the Tax Law - 10,000 for the
first time, 50,000 in case of repetition.

The failure of the person conducting business to submit the data, records and
documents related to tax in Arabic to THE AUTHORITY when requested - 20,000.
The failure of the taxable person to submit a registration application within the
timeframe specified in the Tax Law - 20,000.
The failure of the registrant to submit a deregistration application within the

timeframe specified in the Tax Law - 10,000.
ht
The failure of the Registrant to inform THE AUTHORITY of any circumstance that
requires the amendment of the information pertaining to his tax record kept by THE
AUTHORITY -5,000 for the first time, 15,000 in case of repetition.
The failure of the person appointed as a legal representative for the taxable
person to inform THE AUTHORITY of his appointment within the specified timeframe.
The penalties will be due from the legal representative’s own funds - 20,000.
The failure of the person appointed as a legal representative for the taxable
person to file a tax return within the specified timeframe. The penalties will be due
rig
from the legal representative’s own funds - 1,000 for the first time, 2,000 in case of
repetition within 24 months.
The failure of the registrant to submit the tax return within the timeframe specified
in the Tax Law - 1,000 for the first time, 2,000 in case of repetition within 24 months.
The failure of the taxable person to settle the payable tax stated in the submitted
tax return or tax assessment he was notified of, within the timeframe specified in
the Tax Law – the taxable person shall be obligated to pay a late payment
penalty consisting of:
 2% of the unpaid tax is due immediately once the payment of payable tax is
late;
py
 4% is due on the seventh day following the deadline for payment, on the
amount of tax which is still unpaid;
 1% daily penalty charged on any amount that is still unpaid one calendar
month following the deadline for payment with upper ceiling of 300%.
The submittal of an incorrect tax return by the Registrant - two penalties are
applied:
1) Fixed penalty of:
 3,000 for the first time;

co
 5,000 in case of repetition.
2) Percentage based penalty shall be applied on the amount unpaid to THE

AUTHORTIY due to the error and resulting in a tax benefit as follows:
 50% if the registrant does not make a voluntary disclosure or he made the
voluntary disclosure after being notified of the tax audit and THE AUTHORITY
has started the tax audit process, or after being asked for information
relating to the tax audit, whichever takes place first.
 30% if the registrant makes the voluntary disclosure after being notified of
the tax audit and before THE AUTHORITY starts the tax audit.

 5% if the registrant makes a voluntary disclosure before being notified of

the tax audit by THE AUTHORITY.
The voluntary disclosure by the person/taxpayer of errors in the tax return, tax
assessment or refund application pursuant to Art. 10(1)-(2) of the Tax Procedures
Law - two penalties are applied:
ht
2) Percentage based penalty shall be applied on the amount unpaid to THE

AUTHORITY due to the error and resulting in a tax benefit as follows:
 50% if the person/taxpayer makes a voluntary disclosure after being

notified of the tax audit and THE AUTHORITY starting the tax audit or after
being asked for information relating to the tax audit, whichever takes
 rig
place first;
30% if the person/taxpayer makes the voluntary disclosure after being

notified of the tax audit but before the start of the tax audit;
5% if the person/taxpayer makes voluntary disclosure before being notified

of the tax audit by THE AUTHORITY.
The failure of the taxable person to voluntarily disclose errors in the tax return, tax
assessment or refund application pursuant to Art. 10(1)-(2) of the Tax Procedures
Law before being notified that he will be subject to a tax audit - two penalties are
applied:

py
2) 50% of the amount unpaid to THE AUTHORITY due to the error resulting in a tax
benefit for the Person/Taxpayer.
The failure of the person conducting business to facilitate the work of the tax
auditor in violation of the provisions of Art. 21 of the Tax Procedures Law - 20,000.
The failure of the Registrant to calculate tax on behalf of another person when the
registered taxable person is obligated to do so under the Tax Law - the Registrant
co
shall be obligated to pay a late payment penalty consisting of:
 2% of the unpaid tax is due immediately once the payment of payable tax is
late;
 4% is due on the seventh day following the deadline for payment, on the
amount of tax which is still unpaid.
 1% daily penalty charged on any amount that is still unpaid one calendar
month following the deadline for payment with upper ceiling of 300%.

A person not accounting for any tax that may be due on import of goods as
required under the Tax Law - 50% of unpaid or undeclared tax.
Failure by the taxable person to display prices inclusive of tax - 15,000.
Failure by the taxable person to notify THE AUTHORITY of applying tax based on the
margin - 2,500.
ht
Failure by the taxable person to issue the tax invoice or an alternative document
when making any supply - 5,000 for each tax invoice or alternative document.
Failure by the taxable person to issue a Tax Credit Note or an alternative

document – 5,000 for each tax credit note or alternative document.
Failure by the taxable person to comply with the conditions and procedures
regarding the issuance of electronic tax invoices and electronic tax credit notes –
5,000 for each incorrect document.
Further details of the penalties can be found in Cabinet Resolution No (40) of 2017
rig
on Administrative Penalties for Violations of Tax Laws in the UAE.
The administrative assessments carry specific administrative penalties in respect of

each violation, which shall be no less than AED 500, but shall not exceed three
times the amount of tax due in respect of which the administrative penalty was
levied (Art. 25(3) of the Tax Procedure Law).
Also, the imposition of an administrative penalty shall not exempt a taxable person
of his liability to settle any payable tax which is still outstanding in accordance with
the VAT Law.
16.4 Disclosure
py
THE AUTHORITY may consider reducing or waiving any of the administrative
penalties imposed on any person provided that:
1) The person has a valid excuse which is acceptable by THE AUTHORITY;
2) The person provides evidence that justifies the excuse and the violation it
caused, which led to the imposition of Administrative Penalties;
3) The reduction or exemption application shall be notified to THE AUTHORITY as

per the mechanism specified by THE AUTHORITY within 10 business days as of
the end of the acceptable excuse;
co
4) The person shall not have been subject to any Administrative Penalties in the
two years preceding the application; and
5) The person shall demonstrate that they have corrected the violation.
THE AUTHORITY shall make a decision in respect of a reduction or waiving of an

administrative penalty within 20 business days from receiving such application and
shall notify the taxable person of its decision within 10 business days. (Art. 26 of the
Regulations)

Art. 10 of the Tax Procedures Law states that if a taxable person becomes aware
that a tax return submitted by him to THE AUTHORITY or a tax assessment sent to
him by THE AUTHORITY is incorrect, resulting in a calculation of payable tax being
less than it should have been, the taxable person must in that event apply to
correct the return by submitting a voluntary disclosure within the time limit
specified in the Regulations to the Tax Procedures Law.
If a taxpayer becomes aware that a tax refund application that he has submitted
ht
to THE AUTHORITY is incorrect, resulting in a calculation of a refund to which he is
entitled according to the tax law being more than it should have been, he must in
that event apply to rectify the tax refund application by submitting a voluntary
disclosure within the time limit specified in the Regulations referred to above.
If a taxable person becomes aware that a tax return submitted by him to THE
AUTHORITY or a tax assessment sent to him by THE AUTHORITY is incorrect, resulting
in the calculation of payable tax according to the Tax Law being more than it
should have been, he may in that event apply to rectify such a tax return by
submitting a voluntary disclosure.
rig
If a taxpayer becomes aware that a tax refund application that he has submitted
to THE AUTHORITY is incorrect, resulting in the calculation of a refund amount to
which he is entitled according to the Tax Law being less than the it should have
been, he may in that event apply to rectify the tax refund application by
submitting a voluntary disclosure.
Art. 8 of the Regulations to the Tax Procedure Law sets out the following time limits:
1) If a taxable person becomes aware that a tax return submitted by him to THE
AUTHORITY or a tax assessment sent to him from THE AUTHORITY is incorrect,
resulting in a calculation of the payable tax according to the Tax Law being
less than required by more than AED 10,000, the taxable person is required to
make a voluntary disclosure to THE AUTHORITY within 20 business days from the
date when the taxable person became aware of the error.
py
2) If a taxable person becomes aware that a tax return submitted by him to THE
AUTHORITY or a tax assessment sent to him from THE AUTHORITY is incorrect,
resulting in a calculation of payable tax according to the Tax Law being less
than required by not more than AED 10,000 he must do the following:
 Correct the error in the tax return for the tax period in which the error has
been discovered, if the taxable person is obliged to submit a tax return to
THE AUTHORITY for this tax period.
 Make a voluntary disclosure to THE AUTHORITY within 20 business days from

the date of becoming aware of the error, if there is no tax return through
which the error can be corrected.
co
3) If a taxpayer becomes aware that a tax refund application that he has

submitted to THE AUTHORITY is incorrect, resulting in a calculation of a refund to
which he is entitled being more than the correct amount, the taxpayer shall
make a voluntary disclosure to THE AUTHORITY within 20 business days from the
date when the taxpayer becomes aware of the error, unless the error was a
result of an incorrect tax return or tax assessment, then the provisions in point 1
and 2 above apply.
4) A voluntary disclosure must be made in accordance with the form directed by

THE AUTHORITY.

16.5 Appeals
Art. 28 of the Tax Procedure Law sets out that an appeals process is being set up,
with the right for reconsideration of any decision made by THE AUTHORITY. The
committee “Tax Disputes Resolution Committee” will be chaired by a member of
the Judicial Authority and two expert members, being persons registered on the
register of tax experts. They will be appointed by the Minster of Justice in
coordination with the Minister of Finance.
ht
The committee has the following jurisdictions:
1) to decide in respect of objections submitted regarding THE AUTHORITY’s

2) to decide in respect of reconsideration requests submitted to THE AUTHORITY

Law;
3) any other jurisdictions entrusted to the committee by the Cabinet.
rig
decisions in connection with him in whole or in part provided reasons for the
request are given. The person has 20 business days from the date he was notified
of the decision. (Art. 29 of the Tax Procedure Law)
undertaken. These are set out below and are prescriptive.

the following circumstances:
py
AUTHORITY;
b) If the Tax and penalties have not been paid.
(Art. 30(1) and (2a)-(2b) of the Tax Procedure Law)
The committee has to review and make a decision on the objection within 20
business days from the receipt of the objection.
However, there is a provision which allows the committee to extend the time for
making its decision for no longer than an additional 20 business days after the time
limit above if the committee sees that there are reasonable grounds for that
co
extension in order to make a decision.
Once a decision has been issued THE AUTHORITY will inform the person submitting
the objection within 5 business days.
The decision of the committee shall be treated as final if the total amount of the
tax and administrative penalties due is not more than AED 100,000.
In no cases may tax disputes be brought before the Competent Court if an

objection has not been submitted first.

Final decisions of disputes exceeding AED 100,000 shall be treated as executory

instruments if they are not challenged before the competent court within 20
business days from the date of the rejection of the objection, in which case they
will be enforced through the execution judge at the competent court pursuant to
the Civil Procedures Law in the State.
(Art. 32 of the Tax Procedure Law)
ht
TAX EVASION
Art. 77 of the Law relates to Tax Evasion. It says that if it is proven that a person who
is not registered acquires goods (comprising of crude or refined oil, unprocessed or
processed natural gas, or any hydrocarbons) claiming that he is a registrant, he
shall be considered as having committed tax evasion and shall be subject to the
penalties provided for in the Tax Procedure Law.
rig
The above must be read together with Art. 26 of the Tax Procedure Law, Tax
Evasion Penalties.
Without prejudice to any more severe penalty applicable under any other Law, a
prison sentence and a monetary penalty not exceeding five times the amount of
the evaded Tax or either of the two, shall be imposed on:
a) a taxable person who deliberately fails to settle any payable tax or

administrative penalties;
b) a taxable person who deliberately understates the actual value of his business
or fails to consolidate his related business with the intent of remaining below
the required registration threshold;
py
c) a person who charges and collects amounts from his clients claiming them to
be tax without being registered;
d) a person who deliberately provides false information and data and incorrect
documents to THE AUTHORITY;
e) a person who deliberately conceals or destroys documents or other material

that he is required to keep and provide to THE AUTHORITY;
f) a person who deliberately steals, misuses or causes the destruction of

documents or other materials that are in the possession of THE AUTHORITY;
g) a person who prevents or hinders THE AUTHORITY’s employees from performing

their duties; or
co
h) a person who deliberately decreases the payable tax though tax evasion or
conspires to evade tax.
Moreover Art. 26(2) of the Tax Procedure Law says that - the imposition of a
penalty under the provision of this Law or any other Law shall not exempt any
person from the liability to pay any payable tax or administrative penalties under
the provision of this Law or any Tax Law.

Art. 26(3) of the Tax Procedure Law indicates that – the competent court shall
impose tax evasion penalties against any person who is proven to have been
directly involved or instrumental in tax evasion.
Art. 26(4) of the Tax Procedure Law says that without prejudice to Art. 26(2) of this
Law, any person who is proven to have been directly involved or instrumental in
tax evasion pursuant to Art. 26(3) shall be jointly and severally liable with the
person whom he has assisted, to pay the payable tax and administrative penalties
ht
pursuant to this Law or any other Tax Law.
Tax evasion carries specific penalties in respect of each violation, and consists of a
prison sentence and a monetary penalty not exceeding five times the amount of
the evaded Tax, or either of the two. (Art. 26 (1) of the Tax Procedure Law)
16.9 Appeals

rig
An appeals process is being set up, with the right for reconsideration of any
decision made by THE AUTHORITY. The committee “Tax Disputes Resolution
Committee” will be chaired by a member of the Judicial Authority and 2 expert
members being persons registered on the register of tax experts. They will be
appointed by the Minster of Justice in coordination with the Minister of Finance.
The committee has the following jurisdictions:
to decide in respect of objections submitted regarding THE AUTHORITY’s

to decide in respect of reconsideration requests submitted to THE AUTHORITY

Law;
py
 any other jurisdictions entrusted to the committee by the Cabinet.
decisions in connection with him in whole or in part provided reasons for the
request are given. The Person has 20 business days from the date he was notified
of the decision.
undertaken. These are set out below and are prescriptive.
co

the following circumstances:

AUTHORITY; and
b) If the tax and penalties have not been paid.
(Art. 30(1) and (2a)-(2b) of Tax Procedure Law)
The committee has to review and make a decision on the objection within 20
business days from the receipt of the objection.

However, there is a provision which allows the committee to extend the time for
making its decision for no longer than an additional 20 business days after the time
limit above if the committee sees that there are reasonable grounds for that
extension in order to make a decision.
Once a decision has been issued THE AUTHORITY will inform the person submitting
the objection within 5 business days.
ht
The decision of the committee shall be treated as final if the total amount of the
tax and administrative penalties due is not more than AED 100,000.
In no cases may tax disputes be brought before the Competent Court if an

objection has not been submitted first.
Final decisions of disputes exceeding AED 100,000 shall be treated as executory

instruments if they are not challenged before the Competent Court within 20
business days from the date of the rejection of the objection in which case, they
will be enforced through the execution judge at the Competent Court pursuant to
the Civil Procedures Law in the State.
rig
(Art. 32 of the Tax Procedure Law)
Without prejudice to the provisions above regarding finality of decisions, THE

AUTHORITY and a person may challenge any of the committee’s decisions before
the Competent Court within 20 business days from the objector being notified of
the committee’s decision. Challenges may be made in the following instances:
a) There is an objection to the whole or part of the decision of the Committee.
b) A decision not having been issued by the committee regarding an objection

submitted to it in accordance with the terms of the law.
py
co

co
py
rig
ht
EXAMPLE
 Example 1
After a penalty has been issued, how many days does a taxable person have to
file a grievance?
ht

rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
20 days from date of notification.
ht
rig
py
co

co
py
rig
ht
CHAPTER 17
REFUNDS, REPAYMENT SUPPLEMENT AND SECURITY
ht
In this chapter, and the following appendices, you will cover the new penalty regime for
errors, failure to notify, default surcharges and other penalties.
17.1 Introduction
This chapter covers the following topics; refunds, repayment supplement and
security. These three items are roughly connected because they are all to do with
the situation when VAT is refunded to the taxpayer. Security is a different topic and
17.2
rig
shall be dealt with on its own at the end of the session. However, it should be
noted that the Agreement has limited reference to these points and further
information should be reviewed in the MEMBER STATE Appendices.
Refunds
The Agreement provides for a general rule on refunds in Art. 65 which sets out that
each MEMBER STATE shall specify the conditions and rules for allowing taxable
persons to apply for a VAT refund, of the net amount of deductible or refundable
tax or for carrying it forward to the next tax period.
In addition there are specific references to other refund types as follows:

py
Tax Refund to GCC Residents (Art. 66 of the Agreement)
A taxable person in any MEMBER STATE shall be allowed to apply for a refund of
tax paid in another MEMBER STATE, based on the conditions and specified by the
Financial & Economic Co-operation Committee.
Tax Refund to Non-residents (Art. 67 of the Agreement)
Each MEMBER STATE can allow, at its own discretion, the non-resident person in the
territory of the GCC states, to claim a refund of the tax paid in such states,
provided the following conditions are met:
1. The non-resident does not supply goods or services for which he is liable to pay
tax in any MEMBER STATE.
co
2. The non-resident person is registered for tax purposes in his country of

residence, if that country has a VAT or similar tax system. (This is often known as
a reciprocal agreement).
3. The tax incurred for the purposes of his economic activity.

Tax Refund to Tourists (Art. 68 of the Agreement)
1. Each MEMBER STATE can decide whether to implement a tax refund system for
tourists in accordance with the conditions and rules stipulated under its local
Law.
2. For the purpose of this article, a tourist is any natural person fulfilling all the of
the following conditions:
ht
a. He is not a resident in the territory of the GCC states; and
b. He is not a crew member of a ship or plane departing from one of the

MEMBER STATES.
Tax Refund to Foreign Governments, International Organisations, Diplomatic Bodies

and Missions (Art. 69 of the Agreement)
Each MEMBER STATE shall determine the conditions and rules for granting foreign
governments, international organisations, and diplomatic, consular and military
17.3
rig
bodies and missions the right to claim a refund of tax incurred on goods and
services in the MEMBER STATE, in implementation of international treaties entered
into or subject to reciprocity.
Each MEMBER STATE may, at its own discretion, apply the zero-rate to the supply of
goods or services in the favour of the foreign governments, international
organisations and diplomatic, consular and military bodies and missions, based on
the conditions specified by each MEMBER STATE.
Refund of VAT Shown On a VAT Return
As explained above, the Agreement gives only limited information on refunds of

VAT shown on a VAT return providing THE AUTHORITY for each MEMBER STATE to
specify the conditions for taxable persons to apply for a VAT refund of the net
py
amount of deductible or refundable tax or, for carrying forward tax to the next tax
period. This indicates that where a VAT return shows a refund due to a taxpayer, it
will not be repaid automatically but must be applied for by the taxpayer
separately from the submission of the VAT return.
17.4 Security
It should be noted that the Agreement does not make any reference to security
but further MEMBER STATE specific information should be reviewed in the
Appendices.
co

APPENDIX 1
CHAPTER 17 REFUNDS AND SECURITY
ht
17.1 Introduction
The Agreement has limited information in this area however the Regulations give us
a better understanding of how these areas will be applied in practice in Saudi
Arabia.
17.2 Refunds
Art. 69 of the Regulations covers the refund of overpaid tax, more details on this are
rig
in section 17.3 of this manual.
There are many different types of refund procedures other than on a tax return these
are detailed below.
Refund of Tax to Designated Person (Art. 70 of the Regulations)
According to the Agreement and the VAT Law, THE AUTHORITY may allow a
designated person not carrying on an economic activity, or engaged in a
designated economic activity, to apply for a refund of tax paid by them on supplies
of goods or services received in the KSA. The Minister of Finance may issue an order
setting out a list of persons considered as ‘Eligible Person’ for the purpose of this
article.
py
According to the Agreement and the VAT Law; Foreign Governments, International
Organisations, Diplomatic and Consular Bodies and Missions may also be authorised
by the Minister of Finance as eligible persons to request the refund of tax incurred
on goods and services in the KSA, and to be included on the list issued by way of an
order issued by the Board of Directors.
An eligible person may submit an application to THE AUTHORITY. Upon acceptance

of the application, THE AUTHORITY will issue an individual identification number to an
eligible person. This number shall be quoted by the person on all refund applications
and in correspondence with THE AUTHORITY.
An eligible person may submit a refund application in respect of either a quarterly

period or a calendar year. Only one refund application can be submitted in respect
co
of any quarterly period or calendar year.
All refund applications must be submitted within six months from the end of the
calendar year to which the claim refers.
The refund application may only include tax paid on goods and services for which
a tax invoice dated within the refund period is held by the taxable person at the
time the application is submitted.
In cases of a government body and/or entity, it is deemed to be an eligible person

and will be allowed to apply for a refund insofar as it is not acting in a commercial
activity.

Tax will not be refunded in respect of supplies of goods and services that are not
prescribed to be incurred in the course of a taxable person’s economic activity. Art.
50 of the Regulations provides that the following goods and services are not incurred
in the course of a taxable person’s economic activity:
 Any form of entertainment, sporting or cultural activities;
 Catering services in hotels, restaurants and similar venues;
ht
 The purchase or lease of restricted motor vehicles as defined;
 Repair, alteration, maintenance or similar services to restricted motor vehicles;
 Fuel used in restricted motor vehicles;
 Any other goods or Services used for a private or non-business purposes.
A refund application cannot be submitted if the tax incurred is less than SAR 1,000.
rig
Each refund application needs to show the following information regarding the
goods and services supplied:
a. Name and Tax Identification Number of the supplier
b. Invoice date
c. Invoice number
d. Total invoice amount
e. VAT amount
f. A description of the goods or services purchased

py
THE AUTHORITY might ask for copies of the tax invoices or additional information
either in electronic form or physical form. If there is such a request the eligible person
must provide the information within 20 days from when the request is made.
Once the claim is processed THE AUTHORITY will issue a notification to the eligible
person.
If a refund is approved in full or in part, THE AUTHORITY must conclude refund

procedures and initiate payment within 60 days from the date of notification of
approval. The payment is to be made by way of bank transfer to the eligible
person’s bank account.
co
Refund of Tax to Taxable Person in another MEMBER STATE (Art. 71 of the Regulations)
Persons who are registered for VAT in another MEMBER STATE may submit an
application for refund of tax incurred in the KSA in accordance with the mechanism
agreed between the MEMBER STATES.
The details of this process with will be set out in an order issued by the Board of
Directors.

Refund of Tax to Taxable Persons Non-resident in the GCC Territory (Art. 72 of the
Regulations)
A person who carries on an economic activity in a country outside of the GCC

territory may apply to be an eligible person and to request a refund of tax incurred
on supplies of goods and services made to the person in the KSA. A person will be
considered an eligible person in accordance with the following cases:
ht
a. if the person is established in a country with a transaction tax system similar to
VAT and that the persons is registered for that tax;
b. if the person is established in a country with a transaction tax system similar to

VAT and that country allows a similar mechanism to provide refunds of tax to
residents of the KSA who are charged tax in that country.
The person wishing to request a refund of the tax shall submit an application to THE
AUTHORITY to be an eligible person, as described above.
Eligible persons who apply for a refund under these Articles may submit claims in
rig
respect of the calendar year only.
Refunds of Tax to Tourists (Art. 73 of the Regulations)
THE AUTHORITY may authorise one or more providers to carry out a tourist refund
scheme and shall publish a list of all authorised providers.
Tourists will need to be able to prove that they are not resident in a MEMBER STATE
and will apply directly through the approved provider for the refund of VAT on
goods which are purchased in the KSA and will be exported to a place outside the
GCC Territory.
The refund application will need to be submitted to the authorised provider by the
tourist while he is still present in the KSA.
py
The authorised provider will collect evidence of payment of VAT and the eligibility
of the goods for refund. The provider will also carry out a check of the application
before submitting to THE AUTHORITY for approval.
Should the refund claim be approved, THE AUTHORITY will make payment to the
authorised provider who will make the payment to the tourist, the authorised
provider may deduct a percentage of the tax refunded as a commission.
THE AUTHORITY may reject individual claims in part or in full where it is not satisfied
that the eligibility criteria has been met. In the case when the eligibility criteria is not
met in respect of multiple claims THE AUTHORITY may revoke the authorisation to the
provider to offer the scheme.
co
There is no obligation of THE AUTHORITY to individual tourists to make refunds of VAT

incurred in the KSA.
17.3 Refund of VAT Shown On a VAT Return
Art. 69 of the Regulations sets out the rules in this area for refund of overpaid tax on
a tax return.

A taxable person may claim a refund of amounts of excess tax paid, following terms
and conditions prescribed by this article, in any of the following circumstances:
a. when they have filed a tax return for a tax period where the net tax is an amount
due to the taxable person;
b. where the taxable person has paid an amount in excess of the amount of tax
due;
ht
c. where the taxable person has a VAT credit balance.
A taxable person may submit a request to THE AUTHORITY for a refund in any
circumstances prescribed in the first paragraph at the time the tax return is filed, or
any other time within five years following the end of the calendar year for which
circumstances relate.
A refund request may be rejected if there are any tax returns due and not submitted
with THE AUTHORITY.
rig
THE AUTHORITY will review the taxable person’s request, and may approve the
refund, issue a rejection in part or full, or may request additional information from
the taxable person for verification. Once a refund is approved in full or in part, THE
AUTHORITY must conclude refund procedures and initiate payment within 60 days
from the date of approval of the request. The payment is to be made by way of
bank transfer to the taxable person’s bank account.
THE AUTHORITY may offset excess tax held in the taxable person’s VAT account
against taxes, penalties or any other amounts due to THE AUTHORITY, or withhold
payment pending the resolutions of outstanding assessments raised against that
taxable person in respect of other taxes.
The taxable person may request excess tax to be refunded, otherwise excess tax will
be carried forward in the VAT account at the time he submits each tax return or at
py
any other time within the limitation period of the second paragraph of this article.
17.4 Security
Security is requested by THE AUTHORITY in a number of cases set out below but is
generally a way of ensuring THE AUTHORITY has comfort and gains confidence in a
taxable person. Security could also be asked in the case where a taxable person
has a history with THE AUTHORITY relating to other taxes. (Art. 65 of the Regulations)
1. In cases where THE AUTHORITY has evidence or reason to doubt that a taxable
person will not make his VAT and associated payments in an accurate and
timely manner, it may require that cash security or a bank guarantee is provided
as a precondition for VAT registration, subject to the following requirements:
co
a. Notification requiring the cash security or a bank guarantee shall be given

in writing and shall provide a minimum of 20 days for the taxable person to
provide cash security or a bank guarantee.
b. The maximum value of the cash security will be determined based on the
estimated average quarterly value of output tax.
c. Any cash security must be held by THE AUTHORITY in a separate account to

the taxable persons VAT account.

d. THE AUTHORITY shall retain the cash security or require the bank guarantee
to remain in force for a period of 12 months. In cases where normal collection
procedures have commenced in respect of any amounts of VAT, penalties
or associated amounts due, and these remain unpaid by the taxable
person, THE AUTHORITY may, subject to issuing notification to the taxable
person, set off the cash security against the unpaid amounts due, or require
payment from the guarantor up to the amount due.
ht
e. In cases where the original cash security payment or bank guarantee is used
to offset VAT, penalties or associated amounts due but not paid by the
taxable person, THE AUTHORITY may require the taxable person to make a
new security payment or provide a new bank guarantee;
f. If the cash security remains held in an account at the end of the 12 month
period, it may on the taxable person’s request be refunded to the taxable
person or credited to the taxable person’s VAT account, to offset any current
or future VAT payments due, or based on the decision of THE AUTHORITY,
renewed for another one-year period.
rig
2. In cases where a formal review or appeal is lodged against an appealable
decision, and THE AUTHORITY has evidence or reason to doubt that the taxable
person may not pay the disputed tax, THE AUTHORITY may require a cash
security or bank guarantee from the taxable person up to the maximum value
of the unpaid amount of tax and associated penalties arising in connection with
the decision. A notification shall be issued in writing.
The Customs Department may require cash security or a bank guarantee from
a person importing goods into a customs duty suspension regime in the KSA for
an amount up to the value of the tax that would be payable on the import of
those goods.
py

co

co
py
rig
ht
EXAMPLES
 Example 1
Name the 3 conditions when a taxable person may apply for a refund of overpaid
VAT on a VAT return?
ht
 Example 2
Once a refund is approved in full or in part, how quickly must THE AUTHORITY
conclude refund procedures and initiate payment?

 Example 3
 Example 4
rig
How many days’ notice does THE AUTHORITY have to give a taxpayer to obtain a
cash security or a bank guarantee?
Having held the cash security or guarantee for 12 months in what circumstances
can THE AUTHORITY retain the cash or require the guarantor to make payment?
py
co

co
py
rig
ht
ANSWERS
 Answer 1
1. Upon filing a tax return for a tax period where the net tax is an amount due to
the taxable person.
ht
2. Where the taxable person has paid an amount in excess of the amount of tax
due.
3. Where the taxable person has a VAT credit balance.
 Answer 2
rig
THE AUTHORITY must conclude refund procedures and initiate payment within 60
days from the date of approval of the request. The payment is to be made by way
of bank transfer to the taxable person’s bank account.
 Answer 3
20 days.
 Answer 4
py
In the case where formal collection procedures have commenced in respect of any
amounts due and remains unpaid by the taxable person, subject to notification
being given.
co

co
py
rig
ht
APPENDIX 2
CHAPTER 17 REFUNDS
ht
17.1 Introduction
The Agreement has limited guidance in this area however the Tax Law, Tax
Procedures Law and the Regulations provide a better understanding of how these
areas will be applied.
17.2 Refunds
The sets of laws referenced above give further details concerning refunding of VAT
rig
through the VAT return which is covered in section 17.5 below.
Art. 75 of the VAT Law talks about tax recovery in special cases.
This Article says that THE AUTHORITY may, according to the conditions, restrictions
and procedures specified in the Regulations pursuant to the Law, return tax paid
for any supply received by or import carried out by anyone of the following:
1) A citizen of the State in respect of the goods and services related to the
construction of a new residence that is not part of the person’s business;
2) A non-resident, who is not a resident of an Implementing State and conducts a

business and is not a taxable person;
py
3) A non-resident, for goods supplied to him in the State and that will be
exported;
4) Foreign governments, international organisations, diplomatic bodies and

missions according to treaties that the State is a party to;
5) Any person or classes listed in the Cabinet Decision issued at the suggestion of
the Minister.
17.3 Refunds for Business Visitors
Art. 67 of the Regulations explains the Businesses VAT Refund Scheme for foreign
businesses which allows the repayment of tax on expenses incurred in the MEMBER
co
STATE by a foreign entity which has no place of establishment or fixed

establishment in the UAE or the Implementing State, and is not a taxable person.
For the purpose of Art. 67, a “foreign entity” is any person that carries on a business
as defined in UAE law and is registered as an establishment with a competent
authority in the jurisdiction in which he is established. A foreign entity is not entitled
to make a claim under the VAT Refunds for Foreign Businesses Scheme in the
following cases:
a) If it makes supplies which have a place of supply in the State, unless the
recipient of goods or recipient of services is obliged to account for the tax on
those supplies under the reverse charge.

b) If the input tax relates to goods or services for which the tax is not recoverable
in accordance with Art. 53 of this VAT Law, for example entertainment.
c) If the foreign entity is from a country that does not in similar circumstances
provide refunds of value added tax to entities that belong to the State.
A foreign tour operator is not entitled to make a claim under the VAT Refunds for
Foreign Businesses Scheme in connection with undertaking activities as a tour
ht
operator.
The claim for any refund shall be made on an electronic form. It must contain such
particulars as may be required by THE AUTHORITY including name and address of
the foreign entity, nature of activities of the foreign entity, details of the registration
of the foreign entity with the competent authority in the country where it is
established, description of reasons for incurring expenses in the State, description
of activities undertaken in the State and details of expenses incurred in the State
during the period of the claim.
The claim must be accompanied by such documents or other evidence as
17.4
rig
required by THE AUTHORITY. The period of the claim shall be 12 calendar months.
The minimum claim amount of tax that may be submitted shall be AED 2,000.
Refunds for Tourists
Art. 68 of the Regulations provides that a Refunds for Tourists Scheme may be
introduced in due course. It specifies that the following details will apply to any
such scheme:
a) Goods which are subject to the Tax Refunds for Tourists Scheme must be
supplied to an overseas tourist who is in the MEMBER STATE during the purchase
of the goods from the supplier.
b) At the date of supply, the overseas tourist intends to depart from the MEMBER
py
STATE within 90 days from that date, accompanied by the goods.
c) The relevant goods are exported by the overseas tourist to a place outside the
Implementing States within 3 months from the date of supply, subject to such
conditions and verifications as may be imposed by THE AUTHORITY.
The phrase “overseas tourist” means any natural person who is not resident in any
of the Implementing States and who is not a crew member on a flight or aircraft
leaving an Implementing State.
THE AUTHORITY may publish a list of goods that will not be subject to the Tax
Refunds for Tourists Scheme.
co
17.5 Refund of VAT Shown On a Tax Return
Art. 74 of the VAT Law talks about carrying forward the excess of recoverable tax
and tax recovery.
With the exception of what will be stipulated in the Regulations the taxable person
will carry forward any excess recoverable tax to the subsequent tax periods and
offset it against payable tax or any administrative penalties, until the excess is fully
utilised.

There are two stipulations as follows:
a) the taxable person’s recoverable input tax exceeds the output tax payable for
the same tax period; and
b) if the tax paid to THE AUTHORITY by the taxable person exceeds the payable
tax according to the provisions of the VAT Law other than instances stated in
a).
ht
If there remains any excess for a tax period after being carried forward for a
period of time, the taxable person may apply to THE AUTHORITY to reclaim the
remaining excess. Art. 22 of the Regulations to the Procedures Law specifies that
THE AUTHORITY shall, within 20 business days of an application being submitted,
review the application and notify the taxpayer of accepting or rejecting the
refund claim. Where THE AUTHORITY has reasonable grounds for requiring a period
longer than 20 business days to consider his application, it shall notify the taxpayer
thereof.
Where THE AUTHORITY approves a refund application, it shall, within 5 business days
17.6
rig
of the approval, either make the appropriate payment to the person or notify the
person that THE AUTHORITY will offset the amount requested to be refunded
against any other payable tax or administrative penalties due, or notify the person
that the refund will be postponed until all due tax returns are submitted to THE
AUTHORITY. Any amount in excess of any such liability shall be refundable in
conformity with the conditions contained in the Tax Law. The payment of a refund
amount shall be made to the person entitled to the refund by the means
acceptable to THE AUTHORITY.
Security
There are currently no provisions for collecting security for VAT in the UAE
legislation.
py
co

co
py
rig
ht
EXAMPLES
 Example 1
Name the 2 conditions when a taxable person may apply for a refund of overpaid
VAT on a VAT return?
ht
 Example 2
Once a refund is approved in full or in part, how quickly must THE AUTHORITY
conclude refund procedures and initiate payment?
rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
1) Where the taxable person’s input tax exceeds output tax for a period.
2) Where the taxable person has paid an amount in excess of the amount of tax
due.
ht
 Answer 2
5 business days.
rig
py
co

co
py
rig
ht
CHAPTER 18
INTERNATIONAL ASPECTS – GOODS
ht
This chapter looks at the treatment of sales and purchases of goods where the goods are
transported to or from overseas.
18.1 Introduction
When dealing with the international supply of goods we must initially focus on the
place of supply to determine the VAT treatment.
rig
Goods leaving the GCC
Goods arriving in the GCC

=
=
GCC place of supply with transportation
No GCC place of supply, however, Art. 22 of

the Agreement states that the place of import is
the State of first point of entry, therefore that
MEMBER STATES VAT implications still arise.
The Agreement sets out the rules for the place of supply of goods. Art. 11 of the
Agreement deals with the supply of goods with transportation, which is where the
goods are located at the time the transportation commences. Art. 10 of the
Agreement deals with the supply of goods without transportation, which is where
the goods are located at the time they are made available to the customer.
py
Where we have a GCC place of supply we then need to consider the MEMBER
STATE in which the supply takes place and the implications of that supply, i.e.
registration, liability and documentation required.
If a supplier makes a GCC supply of goods it must consider its VAT obligations
within the MEMBER STATE. It is also worth remembering that non-established
persons will have a GCC registration obligation if they make supplies in the
MEMBER STATES (there is no registration threshold for non-residents who make
taxable supplies in a MEMBER STATE.)
18.2 Exports
Exports are where a taxable person sells goods, with transport, that are removed to
co
a place outside the GCC territory. The place of supply is in the GCC, where
transport begins. As goods are leaving the GCC, the liability of all goods exported
is zero-rated, irrespective of the type of goods being sold. (Art. 34 of the
Agreement).
There will be demands placed on a taxable person to obtain the necessary

evidence that the goods sold have been exported. This evidence is not stipulated
in the Agreement, but we would expect it to be a Bill of Lading, an Air Waybill or
other commercial export evidence.

GCC → Non-GCC
Goods leaving GCC – supplied with transport
→ GCC supply
→ Zero-rated by Art. 34 of the Agreement
→ Evidence of export movement required
ht
18.3 Imports
When goods arrive in the GCC from a non-GCC supplier this is regarded as an
import.
The place of supply of an import is considered to be the first port of entry in a

MEMBER STATE in accordance with Art. 22 of the Agreement, and therefore subject
to the VAT implications of that State.
This is important as the overseas supplier does NOT have any GCC VAT obligations
rig
as they are not making a supply within the GCC. (This would not be the case if the
overseas supplier acts as the importer itself)
When the goods arrive at the first point of entry into the GCC, VAT will be due on
the import and it will be the customer's obligation to account for the import VAT if
they are named as the importer of record on the import document (Art. 42 of the
Agreement).
NON-GCC
→ No GCC supply
Goods arriving in GCC
→ GCC
py
→ Import VAT payable by GCC importer under Art. 42 of the Agreement
Art. 28 of the Agreement states that the value of imported goods is the customs
value, determined in accordance with the Unified Customs Law plus Excise Tax,
Customs duty and any other imposts (charges) apart from VAT.
Once this value is ascertained, THE AUTHORITY applies the appropriate rate of VAT
to the goods. The rate of tax applied is whatever rate would have been applied if
the goods had been bought in the MEMBER STATE of the first point of entry. That
amount of tax is charged to the person who wants to take the goods out of the
port and bring them “onshore” to their GCC business premises.
co
Art. 25 of the Agreement states that the import tax is due on the date of the import
of the goods into the MEMBER STATE, subject to the provisions of Art. 39 of the
Agreement, which relates to the suspension of tax for imports that are placed
under a customs duty suspension regime, as well as Art. 64 of the Agreement
relating to the mechanism of settlement of tax due for imports.
The tax paid to import the goods is treated like any other type of input VAT and so
will be deducted in the next tax return in the normal way. (Art. 64 of the
Agreement)

Import tax is paid to put the taxable person into the same position whether he buys
goods in the GCC or overseas; there will be the appropriate input tax on both. The
location of the supplier is irrelevant. The purchaser will then deduct the input tax in
the normal way depending on the use that he makes of those goods.
Import tax can be paid at a later date under the tax deferment scheme which will
allow importers to declare the tax on their VAT return. MEMBER STATES will set the
procedure for their deferment systems. (Art. 64 of the Agreement)
ht
18.4 Goods Sold to a GCC Customer
The place of supply when goods leave one MEMBER STATE to another MEMBER
STATE is in the State where the transport of the goods terminates, provided certain
conditions listed below are satisfied. (Art. 12 of the Agreement)
The main conditions include:
 The customer is a taxable person registered as such in the MEMBER STATE of

arrival of the goods; or
rig
The customer is not a taxable person and the supplier is registered (or required
to be registered) in the Country where the customer resides.
If the above conditions are not satisfied, the general place of supply rules, as listed
in Art. 11 of the Agreement, apply, i.e. the place of supply would revert to where
the transport of the goods begins.
Therefore, if the GCC customer is VAT registered in his MEMBER STATE and he gives
the GCC supplier in the other MEMBER STATE his tax registration number, then the
supply would fall outside the scope of VAT in the MEMBER STATE where the GCC
supplier is established. The place of supply is shifted to where the transport
py
terminates and therefore the taxable customer will be required to account for tax
on acquiring the goods and recover it in his local tax return – this is an application
of the reverse charge mechanism.
If however the customer is not VAT registered in his MEMBER STATE, the GCC
supplier will be required to charge VAT at the rate that would be appropriate to
the goods being sold in accordance with the MEMBER STATE VAT legislation where
the transport begins.
GCC supplier GCC customer

Member state 1 Member state 2
Outside of scope
co
X → VAT Number
Charge VAT according to laws of

X Member State 1 → No VAT Number
As appropriate

Where a supply is made to a taxable person in another MEMBER STATE, the time of
supply (tax point) is the earlier of:
A. The date the goods were placed at the disposal of the customer with respect
to transactions of supply of goods without transport, date of issue of invoice or
payment;
B. The starting date of the transport or dispatch of goods with respect to
ht
transactions of supply of goods with transport or dispatch date of issue of
invoice or payment.
18.5 Transfer of Own Goods to Another MEMBER STATE
Art. 6 of the Agreement states that a person who transports goods that form part
of the assets of his business from a place where they are in one MEMBER STATE to
another MEMBER STATE and that transfer is for the purposes of his business, he is
deemed to have made a supply of goods in the first MEMBER STATE.
18.6
rig
An exception to this is set out at Art. 6(2) of the Agreement in circumstances where
the goods are moved temporarily and meet the criteria for temporary movements
under the Unified Customs Law or where the transportation of the goods is done as
part of another taxable supply in the second MEMBER STATE.
Distance Selling
Distance selling occurs when a taxable person in one MEMBER STATE supplies and
delivers goods to a customer in another MEMBER STATE who is not registered for
VAT. The most common examples of distance sales are goods supplied by mail
order or ordered over the internet.
py
GCC Supplier GCC Individuals
→
Member State 1 Member State 2
Goods arriving in
Member State 2
Place of supply = MEMBER STATE 1 – Where transport begins
The customer in MEMBER STATE 1 will be charged VAT by the GCC supplier at the
rate in force in the supplier's MEMBER STATE.
This can lead to a VAT advantage if a MEMBER STATE customer chooses to buy
co
goods from a supplier operating in a MEMBER STATE with a VAT rate lower than the
MEMBER STATE 2.
Art. 13 of the Agreement (Status of Intra-GCC Supplies for Non-registered persons)

covers this point by saying:
Each MEMBER STATE shall be entitled to make a claim on the other MEMBER STATE
for tax paid, if the value of the supply to non-registered persons exceeds the
amount of ten thousand SAR or its equivalent in the currencies of the MEMBER
STATES. The MEMBER STATE shall also have the right to impose tax on such supplies
at its entry points, if there is no evidence that tax has been paid in other MEMBER
STATE.

APPENDIX 1
CHAPTER 18 INTERNATIONAL ASPECTS – GOODS
ht
18.1 Introduction
When dealing with international goods we must initially focus on the place of
supply.
Goods leaving the KSA, outside = KSA place of supply

the GCC (Art. 11 of the Agreement)
Goods arriving in the KSA from = No KSA place of supply, however, Art. 22 of
rig
outside GCC the Agreement states that the place of
import is the first point of entry into the
GCC, therefore KSA VAT implications still
arise.
Where the place of supply is in KSA it is necessary to consider the KSA implications
of that supply, i.e. registration, liability and documentation.
Where there is a KSA supply of goods the parties to the transaction must consider
their KSA obligations. It is also worth remembering that non-established persons
have a KSA registration obligation if they make supplies in KSA. Note that there is
no registration threshold for non-residents who make supplies in KSA. They are
registrable from the first supply they make.
py
18.2 Exports
Exports are when a taxable person in the KSA sells goods to a customer based
outside the GCC. Where goods are exported from the KSA, the liability of the
supply will be zero-rated, irrespective of the type of goods being sold. (Art. 32 of
the Regulations)
Art. 32 of the Regulations sets out the evidence required to obtain the zero-rating
and prove that goods have been exported. Art. 32(1)-(2) of the Regulations states
that the taxable person must have proof that goods were exported outside the
KSA 90 days of the supply taking place.
Art. 32(3)-(7) of the Regulations sets out the evidential requirements a taxable
person must meet to satisfy THE AUTHORITY that the goods have been exported.
co
Most importantly, Art. 32(3) of the Regulations sets out the evidence that is
required to show that the goods have been transported outside the GCC Territory
and must include each of the following:
 Export document issued by the Customs Department or equivalent

Department of another MEMBER STATE, showing the goods being formally
cleared for export on behalf of the supplier or customer of that supply.
 Commercial documentation identifying the customer and the place of

delivery of the goods.

 Transportation documentation evidencing the delivery to, or receipt of, the

goods outside the country.
KSA → Non-GCC
Goods leaving KSA
→ KSA supply
ht
→ Zero-rated by way of Art. 32 of the Regulations
If THE AUTHORITY decides that the export documentation does not provide
sufficient evidence that the goods left the KSA, the supply will not be eligible to be
zero-rated until satisfactory evidence is obtained.
18.3 Imports
When goods arrive in the KSA from a non-GCC supplier this is regarded as an
import.
rig
The place of supply of an import is not in KSA, it is the place where transport
begins. However, the place of an import is considered to be the first port of entry in
a MEMBER STATE in accordance with Art. 22 of the Agreement, and therefore
subject to VAT implications in that State.
This is important as the overseas supplier does NOT have any KSA VAT obligations
as they are not making a KSA or GCC supply. This would however change if the
overseas supplier was responsible for the importation but this is generally not the
case.
Whilst the import is not a KSA supply, VAT will be due on the import and it will be
the customer's obligation to account for the import VAT if they are named as the
py
importer of record on the import documentation.
NON-GCC → KSA
Goods arriving in KSA
→ No KSA supply
→ Import VAT payable by KSA importer
THE AUTHORITY will need to value the goods (or rather the importer values the
co
goods for THE AUTHORITY) based on the Customs value, Excise Tax, Customs duty
and any other imposts but not VAT and THE AUTHORITY applies the appropriate
rate of VAT to those goods. The rate of VAT applied is whatever rate would have
been applied if the goods had been bought in KSA, likely to be 5%.
The importer must pay the VAT before the goods can be taken out of the port,
subject to the provisions allowing suspension of tax for importers authorised to
account for the import VAT by making an entry on their VAT returns. Art. 44 of the
Regulations sets out the strict criteria a taxable person wishing to use the import
VAT deferment arrangement must meet to satisfy THE AUTHORITY that it is a
responsible person who can be trusted to import goods without paying import VAT
at the port of entry.

An application must be made to THE AUTHORITY to be granted authorisation

where the following applies:
1. The taxable person uses a monthly tax period and intends to make imports of
goods on at least a monthly basis.
2. The taxable person can evidence that during the most recent twelve month
period or during the time the person has been a taxable person, if less than
ht
twelve months, all tax returns and payments have been made on time and all
other obligations in respect of VAT have been made.
3. Sufficient evidence is provided of the taxable person’s continuing financial

stability.
Moreover, Art. 44 (3)-(7) of the Regulations covers a number of procedural points:
 THE AUTHORITY may refuse an application or cancel an existing authorisation in

cases where it views there to be a risk that VAT will not be paid, or where the
taxable person has any outstanding obligations in respect of VAT.

rig
THE AUTHORITY shall cancel an existing authorisation in cases where the
taxable person is no longer eligible to be granted authorisation or upon the
request of the taxable person.
THE AUTHORITY shall inform the taxable person and the Customs Department in
a notification of the approval or refusal of the application, or the cancellation
of an existing authorisation, and the effective date.
From the effective date of an approved authorisation, THE AUTHORITY is

responsible for collection of tax on imports by an authorised taxable person.
This responsibility continues until the removal of the authorisation for that
taxable person. The Customs Department shall not collect tax on any
subsequent imports of goods by an authorised taxable person.
py
 Upon authorisation being approved, the taxable person must notify the
Customs Department of the approval prior to making the next import
declaration.
Once the deferment arrangement has been granted the following procedure is
followed:
 The VAT paid to import the goods is included on the VAT return by means of
the reverse charge; or
 Import VAT is paid to put the taxable person into the same position whether he
buys goods in the KSA or overseas; the VAT paid on import, whether at the port
co
of entry or by way of the reverse charge on the VAT return, can be reclaimed
as input tax and the location of the supplier is irrelevant; or
 The purchaser deducts the input tax in the normal way depending on the use
that he makes of the goods.

The place of supply when goods leave the KSA to another MEMBER STATE is in the
MEMBER STATE where the transport terminates, provided the following conditions
are satisfied:

importation; or
ht
 The customer is not a taxable person and the supplier is registered (or required
If the above conditions are not satisfied, the general place of supply rules apply
i.e. the place of supply would fall where the transport begins.
the KSA supplier his tax registration number then the supply will fall outside the
rig
scope of KSA VAT (being the MEMBER STATE where the GCC person selling the
goods is established). The place of supply is shifted to where transport terminates
and therefore the applicable VAT rules of the MEMBER STATE in which the good
arrive will apply. The taxable supplier shifts the liability to charge VAT under the
reverse charge mechanism to the recipient of the goods. In this respect, the
taxable customer will have to account for tax on acquiring the goods and recover
it in his local tax return.
If however the customer is not VAT registered in his MEMBER STATE, the KSA supplier
will have to charge KSA VAT at the rate that would be appropriate to the goods
being sold.
KSA supplier GCC customer

py
Outside the Scope of VAT
X →VAT Number
Charge KSA rate

X →No VAT Number
As appropriate
Art. 28 of the Regulations sets out the evidential requirements for Internal Supplies:
1. In cases where a taxable person makes an internal supply of goods from the
KSA to a person residing in another MEMBER STATE, that taxable person must
retain evidence that those goods have been transported to the state of
co
destination.
2. A taxable person who does not have evidence that the goods have been
transported within 90 days of the supply taking place must treat the supply as
being made without transportation or dispatch from the KSA until such
evidence is later obtained.

3. Evidence of the transport to the MEMBER STATE of destination must include

each of the following:
a. Commercial documentation identifying the customer and the place of

delivery of the goods;
b. Transportation documentation evidencing the delivery or receipt of goods

in the MEMBER STATE of destination;
ht
c. A customs declaration, if applicable.
4. THE AUTHORITY may reject the documentation held by the taxable person in
the case where this documentation does not sufficiently evidence the
transport to the destination MEMBER STATE. In these cases, the supply will be
treated as being made without transportation or dispatch from the KSA until
such evidence is later obtained.
5. Following the establishment of an Electronic Services System by the GCC

Secretary General in accordance with the Agreement, and upon the request
18.5 rig
from THE AUTHORITY, a taxable person who makes an internal supply must
provide THE AUTHORITY with information corresponding to that supply for entry
into that system. THE AUTHORITY will prescribe the format for the provision of
such information.
Goods Bought From a GCC Supplier
STATE is where the transport terminates, provided the following conditions are
satisfied:

importation; or
py
(Art.12 of the Agreement)
If the above conditions are not satisfied, the general place of supply rules apply,
i.e. the place of supply would revert to where the transport begins.
Therefore if the customer is VAT registered in the KSA and he gives the GCC
supplier in the other MEMBER STATE his VAT registration number, the GCC supplier
will consider the transaction to fall outside the scope of his MEMBER STATE. In
addition, the GCC customer will account for the sale under the reverse charge
mechanism, whereby the liability to charge and collect VAT is shifted to the
co
customer. In this respect, the KSA taxable customer is required to charge himself
VAT.
If however the KSA customer is not VAT registered in his MEMBER STATE, the GCC
supplier will charge VAT at the rate that would be appropriate to the goods being
sold in his MEMBER STATE.

GCC supplier GCC customer

Outside the Scope
X →VAT Number
Charge GCC supplier Member State rate
ht
X →No VAT Number
As appropriate
Where a supply is made by a taxable person in another MEMBER STATE, the time of
supply (tax point) is the earlier of:
A. The date such goods were placed at the disposal of the customer with respect
to transactions of supply of goods without transport, the date the invoice is
issued or payment is received;
18.6
rig
B. The starting date of the transport or dispatch of goods with respect to
transactions of supply of goods with transport or dispatch, the date the invoice
is issued or payment is received.
Paperwork
For an export, a taxable person must ensure he has sufficient evidence to prove
that the goods were exported. For an import there must be sufficient detail to
enable the goods and/or services being imported, the suppliers, or the agents to
be readily identifiable by THE AUTHORITY.
Documentation in this respect includes:
 Official documentation provided by the local MEMBER STATES customs

py
authority;
 Sales invoices;
 Air Waybills;
 Bill of lading;
 Consignment notes; and
 Certificate of shipment
In addition, such documentation should contain enough evidence to identify the

co
supplier/importer, the consignor, the goods, the value, the export or import
destination and the mode of transport. (Art. 32 (3) of the Regulations)
THE AUTHORITY may also specify forms to be completed and submitted with
respect to importation of goods.

18.7 Distance Selling
Distance selling occurs when a taxable person in one MEMBER STATE supplies and
delivers goods to a customer in another MEMBER STATE who is not registered for
VAT. The most common examples of distance sales are goods supplied by mail
order or ordered over the internet.
GCC
→ KSA Individuals
ht
supplier
Goods arriving in KSA
Place of supply = outside the KSA
The KSA individuals will be charged VAT by the GCC supplier at the rate in force in
the supplier's MEMBER STATE.
This can lead to a VAT advantage if the KSA individuals choose to buy their goods
from a supplier operating in a MEMBER STATE with a VAT rate lower than the KSA.
rig
To counter this advantage the GCC supplier will have an obligation to register in
the KSA if they breach the distance selling thresholds
The distance selling thresholds are currently set at SAR 375,000
If a person finds he has to register for VAT under the distance selling rules, he may
wish to take up the services of a tax representative who will administer his VAT
registration in that MEMBER STATE.
Distance selling rules will be consistent throughout the GCC, although the
threshold may be different, so where a KSA trader sells via mail order or internet to
GCC individuals in another MEMBER STATE they will have to consider their GCC
distance selling obligations. Until they breach a threshold they will continue to
charge KSA VAT on their KSA supply.
py
When they do breach a GCC distance selling threshold they will register in that
MEMBER STATE. Any further sales to individuals in that MEMBER STATE will not be
liable to KSA VAT as the supplies will be made by the registration in the customer’s
MEMBER STATE.

co

co
py
rig
ht
APPENDIX 2
CHAPTER 18 INTERNATIONAL ASPECTS – GOODS
ht
18.1 Introduction
When dealing with international goods we must initially focus on the place of
supply.
Art 27(1) of the VAT law states that the place of supply of goods is in the State if
the supply was made in the State and does not include export from or import to
the State. Art. 27(3) states that the place of supply of goods that includes import or
export shall be considered to take place in the UAE, and therefore subject to UAE
law if:
rig
1) If the supply includes exporting to a place outside the Implementing States; or
2) If the recipient of goods in an Implementing State is not registered for tax in the
State of destination, and the total exports from the same supplier to this State
does not exceed the mandatory registration threshold for said State; or
3) The recipient of goods does not have a Tax Registration Number in the State,
and the total exports from the same supplier in an Implementing State to the
State exceeds the Mandatory Registration Threshold.
On the other hand, the place of supply is considered to be outside the UAE in the
following instances:
py
1) The supply includes an export to a customer registered for tax purposes in one
of the Implementing States;
2) The recipient of goods is not registered for tax in the Implementing State to
which export is made, and the total exports from the same supplier to this
Implementing State exceeds the mandatory registration threshold for said
State;
3) The recipient of goods does not have a Tax Registration Number and the
goods are imported from a supplier registered for tax in any of the
Implementing States from which import is made, and the total imports from the
same supplier to the State do not exceed the Mandatory Registration
Threshold.
co
In addition to the above and in accordance with Art. 22 of the Agreement, the
place of import is considered to be the State of first point of entry. Therefore, an
importation into the UAE will be subject to the State’s VAT law.
Where we have an UAE place of supply we then need to consider the UAE
implications of that supply, i.e. registration and liability.

If a business makes a UAE supply of goods it must consider its UAE VAT obligations.
It is also worth remembering that anyone non-resident in the UAE or another
Implementing State has a UAE registration obligation if they make supplies of
goods or services where no-one else is required to pay tax in respect of those
supplies.
18.2 Exports
ht
Exports are where a taxable person sells goods to a customer based outside the
UAE. The place of supply is in the UAE where the goods are exported to a
customer outside the Implementing States and outside the UAE where the goods
are exported to a customer who is registered for VAT in another Implementing
State.
The liability of the supply is zero-rated where the goods are exported to a place
outside the Implementing States and outside the scope when exported to a
customer who is registered for VAT in another Implementing State. The UAE VAT
Law Art. 45(1) says:
rig
“The zero rate shall apply to the following:
A direct or indirect export to outside the Implementing States as specified in the

Executive Regulation of this Decree.”
A direct export is defined as an export of goods to a destination outside the

Implementing States, where the supplier is responsible for arranging transport or
appointing an agent to do so on his behalf. An indirect export is an export of
goods to a destination outside the Implementing States, where the overseas
customer is responsible for arranging the collection of the goods from the supplier
in the State and who exports the goods himself, or has appointed an agent to do
so on his behalf.
There will be demands placed on a taxable person to obtain the necessary

py
evidence that the goods he sold have been exported. The Regulations define this
evidence as:
Official evidence: means export documents issued by the local Emirate Customs
Department in respect of goods leaving the State.
Commercial evidence: shall include any the following:
1) Air Waybill
2) Bill of lading
3) Consignment note
co
4) Certificate of shipment
The evidence obtained as proof of export, whether official or commercial, must

identify the supplier, the consignor, the goods, the value, the export destination,
the mode of transport and route of the export movement. (Art. 28(4) of the
Regulations).

UAE → Non-GCC
Goods leaving UAE
→ UAE supply
→ Zero-rated by Art. 27 of the VAT Law
ht
18.3 Imports
When goods arrive in the UAE from a non-GCC supplier this is regarded as an
import.
The place of an import is considered to be the first point of entry in a GCC State in
accordance with Art. 22(1) of the Agreement, and therefore subject to VAT in the
UAE.
→
→
rig
This is important as the overseas supplier does NOT have any UAE VAT obligations
as it is not making a UAE supply. Its supply is outside the scope of UAE VAT.
VAT is due on the import and it will be the customer's obligation to account for the
import VAT if it is named as the importer of record on the import document.
Non-GCC
No GCC supply
Goods arriving in GCC
Import VAT payable by GCC importer

→ GCC
py
THE AUTHORITY will need to value the goods (or rather the importer values the
goods for THE AUTHORITY) and THE AUTHORITY applies the appropriate rate of VAT
to those goods.
The import value of goods consists of the customs value pursuant to Customs
Legislation, including the value of insurance, freight and any customs fees and
Excise Tax paid on the import of the goods. Tax is not included in the value of the
supply. The rate of VAT applied is the same rate that would have been applied if
the goods had been bought in the UAE. That amount of VAT is charged to the
person who wants to take the goods out of the port and bring them to their UAE
business premises.
The import VAT is due on the date of the import of the goods into the UAE, subject
co
to the provisions allowing suspension of tax for imports. The VAT paid to import the
goods is collected either by the reverse charge, Art. 48(1) of the VAT law or by
direct payment on importation.
The VAT is paid to put the taxable person into the same position whether he buys
goods in the UAE or overseas; there will be the appropriate input tax on both and
the location of the supplier is irrelevant.

The purchaser will then deduct the input tax in the normal way depending on the
use that he makes of those goods. Import VAT can be paid at a later date under
the duty deferment scheme. UAE will set the procedure for deferment systems
related to the mechanism of settlement of tax due for imports.
The place of the intra-GCC supply of goods which takes place with transport or
ht
dispatch from a MEMBER STATE to another MEMBER STATE, shall be in the State
where the transport or dispatch for such goods ends, in the following
circumstances:
a) If the customer is subject to tax.
b) Where the customer is not subject to tax and the supplier is registered in the
State where the customer has his place of residence or the supplier is required
to be registered. (Art. 12 of the Agreement)
If the above conditions are not satisfied, the general place of supply rules apply
rig
i.e. the place of supply would fall where the transport begins.
the UAE supplier his tax registration number then the supply will fall outside the
scope of UAE VAT. The place of supply is shifted to where transport terminates and
therefore the applicable VAT rules of the MEMBER STATE in which the goods arrive
will apply. The taxable supplier shifts the liability to charge VAT under the reverse
charge mechanism to the recipient of the goods. In this respect, the taxable
customer will have to account for tax on acquiring the goods and recover it in his
local tax return. If however the customer is not VAT registered in his MEMBER STATE,
the UAE supplier will have to charge UAE VAT at the rate that would be
appropriate to the goods being sold.
In cases where a taxable person makes an internal supply of goods from the UAE
py
to a person residing in another MEMBER STATE, that taxable person must retain
evidence that those goods have been transported to the State of destination. A
taxable person who does not have evidence that the goods have been
transported within 90 days of the supply taking place must treat the supply as
being made without transportation or dispatch from the UAE until such evidence is
later obtained.
Evidence of the transport to the MEMBER STATE of destination must include each of
the following:
a) Commercial documentation identifying the customer and the place of

delivery of the goods;
co
b) Transportation documentation evidencing the delivery or receipt of goods in

the MEMBER STATE of destination;
c) A customs declaration, if applicable.
THE AUTHORITY may reject the documentation held by the taxable person in the
case where this documentation does not sufficiently evidence the transport to the
destination MEMBER STATE. In these cases, the supply will be treated as being
made without transportation or dispatch from the UAE until such evidence is later
obtained.

18.5 Goods Bought From a GCC Supplier
STATE is where the transport terminates, provided the following conditions are
satisfied:

importation; or
ht
If the above conditions are not satisfied, the general place of supply rules apply,
i.e. the place of supply would revert to where the transport begins.
Therefore, if the customer is VAT registered in the UAE and gives the GCC supplier
in the other MEMBER STATE his VAT registration number, the GCC supplier will
18.6 Paperwork
rig
consider the transaction to fall outside the scope of VAT in his MEMBER STATE. In this
respect, the UAE taxable customer is required to charge himself VAT.
If however, the UAE customer is not VAT registered in his MEMBER STATE, the GCC
supplier will charge VAT at the rate that would be appropriate to the goods being
sold in his MEMBER STATE.
For an export, a taxable person must ensure he has sufficient evidence to prove
that the goods were exported. For an import there must be sufficient detail to
enable the goods being imported, the suppliers, or the agents to be readily
identifiable by THE AUTHORITY.
py
Documentation in this respect includes:
 Official documentation provided by the local Emirates Customs Authority;
 Sales invoices;
 Air Waybills;
 Bill of lading;
 Consignment notes; and
 Certificate of shipment.
co
In addition, such documentation should contain enough evidence to identify the

supplier/importer, the consignor, the goods, the value, the export or import
destination and the mode of transport.
THE AUTHORITY may also specify forms to be filled in and submitted with respect to
the importation of goods.

18.7 Transfer of own Goods to another GCC MEMBER STATE
Art. 11 of the VAT Law states that there is a deemed supply where a taxable
person transfers goods that constituted part of his business assets from one
MEMBER STATE to another Implementing State, or from the taxable person’s
business in an Implementing State to his business in the MEMBER STATE, except in
the case where such transfer:
ht
a) Is considered as temporary under the Customs Legislation.
b) Is made as part of another taxable supply of these goods.
This means that all the rules set out above for supplies to GCC MEMBER STATES must
be complied with for the transfer to be considered outside the scope of UAE VAT.
18.8 Distance Selling
Distance selling occurs when a taxable person in one GCC MEMBER STATE supplies
rig
and delivers goods to a customer in another GCC MEMBER STATE who is not
registered for VAT. The most common examples of distance sales are goods
supplied by mail order or ordered over the internet.
GCC Supplier
Goods arriving in UAE
Place of supply = outside the UAE.

→ UAE Individuals
The UAE individuals will be charged VAT by the GCC supplier at the rate in force in
the supplier's GCC MEMBER STATE.
This can lead to a VAT advantage if the UAE individuals chose to buy their goods
py
from a supplier operating in a GCC MEMBER STATE with a VAT rate lower than the
UAE. To counter this advantage the GCC supplier will have an obligation to
register in the UAE if they breach the distance selling thresholds.
The distance selling threshold is currently set at AED 375,000 for the UAE.
If a taxable person finds he has to register for VAT under the distance selling rules,
he may wish to take up the services of a tax representative who will administer his
VAT registration in that GCC MEMBER STATE.
Distance selling rules will be consistent throughout the GCC, although thresholds
may be different, so where a UAE taxable person sells via mail order or internet to
GCC individuals in another GCC MEMBER STATE they will have to consider their
co
GCC distance selling obligations. Until they breach a threshold they will continue
to charge UAE VAT on their UAE supply.
When they do breach a GCC distance selling threshold they will register in that
GCC MEMBER STATE. Any further sales to individuals in that GCC MEMBER STATE will
not be liable to UAE VAT as the supplies are no longer UAE supplies.

EXAMPLES
 Example 1
Here are six transactions. Cross the appropriate box to say whether the transaction
is an intra GCC Sale/Purchase transaction, an export or an import.
ht
Intra Intra GCC Export Import
GCC Sale Purchase
1. Sale of apples to KSA
2. Purchase of men's
hats from Canada
3. Purchase of lamb

4.
5.
6.
rig
from Lebanon
Sale of children's toys

to Oman
Sale of coal to Siberia
Purchase of oranges
from Qatar
py
co

co
py
rig
ht
ANSWERS
 Answer 1
Intra GCC Intra GCC Export Import

Sale Purchases
ht
1. Sale of apples to X
KSA
2. Purchase of men's X
hats from Canada
3. Purchase of lamb X
from Lebanon
4. Sale of children's X
5.
6.
rig
toys to Oman
Sale of coal to
Siberia
Purchase of oranges
from Qatar
X
X
py
co

co
py
rig
ht
CHAPTER 19
INTERNATIONAL ASPECTS – SERVICES
ht
In this chapter we will look at the treatment of a service made by a GCC supplier to an
overseas customer and the treatment of the purchase of a service from an overseas
supplier by a GCC customer.
19.1 Introduction
For VAT purposes, the “place of supply” is the place where the supply takes place
for VAT purposes and is therefore liable to VAT.
•
rig
Where the place of supply of services is in a MEMBER STATE, that supply is liable to
VAT in that country and in no other country.
Where the place of supply of any service is outside the GCC, that supply is not
liable to VAT in any MEMBER STATE (although local taxes may apply). The
significance for a GCC business is as follows:
If a GCC business supplies services and the place of supply is in his MEMBER
STATE, any VAT due must be accounted for to his local AUTHORITY. This applies
regardless of where the customer belongs.
If a GCC business supplies services and the place of supply is in another

MEMBER STATE, either the GCC supplier or the customer is liable to account for
py
any VAT due to THE AUTHORITY in that country.
19.2 Rules
The new rules on intra-GCC supplies of services will came into force on 1 January
2018, as a result of the introduction of VAT in the GCC.
General Place of Supply Rule
A supply of services is made:
• In the case when the recipient of the services is a taxable customer, in the
place of the customer’s residence, and
co
• Otherwise in the place of the supplier’s residence.
(Art. 15-16 of the Agreement)
The first bullet point commonly applies to “Business to Business” or “B2B” supplies
whilst the second bullet point commonly applies to “Business to Consumer” or
“B2C” supplies.
A taxable person is a person who conducts an economic activity independently

for the purpose of generating income, who is registered or obligated to register for
VAT under the Agreement.

The place of residence of a person is defined in the Agreement as the location

where the place of business or any other fixed establishment is. In the case of a
natural person, if he does not have a place of business or a fixed establishment, it
will be the usual place of residence. If a person has a place of residence in more
than one MEMBER STATE the place of residence will be considered to be in the
place most closely connected with the supply.
Place of business is the place where the business is legally established or where its
ht
actual management centre is located, where key business decisions are made, if
different from the place of establishment.
Fixed establishment is any fixed location for a business other than the place of
business in which the business is carried out and is distinguished by the permanent
presence of human and technical resources in such a way as to enable the
person to supply or receive goods or services.
 Illustration 1
KSA Parent Co charges its GCC subsidiary and its non-GCC subsidiary a quarterly
rig
fee for management services.
Explain the place of supply and the implications for the recipient.
KSA Parent Co
B2B
B2B
GCC subsidiary
Non-GCC subsidiary
py
From 1 January 2018 the supply to the GCC subsidiary is outside the scope of KSA
VAT, the supply to the non-GCC subsidiary is an export, and zero-rated as the
services are B2B and therefore supplied where the recipient is resident.
The GCC recipient will have a reverse charge obligation in its MEMBER STATE.
Reverse charges are consistent throughout the GCC and shift the local VAT
obligation onto the recipient of the service (see para 19.4 below). The non-GCC
recipient will apply tax as required under the jurisdiction of their own country.
19.3 General Exceptions (B2B and B2C) (Art. 17-21 of the Agreement)
The following services do not follow the general principle which applies to B2B and
B2C supplies. They have their own treatment which is set out below.
co
Services relating to real estate (Art. 19 of the Agreement)
1. Services related to real estate shall mean the services that are closely related
to the real estate such as:
a. Services of real estate experts and agents;
b. Granting the right of possession or the right to use real estate;
c. Services relating to construction works.

2. As an exception to the general rules, the place of supply of services related to

real estate shall be the place where such real estate is located.
 Illustration 2
KSA Architect KSA Individual
ht
(Supplier) → (Customer)
Work re Apartment in
UAE
Owns
Apartment in UAE
rig
The place of supply is where the land is situated in UAE. The KSA architect must
consider its UAE registration obligations. No KSA VAT is chargeable.
Supply of Transport Services for Goods and Passengers (Art. 18 of the Agreement)
As an exception to the general rules, the place of supply of transport services for
goods and passengers and the related services, shall be the starting point of the
transport.
Hiring Means of Transport (Art. 17 of the Agreement)
As an exception to the general rules, the place of supply of services of hiring

means of transport between a taxable supplier and a non-taxable customer, shall
be the place where such means of transport have been placed at the disposal of
py
the customer.
Supply of other Services (Art. 21 of the Agreement)
 Illustration 3
a. Supplies of restaurant and catering services are made in the place where they
are physically carried out.
Gordon UAE
Ramsey → Catering → Party
co
If Mr Ramsey agrees to cater for a KSA person’s marriage celebration in UAE,

the place of supply will be in UAE. No KSA VAT chargeable and Mr Ramsey
would need to consider his UAE registration obligations.
b. Cultural, artistic, sports, educational & entertainment services are made in the
place where they are physically carried out.
c. Services related to the transported goods supplied by a taxable supplier

resident in a MEMBER STATE to a non-taxable customer in another MEMBER
STATE are made in the place where they are physically carried out.

Supply of Wire & Wireless Telecommunications Services & Services provided

Electronically (Art. 20 of the Agreement)
The place of supply of Wire & Wireless Telecommunications services & services
provided electronically shall be the place of actual use or benefit of such services.
19.4 Reverse Charge Art. 9 of the Agreement
ht
Receiving goods and services
In the case of the taxable person in a MEMBER STATE receiving goods and services,
which are subject to tax, from a person resident in another MEMBER STATE, this shall
be considered as supplying such goods and services to himself, and this supply
shall be subject to tax in accordance with the reverse charge provisions.
When the taxable person resident in a MEMBER STATE receives services from a
person who is non-resident in the territory of the GCC States, this shall be
considered as supplying such services to himself and this supply shall be subject to
tax in accordance with the reverse charge provisions.
rig
 Illustration 4
A company in UAE engages a consultant from KSA on a three month contract. The
consultant is registered in KSA and as such suggests he should charge KSA VAT on
his invoices.
Explain the UAE VAT implications of the supply.
This is a B2B service and therefore the place of supply is where the business
customer is located – UAE. Hence, it is mandatory for the UAE Company to
account for VAT under the reverse charge mechanism. No KSA VAT should be
charged.
py
 Illustration 5
A UAE VAT registered company in Dubai engages a KSA architect to design the
building of eco-friendly offices on a UAE site. The architect is registered in KSA and
as such suggests he should charge KSA VAT on his invoices.
Explain the UAE VAT implications of the supply.
This is a land related service and the place of supply is determined by Art. 19 of the
Agreement, the place of supply is where property is located. This would therefore
be a UAE supply as the architect is working on UAE land. As the UAE company is
VAT registered, this is subject to a reverse charge on the UAE company. No KSA
VAT should be charged.
co
19.5 Reporting
Art. 71 of the Agreement refers to an Electronic Services system which will be set
up by each MEMBER STATE for the purposes of complying with requirements
related to tax.

The system will be used by both suppliers and customers in each MEMBER STATE in
order to record information related to internal supplies and the exchange of this
information between the concerned Tax Authorities in the MEMBER STATES. The
website or electronic system must include at least the following information:
a. The TIN for both the supplier and the customer;
b. The number and date of the tax invoice;
ht
c. A description of the transaction;
d. The consideration for the transaction.
If the information recorded by each of the suppliers and the customer

corresponds, each of them shall be given a confirmation number that must be
retained for tax audits performed by the concerned AUTHORITY and for the
purpose of ascertaining that this information corresponds with that provided in the
tax returns.
rig
The system must be reliable and secure and must not allow the supplier or the
customer access to any information other than that to which they are permitted to
have access.
The concerned TAX AUTHORITY in each MEMBER STATE shall have a right of access
to the information related to internal supplies between taxable persons registered
for tax purposes.
In addition to the above, it would be reasonable to expect that a reverse charge

narrative should be included on the supplier’s invoice so as to alert its customer to
its local responsibilities.
Tutor Note:
py
A lot of people struggle with the place of supply rules for services. Familiarise
yourself with the legislation as much as possible for this chapter. The examiner
might test this area by giving you a list of 5 different supplies and ask you to
determine the place of supply in each case. It could also appear in a question
along with the previous chapter on goods.
co

co
py
rig
ht
APPENDIX 1
CHAPTER 19 INTERNATIONAL ASPECTS – SERVICES
ht
19.1 Introduction
For VAT purposes, the “place of supply” is the place where the supply takes place
for VAT purposes and is liable to VAT.
Where the place of supply of services is in the KSA, that supply is liable to VAT (if
any) in the KSA and in no other country.
Where the place of supply of any service is outside the KSA and the GCC, that
19.2
•
•
rig
supply is not liable to VAT in any MEMBER STATE (although local taxes may apply).
The significance for a GCC business is as follows:
If a KSA business supplies services and the place of supply is in the KSA, any
VAT due must be accounted for to THE AUTHORITY in the KSA. This applies
If a KSA business supplies services and the place of supply is in another

MEMBER STATE, either the KSA supplier or the customer is liable to account for
any VAT due to THE AUTHORITY in that MEMBER STATE.
Rules
py
The rules on supplies of services will came into force on 1 January 2018, as a result
of the introduction of VAT in the GCC.
• In the place in which the supplier is resident. (Art. 15 of the Agreement)
• In a case where the services are provided by a taxable supplier to a taxable

customer in the place of the customer’s residence. (Art. 16 of the Agreement)
The first bullet point commonly applies to Business to Consumer” or “B2C” supplies.
co
Whilst the second bullet point commonly applies to “Business to Business” or “B2B”
supplies.
A taxable person is a person who conducts an economic activity independently

for the purpose of generating income, who is registered or obligated to register for
VAT under the Agreement.

 Illustration 1
KSA Parent Co charges its GCC subsidiary and its non-GCC subsidiary a quarterly
Detail the place of supply and the implications for the recipient.
ht
B2B GCC subsidiary
KSA Parent Co
B2B Non-GCC subsidiary
From 1 January 2018 the supply to the GCC subsidiary is outside the scope of KSA
rig
services are B2B and therefore supplied where the recipient is resident.
The GCC recipient will have a reverse charge obligation in its MEMBER STATE.
Reverse charges are consistent throughout the GCC and shift the local VAT
obligation onto the recipient of the service.
Art. 33 of the Regulations talks about services provided to non-GCC residents and
says:
A supply of services made by a taxable person to a customer without a place of

residence in any MEMBER STATE of the GCC is zero-rated, provided each of the
following conditions is met:
py
a. The supply of those services does not take place in any MEMBER STATE under
the special cases (Art. 17 to 21 of the Agreement);
b. The taxable person has no evidence that the customer has any residence in
any MEMBER STATE and has evidence that the customer is resident outside the
GCC;
c. The benefit of the services is not received by the customer or any other person
when that person is situated in a MEMBER STATE;
d. The services are not related to any tangible good or property located within a
MEMBER STATE during the supply;
e. The taxable person intends that the services are consumed by the customer
co
outside of the GCC;
f. The taxable person has no evidence that the benefit of the services will be
enjoyed within the GCC.

Residence
The place of residence of a person is defined in the Agreement as the location

where the place of business or any other fixed establishment is. In the case of a
natural person, if he does not have a place of business or a fixed establishment, it
will be the usual place of residence. If a person has a place of residence in more
than one MEMBER STATE the place of residence will be considered to be in the
place most closely connected with the supply.
ht
Place of business is the place where the business is legally established or where its
actual management centre is located, where key business decisions are made, if
different from the place of establishment.
Fixed establishment is any fixed location for a business other than the place of
business in which the business is carried out and is distinguished by the permanent
presence of human and technical resources in such a way as to enable the
person to supply or receive goods or services.
19.3 General Exceptions (B2B and B2C)
rig
The following sections override the general place of supply rules.
Real estate related services (Art. 23 of the Regulations):
1. For the purposes of applying the Agreement and the VAT Law, real estate
includes:
a. Any specific area of land over which rights of ownership or possession or

other rights in it can be created;
b. Any building, structure or engineering work permanently attached to the

land;
py
c. Any fixture or equipment which makes up a permanent part of or is
permanently attached to the building, structure or engineering works.
2. Real estate related services are those which affect or related to a specific
area of real estate. Such services include but are not limited to:
a. The grant of assignment or surrender of any interest in or right over real

estate;
b. The grant or assignment or surrender of a personal right to call for or be

granted any interest in or right over real estate;
c. The grant, assignment or surrender of a license to occupy land or any other

co
contractual right exercisable over or in relation to real estate, including the

provision, lease and rental of sleeping accommodation in a hotel or similar
establishment;
d. Any works of construction, demolition, conversion, reconstruction,

alteration, enlargement, repair or maintenance of real estate;
e. Services such as those supplied by estate agents, auctioneers, architects,

surveyors, engineers and others involved in real estate.
3. Services relating to real estate situated outside the KSA are not considered to
relate to real estate in the KSA for the purposes of the VAT Law.

Wired and wireless telecommunications and electronic services (Art. 24 of the

Regulations):
1. Wired and wireless telecommunications and electronic services shall include

but are not limited to:
a. Any service relating to the transmission, emission or reception of signals,

writing, images and sounds of information of any nature by wire, radio,
ht
optical or other electromagnetic systems;
b. The transfer or assignment of the right to use capacity for such transmission,
emission or reception;
c. The provision of access to global information networks;
d. The provision of audio and audio-visual content for listening or viewing by

the general public on the basis of a program schedule by a person that
has editorial responsibility;
rig
e. Live streaming via the internet;
f. Supplies of images or text provided electronically, such as photos,

screensavers, electronic books and other digitised documents or files;
g. Supplies of music, films and games, and of programmes on demand;
h. Online magazines;
i.
j.
Website supply or web hosting services;
Distance maintenance of programs and equipment;
k. Supplies of software and software updates;

py
l. Advertising space on a website and any rights associated with such
advertising.
2. In cases where wired and wireless telecommunications services and electronic

services are provided by a telephone box, a telephone kiosk, a Wi-Fi hot spot,
an internet café, a restaurant or hotel lobby or in other cases where the
physical presence of the customer is needed for those services to be provided,
the customer consumes and enjoys the services at that location.

3. In all cases where the above does not apply, the customer consumes and
enjoys the service at the place where his usual place of residence is.
co
4. The following indicators may be used by a supplier to determine the usual

place of residence of the customer for the purpose of the services mentioned
in this article:
a. The invoice address of the customer;
b. The bank account details of the customer;
c. The Internet Protocol address used by the customer to receive the wired
and wireless telecommunications and electronic services;

d. The country code of the SIM card used by the customer to receive the
wired and wireless telecommunications and electronic services;
5. The place of actual use or benefit of services for the purpose of this article is
determined based on the circumstances existing at the time of the supply. Any
subsequent changes to the use of the services received will not affect the
determination of the place of supply.
ht
19.4 Place of Supply Other Services (Art. 25 of the Regulations)
Cultural, artistic, sports, educational & entertainment services include the

admission to any event taking place in a physical location, or the provision of
educational services where those services are provided in a physical location. The
physical location is the place in which the services are offered (Art. 25(1) of the
Regulations).
The supply of services relating to goods or passenger transportation includes the

following services:
rig
a. Port fees or charges, including docking, mooring, landing and parking fees;
b. Charges for customs or immigration clearance relating to the transportation;
c. Air navigation services;
d. Pilotage services;
e. Supplies of crew members;
f. Loading, unloading and reloading;

py
g. Stowing;
h. Opening for inspection;
i. Cargo security services;
j. Preparing or amending bills of lading, air or sea-waybills and certificates of

shipment;
k. Packing necessary for transportation;
l. Storage services.
In cases where the place of supply of a service is determined under the

co
Agreement by the place of performance of that service, and performance of part

of the service takes place within the KSA, and part outside the KSA, the value of
the service shall be split accordingly between the part taking place within the KSA
and the part taking place outside of the KSA. (Art. 25(3) of the Regulations)
Services which are performed outside the KSA are not, for the purposes of this
article, viewed to be performed in the KSA for the purposes of applying the
Agreement or the Law. (Art. 25(4) of the Regulations)

Hiring Means of Transport
For the supply of means of transport to a lessee who is not a taxable person in the
SSTATE and does not have a TRN in an implementing STATE, the place shall be
where such means of transport were place at the disposal of the lessee.
Restaurant, hotel, drink and Catering Services
ht
Supplies of restaurant and catering services are made in the place where they are
physically carried out.
Supply of Transport Services for Goods and Passengers
The place of supply of transport services for goods and passengers and the related
services, shall be the starting point of the transport.
19.5 Reverse Charge
Receiving goods and services (Art. 9 of the Agreement)
rig
which are subject to tax, from a person resident in another MEMBER STATE, this is
considered as supplying such goods and services to himself, and this supply shall
be subject to tax in accordance with the reverse charge provisions.
When the taxable person resident in a MEMBER STATE shall receive services from a
person who is non-resident in the territory of the GCC States, this shall be
Person liable to pay tax (Art. 47 of the Regulations)
In cases where the agreement provides that a taxable customer is obligated to

py
pay tax on a supply received from a non-resident supplier, tax shall be paid by
way of the reverse charge mechanism. The taxable customer must report output
tax on the supply and any input tax (to the extent that the customer can benefit
from input tax deduction) in the tax return.
Art. 62(2) of the Regulations discusses the possible additional information which
may be required on the tax return for the tax period to which a tax return relates.
Subsection 2(d) states that the taxpayer may be required to declare “the total
value of supplies of goods and services to the taxable person where tax is payable
by the reverse charge mechanism”
19.6 Reporting
co
Art. 62(2) of the Regulations discusses the possible additional information which
may be required on the tax return for the tax period to which a tax return relates.
Subsection 2(d) explains that the taxpayer may be required to declare “the total
value of Supplies of goods and services to the Taxable Person where Tax is
payable by the Reverse Charge Mechanism”.
related to tax.

The system will be used by both suppliers and customers in each MEMBER STATE in
order to record information related to internal supplies and the exchange of this
information between the concerned tax authorities in the MEMBER STATES. The
website or electronic system must include at least the following information:
a. The TIN for both the supplier and the customer;
b. The number and date of the tax invoice;
ht
c. A description of the transaction;
d. The consideration for the transaction.

tax returns.
rig
have access.
The concerned TAX AUTHORITY in each MEMBER STATES shall have a right of access
for tax purposes.
In addition to the above, it might be expected that a reverse charge narrative

should be included on the supplier’s invoice so as to alert its customer to its local
responsibilities.
Tutor Note:
py
A lot of people struggle with the place of supply rules for services. Familiarise
yourself with the legislation as much as possible for this chapter. The examiner
might test this area by giving you a list of 5 different supplies and ask you to
determine the place of supply in each case. It could also appear in a question
along with the previous chapter on goods.

co

co
py
rig
ht
EXAMPLES
 Example 1
In the picture below please consider what the VAT implications for the KSA
Architect are?
ht
KSA Architect → KSA Individual
Work re apartment in UAE
Owns
Apartment in UAE

rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
The place of supply is where the land is situated in the UAE. The KSA architect must
consider its UAE registration obligations. No KSA VAT is chargeable.
ht

rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 19 INTERNATIONAL ASPECTS – SERVICES
ht
19.1 Introduction
For VAT purposes, the “place of supply” is the place where the supply is liable for
VAT.
Where the place of supply of services is in the UAE, that supply is liable to VAT (if
any) in the UAE and in no other country.
Where the place of supply of any services is outside the UAE and the GCC, that
19.2
•
•
rig
supply is not liable to VAT in any GCC MEMBER STATE (although local taxes may
apply). The significance for a GCC business is as follows:
If a UAE business supplies services and the place of supply is in the UAE, any
VAT due must be accounted for to THE AUTHORITY in the UAE. This applies
If a UAE business supplies services and the place of supply is in another GCC
MEMBER STATE, either the GCC supplier or the customer is liable to account for
any VAT due to THE AUTHORITY in that MEMBER STATE.
Rules
The rules on intra-GCC supplies of services will come into force on 1 January 2018,
py
as a result of the introduction of VAT in the GCC.
• In the place in which the supplier is resident (Art. 29 of the VAT Law).
• In a case where the services are provided by a taxable supplier to a taxable

customer in the place of the customer’s residence. (Art. 16 of the Agreement
and Art. 30 of the VAT Law)
The first bullet point commonly applies to “Business to Consumer” or “B2C” supplies,
co
whilst the second bullet point commonly applies to “Business to Business” or “B2B”
supplies.

 Illustration 1
UAE Parent Co charges its GCC subsidiary and its non-GCC subsidiary a quarterly
Detail the place of supply and the implications for the recipient.
ht
B2B GCC subsidiary
UAE Parent Co
B2B Non-GCC subsidiary
From 1 January 2018 the supply to the GCC subsidiary is outside the scope of UAE
rig
services are B2B and therefore supplied where the recipient is resident. The GCC
recipient will have a reverse charge obligation in its MEMBER STATE. Reverse
charges are consistent throughout the GCC and shift the local VAT obligation onto
the recipient of the service.
Art. 31 of the Regulations states that the export of services shall be zero-rated if the
services are supplied to a recipient who does not have a place of residence in an
Implementing State and who is outside the State at the time the services are
performed.
Residence
The place of residence of the supplier or recipient of services is the State in which
py
the person’s place of establishment is located or where he has a fixed
establishment, provided that he does not have a place of establishment or own a
fixed establishment in any other State. The State in which the person’s place of
establishment is located or where he has a fixed establishment that is the most
closely related to the supply if he has a place of establishment in more than one
state or has fixed establishments in more than one State. The State in which the
usual place of residence of the person is located if he does not have a place of
establishment or a fixed establishment in any state. (Art. 32 of the VAT Law)
19.3 General Exceptions (B2B and B2C) (Art 30-31of the VAT Law)
The overrides which apply to B2B and B2C supplies.

co
Services related to goods installed or assembled (Art. 30(3) of the VAT law)
For the supply of services related to goods, such as installation of goods supplied
by others, the place shall be where said services were performed.
Services related to real estate (Art. 30(7) of the VAT Law)
The place of supply of services related to real estate shall be the place where such
real estate is located. (Art. 21 of the Regulations)

For the purposes of the Law and the Regulations, real estate includes:
a) Any area of land over which rights or interests or services can be created;
b) Any building, structure or engineering work permanently attached to the land;
c) Any fixture or equipment which makes up a permanent part of the land or is

permanently attached to the building, structure or engineering work.
ht
A supply of services is deemed to relate to real estate where the supply of services
is directly connected with the real estate, or where it is the grant of a right to use
the real estate.
A supply of services directly connected with real estate includes:
a) The grant, assignment or surrender of any interest in or right over real estate;
b) The grant, assignment or surrender of a personal right to be granted any

interest in or right over real estate;
rig
c) The grant, assignment or surrender of a licence to occupy land or any other
contractual right exercisable over or in relation to real estate, including the
provision, lease and rental of sleeping accommodation in a hotel or similar
establishment;
d) A supply of services by real estate experts or estate agents;
e) A supply of services involving the preparation, coordination and performance

of construction, destruction, maintenance, conversion and similar work.
Hiring means of transport (Art. 30(4) of the VAT Law)
For the supply of hiring a means of transport to a lessee who is not a taxable
py
person in the MEMBER STATE and does not have a tax registration number in an
Implementing State, the place shall be where such means of transport were
placed at the disposal of the lessee.
Restaurant, hotel, drink and catering services (Art. 30(5) of the VAT Law)
Supplies of restaurant and catering services are made in the place where they are
performed.
Supply of telecommunications services and electronic services (Art. 31 of the VAT

Law)
For telecommunication and electronic services specified below, the place of

co
supply shall be:
a) In the State, to the extent of the use and enjoyment of the supply in the State.
b) Outside the State, to the extent of the use and enjoyment of the supply outside
the State
The actual use and enjoyment of all telecommunications and electronic services
shall be where these services were used regardless of the place of the contract or
the payment.

Art. 23 of the Regulations goes on to define telecommunication services as

delivering, broadcasting, converting or receiving any of the services specified
below by using any communications equipment or devices that transmit,
broadcast, convert, or receive such service by electrical, magnetic,
electromagnetic, electrochemical or electromechanical means or other means of
communication, including:
a) Wired and wireless communications;
ht
b) Voice, music and other audio material;
c) Viewable images;
d) Signals used for transmission with the exception of public broadcasts;
e) Signals used to operate and control any machinery or equipment;
f) Services of an equivalent type which have a similar purpose and function.
rig
Electronic services means services which are automatically delivered over the
internet, or an electronic network, or an electronic marketplace, including:
a) Supply of domain names, web-hosting and remote maintenance of programs

and equipment;
b) The supply and updating of software;
c) The supply of images, text, and information provided electronically such as

photos, screensavers, electronic books and other digitised documents and
files;
d) The supply of music, films and games on demand;

py
e) The supply of online magazines;
f) The supply of advertising space on a website and any rights associated with
such advertising;
g) The supply of political, cultural, artistic, sporting, scientific and educational or

entertainment broadcasts, including broadcasts of events;
h) Live streaming via the internet;
i) The supply of distance learning;
j) Services of an equivalent type which have a similar purpose and function.

co
Electronic marketplace means a distribution service which is operated by

electronic means, including by a website, internet portal, gateway, store, or
distribution platform, and meets the following conditions:
a) Which allows suppliers to make supplies of electronic services to customers;
b) The supplies made by the marketplace must be made by electronic means.

Cultural, artistic, sports, educational and entertainment services (Art. 30(6) of the
VAT Law)
The above services are made in the place where they are performed.
Supply of transport services for goods and passengers (Art. 30(8) of the VAT Law)
The place of supply of transport services for goods and passengers and the related
ht
services, shall be the starting point of the transport.
The Regulations pursuant to the UAE VAT Law further specifies that where a trip
includes more than one stop, the place of supply for each of the supplies made as
part of the trip shall be where that journey relating to that supply commences.
The place of supply of transport-related services is the same as the transport to

which they relate.
19.4 Reverse Charge
rig
Receiving goods and services
which are subject to tax, from a person resident in another MEMBER STATE, this shall
be considered as supplying such goods and services to himself, and this supply
shall be subject to tax in accordance with the reverse charge provisions. (Art. 9 of
the Agreement)
When the taxable person resident in a MEMBER STATE receives services from a
person who is non-resident in the territory of the GCC states, this shall be
Specific obligations to account for tax, reverse charge (Art. 48 of the VAT Law)
py
If the taxable person imports concerned goods or concerned services for the
purpose of his business then he shall be treated as making a taxable supply to
himself, and shall be responsible for all applicable tax obligations and accounting
for the tax due in respect of these supplies.
The Regulations pursuant to the UAE VAT Law specify at Art 48(4) that where the
reverse charge applies, the taxable person must account for tax on the value of
the concerned goods or concerned services at the rate which would be
applicable if the supply of the concerned goods or concerned services was made
by a taxable person within the MEMBER STATE. He must declare and pay the tax in
the tax return which relates to the tax period in which the date of supply of the
concerned goods or concerned services took place. Where a taxable person
co
accounts for tax under the reverse charge, he must keep the following documents
relating to the supply:
a) The supplier’s invoice showing details and the consideration paid for the
concerned goods or concerned services.
b) In the case of concerned goods, a statement from the relevant Customs

Department showing details and the value of the concerned goods.

 Illustration 2
A company in the UAE engages an Omani consultant on a three month contract.

The consultant is registered in Oman and as such is suggesting he should charge
Oman VAT on his invoices.
Detail the UAE VAT implications of the supply.
ht
Given that this is a B2B service, it is mandatory for the UAE Client to apply reverse
charge with respect to the services provided by the Omani Consultant. No Omani
VAT should be charged to the Company.
 Illustration 3
A UAE VAT registered Company in Dubai engages an Omani architect to design

the building of eco-friendly offices on a UAE site. The architect is registered in
Oman and as such is suggesting he should charge Omani VAT on his invoices.
Detail the UAE VAT implications of the supply.
19.5
rig
This is a land related service and the place of supply is determined by Art. 30(7) of
the VAT Law. This would therefore be a UAE supply as the architect is working on
UAE land. As the UAE Company is VAT registered this is subject to a reverse charge
on the UAE Company.
Reporting
related to tax. The system will be used by both suppliers and customers in each
MEMBER STATE in order to record information related to internal supplies and the
exchange of this information between the concerned tax authorities in the
py
MEMBER STATES. The website or electronic system must include at least the
following information:
a) The Tax Invoice Number for both the supplier and the customer;
b) The number and date of the tax invoice;
c) A description of the transaction;
d) The consideration for the transaction.

co
tax returns.
have access.
The concerned TAX AUTHORITY in each MEMBER STATE shall have a right of access
for tax purposes.

In addition, it might be expected that a reverse charge narrative should be

included on the supplier’s invoice so as to alert its customer to its local
responsibilities.
Tutor Note:
A lot of people struggle with the place of supply rules for services. Use your
legislation as much as possible for this chapter. The examiner might test this area
ht
by giving you a list of 5 different supplies and ask you to determine the place of
supply in each case. It could also appear in a question along with the previous
chapter on goods.
rig
py
co

co
py
rig
ht
EXAMPLES
 Example 1
In the picture below please consider what are the VAT implications for the UAE
Architect?
ht
UAE Architect → UAE Individual
Work re: Apartment in Oman
Owns
Apartment in Oman
 Example 2
rig
In the picture below please consider what are the VAT implications for Mr Ramsey?
Gordon Party held in

py
Ramsey Catering an UAE
→ Omani couple’s →
marriage
co

co
py
rig
ht
ANSWERS
 Answer 1
The place of supply is where the land is situated in Oman. The UAE architect must
consider its Omani registration obligations. No UAE VAT is chargeable.
ht
 Answer 2
If Mr Ramsey agrees to cater for an Omani couple’s marriage celebration in UAE,

the place of supply will be in UAE. No Omani VAT chargeable and Mr Ramsey
would need to consider his UAE registration obligations.
rig
py
co

co
py
rig
ht
GCC FRAMEWORK AGREEMENT MODULE D CHAPTER 20
CHAPTER 20
REAL ESTATE
ht
This chapter looks at how real estate and land-related supplies are treated.
20.1 Introduction
There are special rules relating to real estate and related supplies.
A supply of rights over real estate is treated as a supply of goods. (Art. 5 of the
Agreement)
20.2
rig
Each MEMBER STATE may choose to exempt or to zero-rate real estate supplies
(Art. 29 of the Agreement). This is not compulsory so may vary from State to State.
It means that land and buildings may be treated as standard-rated, zero-rated or
exempt.
Place of supply
The place of supply for land will be where the land is located.
Various services typically accompany a sale of land. The usual place of supply for
services is the place where the supplier is resident. However, where services are
closely linked to real estate, there is an exception to the general rule. The place of
supply follows that of the land and becomes the place where the land is located
py
(Art. 19 of the Agreement).
Services closely linked to real estate include, but are not limited to:
 Real estate experts and agent services;
 Granting the right to possess or use real estate;
 Services related to construction work.

co

co
py
rig
ht
KINGDOM OF SAUDI ARABIA MODULE D CHAPTER 20 - APPENDIX 1
APPENDIX 1
CHAPTER 20 REAL ESTATE
ht
20.1 Introduction
Supply of real estate is generally presumed to be an economic activity. The

exception to this is sale of a permanent dwelling (Art. 9(7) of the Regulations).
Therefore, an individual buying their new main home should not incur VAT on the
purchase. The purchase of a main home by a relative (‘related person’) of the
person who will occupy it is also excluded. A related person here includes a
spouse, brother-in-law or relative up to ‘the fourth degree’ which would include
first cousins, great-great grandparents and great-great grandchildren (Art. 37(2) of
20.2 rig
the Regulations).
Remember, input tax will not be deductible unless it relates to an economic

activity. (Art. 45 of the Agreement)
Real Estate and Related Services
Real estate specifically includes the following “services”: (Art. 23(1) of the
Regulations)

Any specific area of land over which rights of ownership or possession or other
rights in rem can be created.
Any building, structure or engineering work permanently attached to the land.

py
 Any fixture or equipment which makes up a permanent part of or is
permanently attached to the building, structure or engineering work.
For services which affect or relate to real estate, the place of supply of the services
is where the land is located. Real estate related services include, but are not
limited to:
 The grant, assignment or surrender of any interest in or right over real estate.
 The grant, assignment or surrender of a personal right to call for or be granted

any interest in or right over real estate.
co
 The grant, assignment or surrender of a license to occupy land or any other

contractual right over real estate. This includes hotel accommodation.
 Any works of construction, demolition, conversion, reconstruction, alteration,

enlargement, repair or maintenance.
 Services of estate agents, auctioneers, architects, surveyors, engineers and

others relating to real estate. (Art. 23(2) of the Regulations)
Services relating to real estate outside the Kingdom of Saudi Arabia are excluded
from being classed as real estate related.

20.3 Residential Real Estate
A lease or licence of residential real estate is exempt from VAT. (Art. 30 of the
Regulations)
Residential real estate is defined as ‘a permanent dwelling designed for human
ht
occupation’ and includes homes such as houses and flats, as well as
accommodation intended to be the primary residence of students or school
pupils. These would include the boundaries of the property and gardens, garages
or other permanent features. (Art. 30(2) and (4) of the Regulations)
Specifically excluded from exemption are buildings designed to offer temporary

accommodation to visitors, including hotels, inns, guest houses, motels and
serviced accommodation. (Art. 30(3) of the Regulations).

Q
rig
your Question Bank.
py
co

EXAMPLES
 Example 1
Consider the following four supplies and decide whether they are exempt or not.
Insert Yes or No as appropriate.
ht
1. Sale of a newly-built house to Jaz, whose mother will move into it
immediately.
2. A four-week agreement for a stay in a serviced holiday

apartment.
3. A rental agreement for Zain to live in a flat as his home for six
months.

4.
rig
A lease over a block of offices.
py
co

co
py
rig
ht
ANSWERS
 Answer 1
1. Sale of a newly-built house to Jaz, whose mother will move into Yes
it immediately.
ht
2. A four-week agreement for a stay in a serviced holiday No
apartment.
3. A rental agreement for Zain to live in a flat as his home for six Yes
months.
4. A lease over a block of offices. No
rig
py
co

co
py
rig
ht
UNITED ARAB EMIRATES MODULE D CHAPTER 20 - APPENDIX 2
APPENDIX 2
CHAPTER 20 REAL ESTATE
ht
20.1 Introduction
A distinction is made between land which has not yet been built on, and land
where construction has taken place. Land used for residential property is also
treated differently from commercial land.
20.2 Real Estate and Related Services
Real estate specifically includes the following goods: (Art. 2 of the Regulations)

rig
A supply of real estate
A grant or assignment of an interest in land
The surrender of an interest in land
For services which affect or relate to real estate, the place of supply of the services
is where the land is located (Art. 30(7) of the VAT Law). Real estate related services
include, but are not limited to:

The grant of a right to use real estate
Services of real estate experts or estate agents

py
 Accommodation in a hotel, motel, homestay, guesthouse, bed and breakfast,
hostel, boarding house, camping ground, or similar premises
 Construction works, including preparation and coordination of construction.

Services relating to real estate are excluded from zero-rating (Art. 45 of the VAT
Law). These, like real estate itself, will therefore generally be standard-rated.
20.3 Exempt Land
‘Bare land’ is exempt from VAT. (Art. 46 of the VAT Law)

co
Bare land means land which has not been built on and is not in the process of
being built on. Building work could be either buildings or civil engineering works.
Land can still be bare if there are water pipes, drainage facilities, or electric or
telephone cables, a road or paved area, or similar features on or under it.

20.4 Zero-rated Land
New residential buildings are zero-rated. (Art. 37 of the Regulations)
Residential buildings include:
 Any building for occupation as a principal residence.
ht
 Residential accommodation for students or school pupils.
 Residential accommodation for armed forces.
A building may still be zero-rated if a small part of it is for other use, e.g. an office or
garden for the occupants.
Specifically excluded are:
 Places which are not buildings, such as a tent or cave.
20.5

 rig
A hotel, motel, homestay, guest house, bed and breakfast, hospital, nursing
home, or rest home.
A serviced apartment.
Any building constructed illegally without the proper authorisation.
Also zero-rated are conversions of residential buildings, and buildings for charities.
(Arts. 38-39 of the Regulations)
Residential Real Estate Expenses
Where land is bought in order to build a residence, the owner may be able to
py
claim a refund of input tax on building expenses (Art. 66 of the Regulations).
Normally, the consumer bears the eventual cost of VAT, but this is an exception.
The relevant expenses are costs of construction and building materials

normally incorporated by builders into a residential building. Inbuilt, fitted items
such as fitted gas and electric appliances and fitted furniture are included, but
other furniture and appliances are excluded.
A claim will only be valid if all the following conditions are fulfilled:
a) The claimant must be a national of the UAE and cannot be a company.
b) The claim must relate to construction of a new building for the claimant or
claimant’s family.
co
c) The new building must be for use only as a residence, so cannot be a hotel,
hospital etc which includes residential accommodation.
A refund claim must be submitted to THE AUTHORITY within 6 months of the earlier
of the date that works are certified complete, or occupation by the owner or
family. If condition c) above is breached, THE AUTHORITY may claim back the
refunded input VAT.

 Example 1
Jai has finished building a house for her mother to move into. Within the next year,
she plans to buy different accommodation for her. She will then let the new house
out to a paying tenant.
Explain whether Jai is entitled to a refund of VAT on the costs of building the house
for her mother.
ht
 Example 2
Kai has just moved into a house he has had built.
Which of the following supplies may qualify for a refund of VAT?
a) Construction of the house
b) Insulation materials bought by Developer Co
Q
rig
c) Cost of the fully fitted kitchen units
d) The chairs
e) Built-in shelving units
your Question Bank.
py
co

co
py
rig
ht
ANSWERS
 Answer 1
The house may not qualify for any VAT refund. THE AUTHORITY might consider that
the intention to use the house as a family residence for only one year means that
the intention to use it solely as a family residence is not fulfilled.
ht
 Answer 2
a) Construction of the house - may qualify
b) Insulation materials bought by Developer Co - may qualify
c) Cost of the fully fitted kitchen units - may qualify
rig
d) Built-in shelving units - may qualify
e) The chairs will not qualify as they are moveable rather than built in.
py
co

co
py
rig
ht
CHAPTER 21
CAPITAL ASSETS SCHEME
ht
This chapter looks at how recovery of input tax on capital assets purchased may need to
be adjusted to reflect the use of the asset over a period of time.
21.1 Introduction
When capital assets are purchased by a trader, the trader will claim the input tax
paid on these. This may be a full claim or, if the asset will be used partly for making
taxable supplies and partly for other purposes, only the proportion of input tax
21.2
rig
relating to taxable supplies will be claimed. (Art. 46 of the Agreement)
An adjustment will be required under the Capital Assets Scheme if use of the asset
then changes. This may result in extra input VAT being recovered, or in a clawback
of input VAT, with the trader making a payment back to THE AUTHORITY. (Art. 47 of
the Agreement)
An adjustment is also required in cases where a supply is cancelled, the

consideration is later reduced, or the full purchase price is not paid.
Exceptions to the Adjustment Rule (Art 47(2) of the Agreement)
No adjustment will be required for a change in use of an asset where either:

py
1. This is due to loss, damage or theft of the asset; or
2. The asset fell into the category of a sample or gift of slight (trivial) value. Each
MEMBER STATE may determine its own de minimis level when considering
whether the value of an asset is trivial. (Art. 8(1)(d) of the Agreement)
 Illustration 1
CB Limited acquires a mainframe computer. In year 1 the company calculates the

taxable usage of the computer at 50%. In years 2 and 3, taxable usage increases
to 75%. In year 4, it drops to 20%.
The recovery for year 1 sets the base point for VAT recovery with respect to this
co
asset. CB Limited will recover 50% of the input VAT on the asset, reflecting the
taxable use of 50% that year. In year 2 and 3, an adjustment is required to the
input VAT previously recovered by CB Limited. The adjustment is to reflect the
increased taxable use of the asset, CB will claim additional input VAT from THE
AUTHORITY. In year 4 a repayment will be made to THE AUTHORITY, as the taxable
usage has reduced.

co
py
rig
ht
APPENDIX 1
CHAPTER 21 CAPITAL ASSETS SCHEME
ht
21.1 Introduction
Where the taxable use of a capital asset changes, an adjustment will be required
to the amount of input VAT originally recovered under the Capital Assets Scheme.
21.2 The Operation of the Scheme
The initial recovery of input tax when a capital item is purchased follows the
normal rules. In the VAT period of acquisition a full recovery is claimed. This is the
rig
normal method for input tax recovery, but it is not appropriate to leave it at that
for some capital assets. These are assets which will last for a period of time and
therefore the assets’ use must be monitored over a number of years. Years for
these purposes are VAT years. The first VAT year for an asset starts on the date it
was purchased. The accounting date of the business for direct taxes is not
relevant. For qualifying capital goods, the input tax recovery is effectively based
on a longer period of account, with adjustments made where necessary.
The length of the adjustment period in years depends on the type of asset. (Art.
The recovery period for immoveable capital assets attached to land is 10 years.
The recovery period for moveable tangible assets and intangible assets is 6 years.
py
Year 1 will always be the year of first use and this recovery is calculated as normal.
This effectively means we have to consider a further 9 adjustments for property
and a further 5 for other relevant assets.
 Illustration 1
KX Limited acquires a mainframe computer for SAR 240,000 plus VAT of SAR 12,000.
With a computer a 6 year life is relevant for the capital goods scheme. In year 1
the company calculates the taxable usage of the computer at 50%. In year 1, SAR
6,000 will be recovered. Although SAR 6,000 is recovered in year 1, this is effectively
saying that the recovery on this capital asset is SAR 1,000 per year, i.e. SAR 6,000 ÷
6 = SAR 1,000.
co
The recovery for year 1 is final. KX Limited keeps SAR 6,000 because the taxable
use was 50% in year 1. In year 2 the taxable use is again calculated at 50% so the
company keeps the SAR 1,000 in respect of year 2.
In year 3 the taxable use falls to 40%. As the company has not used the asset for
the initial 50% recovery, the SAR 1,000 in respect of year 3 is at risk. The total VAT
per year is SAR 2,000, i.e. the initial SAR 12,000 on the purchase divided by 6. For
each of the years in the adjustment period the company had a provisional
recovery of 50%, so SAR 1,000. But in year 3 the taxable use is only 40%, which
equates to SAR 800, which is SAR 2,000 times 40%. The company had an upfront
payment which effectively gave them SAR 1,000 for each year, but in year 3 they

should not have had SAR 1,000, they should have had SAR 800. So there is a
capital asset adjustment of SAR 200. The taxable person must pay SAR 200 back to
THE AUTHORITY.
If the asset is treated as having a shorter life than the usual VAT recovery period for
accounting purposes then that shorter life becomes the recovery period for VAT,
with any partial year counting as a full year.
ht
Capital expenditure on an asset, for example enhancement expenditure, is
treated in the same way as the cost of the asset itself. A new adjustment period for
VAT starts on the day the enhancement work is completed.
21.1 Capital Asset Adjustments
The initial recovery is based on the year 1 usage, which in Illustration 1 was 50%. For
the rest of the recovery period, where necessary the taxable person must adjust
each year for actual usage.
The formula for calculating the capital asset adjustment is as follows.
rig
Total VAT on purchase × (Original taxable use % − Actual taxable use %)
No. years (6 or 10)
Applying this formula to Illustration 1, in year 3 SAR 12,000, the total input tax
originally charged, is divided by 6, the life for a computer as this is tangible
moveable property. This is then multiplied by 50%, (the initial year 1 usage) minus
40%, (the year 3 usage). This gives us a capital asset adjustment for year 3 of SAR
200, which must be paid to THE AUTHORITY.
12,000/6 × (50% – 40%) = SAR 200
The adjustment is made in the final VAT return for the VAT year. In the example
py
above, this will be an input tax adjustment. The trader would have to deduct SAR
200 from inputs for that particular quarter and effectively the SAR 200 is a payment
to THE AUTHORITY.
In years when there is no change in taxable use from the VAT year before, no
adjustment is needed.
21.2 Sale Adjustments
Where a capital item is sold within the adjustment period, two adjustments must be
made; the normal adjustment and the sale adjustment. Both of these adjustments
would apply in the year of sale.
co
The normal adjustment is calculated in the usual way; take the percentage for
taxable use to the date of sale and assume that the asset is used for the whole
year for that taxable use. The date of sale in the year is irrelevant.
The sale adjustment follows the normal capital goods scheme method for the
remaining complete years of VAT life for that asset. If the sale is a taxable sale
assume that the taxable use for the remaining years is 100%. If the sale of the asset
is exempt, assume 0% taxable use for each remaining year.

 Illustration 2
Looking again at KX Limited in Illustration 1, the computer is sold in year 4 for SAR
15,000 plus VAT. The taxable use from the start of year 4 to the date of sale was
54%. For the normal year adjustment assume the asset was used for 54% for the
whole year. The date of sale is irrelevant.
Calculate the normal adjustment and sale adjustment for the year of sale.
ht
Normal adjustment:
12,000/6 × (40% – 54%) = SAR 280 recovery
In the year of sale there is also a sale adjustment. The computer was sold as a
taxable supply, i.e. plus VAT, thus 100% is the percentage taxable use in the
remaining years of adjustment. PC Ltd had the initial year of recovery and then
another 3 normal adjustments, so that leaves two years to be accounted for in the
sale adjustment.
Sale adjustment:
21.3
rig
12,000/6 × (40% – 100%) × 2 = SAR 2,400 recovery
Thus the total adjustment required for the sale year SAR 2,680 (SAR 280 + SAR
2,400).
Asset Ceasing to be used for Taxable Purposes
If, during the adjustment period, a capital asset ceases to be used, no further
adjustment must be made in respect of the remaining complete intervals
applicable to it.
The normal scheme adjustment is made for the interval of cessation, as if the
capital item had been used for the whole interval. Then the taxable person is
py
treated as having disposed of the asset by way of a nominal supply. The supply is
valued as:
Original purchase value x original recovery % x remaining complete VAT years

total recovery period
 Illustration 3
A business purchases a building for SAR 1 million and incurs SAR 50,000 VAT. The
building is to be used for 60% business purposes in making taxable supplies, and
40% non-business purposes. In subsequent intervals, the use of the building is
changed so that the whole building is used entirely for taxable business purposes.
co
Initially the business needs to calculate how much of the VAT incurred on the
building is deductible. As the building will be used for 60% business purposes, SAR
30,000 VAT can be treated as recoverable input tax. As the business activities
involve only making taxable supplies, all of this input tax is deductible.
In subsequent years, the business is then required to imagine that it has incurred all
of the VAT (SAR 50,000) again and then consider the taxable use of the asset. As
the building will be used entirely for taxable business purposes, the CGS recovery
percentage will be 100% in the remaining intervals. This means that the business will
be able to reclaim SAR 50,000/10 x (100% – 60%) = SAR 2,000 at the end of each of
the remaining 9 intervals, reflecting the increased taxable business use of the
building.

ht
rig
py
co

EXAMPLES
 Example 1
PC Limited acquired a printing press on 1 May 2018 for SAR 300,000 plus VAT. The
taxable use to date is as follows:
ht
VAT year:
30.4.19 45%
30.4.20 40%
30.4.21 58%
You are required to calculate the input tax recovery for the years to 30.4.19,
30.4.20 and 30.4.21.
 Example 2
plus VAT.
31.5.20
31.5.21
31.5.22
rig
PH Limited acquired a new commercial property on 1 June 2018 for SAR 600,000
The taxable use of the property is as follows:
VAT year:
31.5.19 50%
63%
41%
40%
py
The building will be demolished on 31 December 2023 as it will no longer be
needed beyond that date. Taxable use to the date the building will be destroyed
is 55%.
You are required to calculate the input tax recoveries for the years to 31.5.19,
31.5.20, 31.5.21, 31.5.22 and 31.5.23.
co

co
py
rig
ht
ANSWERS
 Answer 1
SAR
Year of acquisition
15,000 × 45% = (6,750) Recovery
ht
Year 2
15,000/6 × (45% – 40%) = 125 Payable
Year 3
15,000/6 × (45% – 58%) = (325) Recovery
In the year of acquisition the recovery is based on the partial exemption method.
SAR 15,000, (the initial VAT paid), times 45% (year 1 usage). The upfront recovery is
SAR 6,750.
rig
If the business uses the asset for 45% for the whole of the computer's adjustment
period there will be no adjustments to the initial recovery but this is not the case in
this example.
In year 2 the taxable use is 40%. Applying the formula SAR 15,000, divided by 6 (life
for a computer), times the initial recovery of 45%, minus year 2 usage of 40% equals
SAR 125, which will be payable to THE AUTHORITY.
In year 3 the taxable use has increased to 58%. Applying the formula there is a SAR
325 repayment.
py
co

 Answer 2
SAR
Year to 31.5.19 – SAR 30,000 × 50% = (15,000) Recovery
Year to 31.5.20 – 30,000/10 × (50% – 63%) = (390) Recovery
Year to 31.5.21 – 30,000/10 × (50% – 41%) = 270 Payable
ht
Year to 31.5.22 – 30,000/10 × (50% – 40%) = 300 Payable
Year to 31.5.23
Normal Adjustment:
30,000/10 × (50% – 55%) = (150) Recovery
Final Adjustment:
30,000/10 × (50% – 0%) × 5 = 7,500 Payable
7,350 Payable
rig
In the year of acquisition, take SAR 30,000, (i.e. that is the total VAT on the
purchase), times initial taxable usage of 50%. There is an initial recovery of SAR
15,000.
In the year to 31 May 2020, the taxable use is 63%. Applying the formula SAR 30,000
is the total VAT on purchase, divided by 10 (as the asset is property) times 50%
minus 63%.
In the year to 31 May 2021, taxable use has fallen to 41%, this gives a payment to
THE AUTHORITY of SAR 270.
In the year to 31 May 2022, 40% taxable usage leads to a payment of SAR 300.
In the final year, a normal adjustment is calculated using taxable of 55%. That gives
py
a repayment of SAR 150. The final adjustment is SAR 30,000 divided by 10, times
50% being the initial usage, minus 0% as there is no taxable sale. This is multiplied by
5, being the remaining intervals, (i.e. the initial year of recovery, year 1, and then
another 4 normal adjustments which leaves 5 years). This gives an amount payable
to THE AUTHORITY of SAR 7,500. The net amount due to THE AUTHORITY is therefore
SAR 7,350.
co

APPENDIX 2
CHAPTER 21 CAPITAL ASSET SCHEME
ht
21.1 Introduction
Under the Capital Asset Scheme, the input tax initially recovered is adjusted based
on the actual use of a capital asset during a specific period.
21.2 Relevant assets
A capital asset for these purposes is a single item:
21.3

rig
Costing AED 5,000,000 or more on which VAT is payable; and
Having an estimated useful life of at least 10 years for buildings or at least 5

years for all other assets.
Where costs are settled in stage payments, as is often the case for buildings, the
overall cost is considered as one sum. (Art. 57(3) of the Regulations)
Stock is specifically excluded from the capital asset scheme. (Art. 57(2) of the
Regulations)
The Operation of the Scheme

py
The initial recovery of input tax when a capital item is purchased follows the
normal rules. In the VAT period of acquisition input tax recovery is claimed subject
to any partial exemption position. This is the normal method for input tax recovery,
but it is not appropriate to leave it at that for some capital assets. These are assets
which will last for a period of time and therefore the assets’ use must be monitored
over a number of years. Years for these purposes are VAT years. The first VAT year
for an asset starts on the date it was purchased. The accounting date of the
business for direct taxes is not relevant. For qualifying capital assets, the input tax
recovery is effectively based on a longer period of account, with adjustments
made where necessary.
The length of the adjustment period in years depends on the type of asset. (Art.
co
The recovery period for buildings is 10 years.
The recovery period for other capital assets is 5 years.
Year 1 will always be the year of first use and this recovery is calculated as normal.
This effectively means we have to consider a further 9 adjustments for buildings
and a further 4 for other relevant assets.

 Illustration 1
KX Limited acquires a mainframe computer for AED 240M plus VAT of AED 12M.
With an asset other than a building, a 5 year life is relevant for the capital assets
scheme. In year 1 the company calculates the taxable usage of the computer at
50%. In year 1, AED 6M will be recovered. Although AED 6M is recovered in year 1,
this is effectively saying that the recovery on this capital asset is AED 1.2M per year,
i.e. AED 6,000,000 ÷ 5 = AED 1,200,000.
ht
The recovery for year 1 is final. KX Limited keeps AED 6M because the taxable use
was 50% in year 1. In year 2 the taxable use is again calculated at 50% so the
company keeps the AED 1.2M in respect of year 2.
In year 3 the taxable use falls to 40%. As the company has not used the asset for
the initial 50% recovery, the AED 1.2M in respect of year 3 is at risk. The total VAT
per year is AED 2.4M, i.e. the initial AED 12M on the purchase divided by 5. For
each of the years in the adjustment period the company had a provisional
recovery of 50%, so AED 1.2M. But in year 3 the taxable use is only 40%, which
equates to AED 960,000 which is AED 2,400,000 times 40%. The company had an
rig
upfront payment which effectively gave them AED 1.2M for each year, but in year
3 they should not have had AED 1.2M, they should have had AED 960,000. So there
is a capital asset adjustment of AED 240,000. The taxable person must pay AED
240,000 back to THE AUTHORITY.
If the asset is treated as having a shorter life than the usual VAT recovery period for
accounting purposes then that shorter life becomes the recovery period for VAT,
with any partial year counting as a full year.
Capital expenditure on an asset, for example enhancement expenditure, is

treated in the same way as the cost of the asset itself. A new adjustment period for
VAT starts on the day the enhancement work is completed.
21.4 Capital Asset Adjustments

py
The initial recovery is based on the year 1 usage, which in Illustration 1 was 50%. For
the rest of the recovery period, where necessary the taxable person must adjust
each year for actual usage.
The formula for calculating the capital asset adjustment is as follows.
Total VAT on purchase/No. years (5 or 10) × (Initial % − Actual %) = CA adjustment
Applying this formula to Illustration 1, in year 3 AED 12M, the total input tax
originally charged, is divided by 5, the life for a computer as this is tangible
moveable property. This is then multiplied by 50%, (the initial year 1 usage) minus
40%, (the year 3 usage). This gives us a capital asset adjustment for year 3 of AED
co
240,000, which must be paid to THE AUTHORITY.
12M/5 × (50% – 40%) = AED 240,000
In the example above, this will be an input tax adjustment. The trader would have
to deduct AED 240,000 from input tax for that particular quarter and effectively the
AED 240,000 is a payment to THE AUTHORITY.
In years when there is no change in taxable use from the VAT year before, no
adjustment is needed.

A record must be kept in a ‘capital asset register’, showing original input tax
incurred and any adjustments, as well as how these have been calculated. (Art.
Records relating to capital assets must be kept for a minimum of 10 years. (Art. 60
of the VAT Law)
21.5 Changes to the VAT Year
ht
If a taxable person already holding a capital asset registers for VAT, transfers its
business, joins or leaves a VAT group, a new VAT year is triggered, starting that day.
21.6 Sale Adjustments
Where a capital item is sold within the adjustment period, two adjustments must be
made; the normal adjustment and the sale adjustment. Both of these adjustments
would apply in the year of sale.
rig
The normal adjustment is calculated in the usual way; take the percentage for
taxable use to the date of sale and assume that the asset is used for the whole
year for that taxable use. The date of sale in the year is irrelevant.
The sale adjustment follows the normal capital assets scheme method for the
remaining complete years of VAT life for that asset. If the sale is a taxable sale
assume that the taxable use for the remaining years is 100%. If the sale of the asset
is exempt, assume 0% taxable use for each remaining year.
This adjustment is made in the VAT return which includes the date of disposal. (Art.
 Illustration 2
py
Looking again at KX Limited in Illustration 1, the computer is sold in year 4 for AED
15M plus VAT. The taxable use from the start of year 4 to the date of sale was 54%.
For the normal year adjustment assume the asset was used for 54% for the whole
year. The date of sale is irrelevant.
Calculate the normal adjustment and sale adjustment for the year of sale.
Normal adjustment:
12M/5 × (50% – 54%) = AED 96,000 recovery
In the year of sale there is also a sale adjustment. The computer was sold as a
taxable supply, i.e. plus VAT, thus 100% is the percentage taxable use in the
remaining years of adjustment. PC Ltd had the initial year of recovery and then
co
another 3 normal adjustments, so that leaves one year to be accounted for in the
sale adjustment.
Sale adjustment:
12M/5 × (50% – 100%) × 1 = AED 1,200,000 recovery
Thus the total adjustment required for the sale year AED 1,296,000.
(AED 96,000 + AED 1,200,000)

21.7 Asset Ceasing to be used for Taxable Purposes
If, during the adjustment period, a capital asset ceases to be used, no further
adjustment must be made in respect of the remaining complete intervals
applicable to it.
The normal scheme adjustment is made for the interval of cessation, as if the
capital item had been used for the whole interval. Then the trader is treated as
ht
having disposed of the asset by way of a nominal supply. The supply is valued as:
Original purchase value x original recovery % x remaining complete VAT years

total recovery period
 Illustration 3
A business purchases a building for AED 10 million and incurs AED 500,000 VAT. The
building is to be used for 60% business purposes in making taxable supplies, and
40% non-business purposes. In subsequent intervals, the use of the building is
changed so that the whole building is used entirely for taxable business purposes.
rig
Initially the business needs to calculate how much of the VAT incurred on the
building is deductible. As the building will be used for 60% business purposes, AED
300,000 VAT can be treated as input tax. As the business activities involve only
making taxable supplies, all of this input tax is deductible.
In subsequent years, the business is then required to imagine that it has incurred all
of the VAT (AED 500,000) again and then consider the taxable use of the asset. As
the building will be used entirely for taxable business purposes, the recovery
percentage will be 100% in the remaining intervals. This means that the business will
be able to reclaim (100% – 60%) × AED 500,000/10 = AED 20,000 at the end of each
of the remaining 9 intervals, reflecting the increased taxable business use of the
building.
py
 Example 1
PC Limited acquired a printing press on 1 May 2018 for AED 12,000,000 plus VAT.
The taxable use to date is as follows:
VAT year:
30.4.19 45%
30.4.20 40%
30.4.21 58%
You are required to calculate the input tax recovery for the years to 30.4.19,
30.4.20 and 30.4.21.
co

 Example 2
PH Limited acquired a new commercial property on 1 June 2018 for AED 6,000,000
plus VAT.
The taxable use of the property is as follows:
VAT year:
ht
31.5.19 50%
31.5.20 63%
31.5.21 41%
31.5.22 40%
The building will be demolished on 31 December 2023 as it will no longer be

needed beyond that date. Taxable use to the date the building will be destroyed
is 55%.
You are required to calculate the input tax recoveries for the years to 31.5.19,
Q
rig
31.5.20, 31.5.21, 31.5.22 and 31.5.23.
your Question Bank.
py
co

co
py
rig
ht
ANSWERS
 Answer 1
AED
Year of acquisition
600,000 × 45% = (270,000) recovery
ht
Year 2
600,000/5 × (45% – 40%) = 6,000 payable
Year 3
600,000/5 × (45% – 58%) = (15,600) recovery
 Answer 2
rig
Year to 31.5.19 – 300,000 × 50% =
Year to 31.5.20 – 300,000/10 × (50% – 63%) =
Year to 31.5.21 – 300,000/10 × (50% – 41%) =
Year to 31.5.22 – 300,000/10 × (50% – 40%) =
Year to 31.5.23
Normal Adjustment:
300,000/10 × (50% – 55%) =
Final Adjustment:
AED
(150,000)
(3,900)
2,700
3,000
(1,500)
recovery
recovery
payable
payable
recovery
py
300,000/10 × (50% – 0%) × 5 = 75,000 payable
73,500 payable
In the year of acquisition, take AED 300,000, (i.e. that is the total VAT on the
purchase), times initial taxable usage of 50%. There is an initial recovery of AED
150,000.
In the year to 31 May 2020, the taxable use is 63%. Applying the formula AED
300,000 is the total VAT on purchase, divided by 10 (as the asset is property) times
50% minus 63%.
In the year to 31 May 2021, taxable use has fallen to 41%, this gives a payment to
THE AUTHORITY of AED 2,700.
co
In the year to 31 May 2022, 40% taxable usage leads to a payment of AED 3,000.
In the final year, a normal adjustment is calculated using taxable of 55%. That gives
a repayment of AED 1,500. The final adjustment is AED 300,000 divided by 10, times
50% being the initial usage, minus 0% as there is no taxable sale. This is multiplied by
5, being the remaining intervals, (i.e. the initial year of recovery, year 1, then
another 4 normal adjustments, which leaves 5 years). This gives an amount
payable to THE AUTHORITY of AED 75,000. The net amount due to THE AUTHORITY is
therefore AED 73,500.

co
py
rig
ht
CHAPTER 22
TRANSFER OF AN ECONOMIC ACTIVITY
ht
The transfer of a business or business assets may be treated differently from other supplies
for VAT.
22.1 Introduction
VAT is normally charged on the sale of goods or the sale of services in the course
or furtherance of a business. However, if a business is transferred, then such a
supply may be treated as outside the scope of VAT.
rig
The Agreement is silent on this and it is left to each individual MEMBER STATE to
determine its own rules on transfers of economic activities.
py
co

co
py
rig
ht
APPENDIX 1
CHAPTER 22 TRANSFER OF AN ECONOMIC ACTIVITY
ht
22.1 Introduction
or furtherance of a business. However, if a business is transferred as a continuing
economic activity, i.e. as a going concern (TOGC), it is treated as not being a
supply of goods or services. This puts it outside the scope of VAT. In these
circumstances, no VAT can be charged on the transfer of the trade and assets.
22.1
rig
Thus on the sale of a business no VAT is charged provided certain conditions are
met.
TOGC Conditions
The supply by a person of the assets of his business to a person to whom he

transfers that business (or part thereof) as a going concern is neither a supply of
goods nor a supply of services provided all the following conditions are satisfied:
a. The assets transferred are capable of use as an economic activity in their own
right, and the recipient immediately uses them to carry on the same kind of
business as that carried on by the transferor in relation to the whole or part
transferred.
py
b. The recipient must already be a taxable person or immediately become, as a
result of the transfer, a taxable person.
c. The transferor and the recipient must agree in writing that they wish the transfer
to be viewed as the transfer of an economic activity for VAT purposes.
The recipient then assumes responsibility for any future rights and obligations under
VAT law from the date of transfer.
22.2 Compliance on Transfer of an Economic Activity
Where the transfer results in the transferor being required to deregister for VAT or
co
the recipient being required to register for VAT, notification must be provided to
THE AUTHORITY within 30 days of the transfer date. (Art. 17(3) of the Regulations)
The transferor must provide the recipient with copies of all business records
required for VAT so that the purchaser can fulfil its VAT compliance obligations.

ht

rig
py
co

EXAMPLES
 Example 1
Which statements are correct? Cross (x)

if correct
ht
1. No VAT is charged on a TOGC since it is a zero-rated
supply.
2. Both seller and buyer must be a taxable person for TOGC

relief to apply, or become one immediately on transfer.
3. The VAT records of the business are retained by the

vendor.
rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
Cross (x)
if correct
ht
1. No VAT is charged on a TOGC since it is a zero-rated
supply.
2. Both seller and buyer must be VAT registered for TOGC

X
relief to apply, or become one immediately on transfer
3. The VAT records of the business are retained by the

vendor.
rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 22 TRANSFER OF AN ECONOMIC ACTIVITY
ht
22.1 Introduction
or furtherance of a business. However, if a business is transferred as a going
concern (TOGC), it is treated as not being a supply of goods or services.
The transfer of a whole business or an independent part of a business, where the

business will continue, is not considered a supply. It is therefore outside the scope
of VAT (Art. 7(2) of the VAT Law). Beyond this, the UAE Legislation is silent on the
22.2
rig
conditions that will be required to be satisfied for the transfer of a business to be
outside the scope of VAT. We expect that conditions along the following lines will
be expected to apply.
TOGC Conditions
The supply by a person of the assets of his business to a person to whom he

transfers that business (or part thereof) as a going concern is neither a supply of
goods nor a supply of services provided the following conditions are satisfied:
a) The assets transferred are capable of use as an economic activity in their own
right, and the recipient immediately uses them to carry on the same kind of
business as that carried on by the transferor in relation to the whole or part
transferred.
py
b) The recipient must already be a taxable person or immediately become, as a
result of the transfer, a taxable person.
c) The transferor and the recipient must agree that they wish the transfer to be
viewed as the transfer of an economic activity for VAT purposes.
The recipient then assumes responsibility for any future rights and obligations under
VAT law from the date of transfer.
22.3 Compliance on Transfer of an Economic Activity
Where the transfer results in the transferor being required to deregister for VAT or
co
the recipient being required to register for VAT, notification must be provided to
THE AUTHORITY.
The transferor must provide the recipient with copies of all business records
required for VAT so that the purchaser can fulfil its VAT compliance obligations.

co
py
rig
ht
EXAMPLES
 Example 1
Which statements are correct? Cross (x)

if correct
ht
1) No VAT is charged on a TOGC since it is a zero-rated
supply.
2) Both seller and buyer must be a taxable person for TOGC

relief to apply, or become one immediately on transfer.
3) The VAT records of the business are retained by the

vendor.
rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
Cross (x)
if correct
ht
1) No VAT is charged on a TOGC since it is a zero-rated
supply.
2) Both seller and buyer must be VAT registered for TOGC

X
relief to apply, or become one immediately on transfer
3) The VAT records of the business are retained by the

vendor.
rig
py
co

co
py
rig
ht
CHAPTER 23
GROUPS
ht
Related companies may apply to be treated as a group for VAT.
23.1 Introduction
A Tax Group of companies may be treated differently from unrelated companies

for VAT.
Each MEMBER STATE is free to decide its own rules on whether grouping for VAT is
23.2
rig
permitted, and if so, what benefits this brings. (Art. 4 of the Agreement)
Tax Group
A Tax Group is defined in the Agreement as two or more bodies corporate which
are resident in the same MEMBER STATE (Art. 4 of the Agreement) (treated as one
taxable person).
py
co

co
py
rig
ht
APPENDIX 1
CHAPTER 23 GROUPS
ht
23.1 Introduction
Two or more companies may apply to be treated as a tax group for VAT. Grouping
can bring certain advantages.
23.2 Conditions
The following conditions must all be met where companies wish to group for VAT
(Art. 10 of the Regulations):
23.3
rig
a. All companies must be resident in the KSA and must be carrying on an
economic activity.
b. The companies must be under common control. Control for these purposes
means that the same person or persons own 50% or more of the capital, or
control 50% or more of the voting rights or value of each company. Control
may be direct or indirect.
c. At least one of the companies must be a taxable person.
Note that it is not required that all companies are registered for VAT.
Application for Group Registration

py
A VAT group is not formed automatically. An application must be made to THE
AUTHORITY by the representative member of the group. The representative
member must be VAT registered and will have the primary obligation to comply
with the obligations of the group on behalf of all group members. (Art. 11 of the
Regulations)
The application for grouping must contain certain information on all group
companies, including the company name and legal and email addresses, any
company registration number, the value of annual supplies or expenses and the
desired date for group registration. (Art. 8 of the Regulations)
THE AUTHORITY may request documentation to verify the information given in the
co
application. If so, the representative member must be given at least 20 days to

produce this.
If an application for grouping is refused THE AUTHORITY will inform the applicant
company.
If the application is accepted, THE AUTHORITY will issue a new single Tax
Identification Number to the representative member for the whole group. The
existing Tax Identification Numbers of members who were previously registered in
their own right are suspended.

Grouping then takes effect from the first day of the month following the month the
application is approved, or a later date if THE AUTHORITY determines.
 Example 1
Mr J
100 100 80 50 25
ht
A Ltd OS Inc B Ltd C Ltd D Ltd
All companies except OS Inc are based in the KSA.
Which companies can be included in a VAT group registration?
23.4 Impact of a Group Registration
rig
All group companies are treated as a single taxable person for VAT and all
companies are jointly and severally liable for VAT payable and share all
responsibilities regarding VAT.
All supplies between group companies are outside the scope of VAT (Art. 18(2) of
the Regulations). This is probably the main effect of VAT registration, and means
that within the VAT group, supplies are disregarded. When looking at input VAT
recovery, supplies between group members are completely ignored. All that is
considered is what is coming into the group and what is going out of the group as
a whole. What is happening within the group is irrelevant.
Supplies to or from outside the group are treated as made by the representative
member, and so it is as if the representative member is the whole VAT group.
py
23.1 Advantages of Group Registration
One of the most popular advantages that companies find with a group
registration is that it offers simpler VAT accounting, because there is only one VAT
return for the whole group, rather than each company completing its own
individual VAT return. The advantage of this could be questionable.
However, it is true that a group registration will centralise the VAT affairs of the
group, and this can help with compliance, because a greater central control will
be needed over the VAT comings and goings of the whole group.
Where one group member is a large exporter, and therefore in a repayment

position, grouping the company with parts of the business who are in a tax
co
payable situation will improve the cash flow of the group.
The major advantage of group registration however, is that supplies between

group members are disregarded for VAT purposes. This is one of the most
important advantages group registration offers.
By setting up a group registration and choosing which companies to include in

that group it is possible to actually include an exempt company in the group.
Normally companies making exempt supplies cannot register for VAT. However, by
including such a company in a group with just one or more companies making
taxable supplies it is possible to register that exempt company. The other side of
the coin to this of course, is that by including an exempt company one makes the

group partially exempt, but at least it means that the input tax incurred by the
exempt company goes into the pot and in theory could be recovered.
23.2 Disadvantages of Group Registration
There is a requirement for only a single VAT return for the whole group. The same
time limit to submit that VAT return for the whole group still applies even though
there are lots of different companies providing the required information. It can be
ht
quite difficult to collect all the information necessary to make that single VAT return
complete by the normal deadline. This can be quite a disadvantage for groups
and potentially they will incur default surcharge liabilities if returns are persistently
late.
One of the advantages of a group registration is being able to include an exempt

company. The disadvantage of that is including an exempt or a partially exempt
company in the group makes the group partially exempt. This of course, would
restrict the input tax recovery for the group as a whole. The partial exemption de
minimis limit applies to the whole group and not to each company in the group.
rig
The voluntary disclosure limit applies to the whole group and not to each member.
Another disadvantage is the joint and several liability for VAT for the whole group.
Let's say that one company became insolvent, the rest of the group would have
to pay its share of the overall VAT liability. This could be a major disadvantage.
There are also certain cash flow advantages that may be lost by registering under
a group registration. For example, if one company in the group is a repayment
trader, for example an exporter, then it can recover input tax every month by
making monthly VAT returns. If included in a group registration it may go on to
normal quarterly returns if the group companies so decide. However, should the
taxable persons taxable supplies exceed forty million riyals (KSA 40,000,000) in the
previous 12 months, the tax period shall be monthly (Art. 58(1) of the Regulations).
Equally should the taxable persons have supplies below the forty million threshold
py
they may apply to use a monthly tax period.
A basic cash flow advantage is for intra-group supplies where a quarterly

company charges VAT to a monthly company, the monthly company reclaims this
as input tax before the quarterly company has even had to account for it to THE
AUTHORITY.
23.3 Amendments to Group VAT Registration
If any information originally stated in the application changes, or any member of

the VAT group is no longer eligible for grouping, notification must be given by the
representative within 20 days of the change taking place. (Art. 12 of the
Regulations)
co
New group members may be added, or the representative member changed,

subject to approval of an application for this.
23.4 Cancellation of a VAT Group
If a group disbands but an individual member remains eligible to be registered in

its own right, a new Tax Identification Number will be issued to that company if it
had no previous Tax Identification Number before joining the group. Any company
not eligible to remain individually VAT registered must deregister at the end of that
month. (Art. 13 of the Regulations)

If a group disbands, each member remains jointly and severally liable for any tax
due on deregistration.
23.5 Anti-Avoidance Measures
THE AUTHORITY may issue a notice setting aside the effect of the Tax Group status,
so that supplies between members of the group are no longer disregarded. This
may have retrospective effect. A notice of this type may only be issued where
ht
arrangements are abusive, that is where grouping confers a VAT advantage
contrary to the purpose of the law, and this advantage was a main reason for
grouping. (Art. 12 of the Regulations)
THE AUTHORITY may also issue a notice that two or more companies will be treated
as a group from a certain future date. A notice of this type may only be issued
where separate VAT registration by the companies confers a VAT advantage
contrary to the purpose of the law.
 Example 2
Q
rig
THE AUTHORITY has asked for documents to support an application by Cis Ltd to
form a VAT group with its subsidiary company. How long will Cis have to provide
this information?
your Question Bank.
py
co

ANSWERS
 Answer 1
There are two things to look at in respect of the answer. The first requirement is
common control by a single person and it can be an individual - it does not have
to be a company. Mr J can qualify and he controls A Limited, B Limited, C Limited
ht
and OS Inc.
The next requirement for a group registration is that those companies under
common control must be established in the KSA or have a business establishment
in the KSA and hence OS Inc does not qualify under this condition.
The VAT group with therefore include A Limited, B Limited and C Limited as these
companies can be registered jointly under a group registration.
 Answer 2
rig
A minimum of 20 days.
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 23 GROUPS
ht
23.1 Introduction
Two or more persons may apply to be treated as a tax group for VAT. Grouping
means that the companies are treated as one taxable entity for VAT (Art. 12 of the
Regulations). This can bring certain advantages.
23.2 Conditions
The following conditions must all be met where companies wish to group for VAT
23.3
rig
(Art. 14 of the VAT Law):
a) All companies must have an establishment or fixed establishment in the UAE.
b) The companies must be related parties. Related parties are linked in

economic, financial or regulatory aspects, where one can control the others
either by Law, or through the acquisition of shares or voting rights.
c) The companies must be under the common control of the same person, or
persons acting as a business partnership.
Application for Group Registration
A VAT group is not formed automatically. An application must be made to THE

py
AUTHORITY by the representative member of the group. The representative
member must be VAT registered and will have the primary obligation to comply
with the obligations of the group on behalf of all group members. (Art. 10 of the
Regulations.)
 Example 1
Mr J
100 100 80 60 25
co
A Ltd OS Inc B Ltd C Ltd D Ltd
All companies except OS Inc are UAE based.
Which companies can be included in a VAT group registration?

23.4 Impact of a Group Registration
All group companies are treated as a single taxable person for VAT and all
companies are personally and jointly liable for VAT payable and share all
responsibilities regarding VAT. (Art. 12 of the Regulations)
All supplies between group companies are outside the scope of VAT. This is
probably the main effect of VAT registration, and means that within the VAT group,
ht
supplies are disregarded. When looking at input VAT recovery, supplies between
group members are completely ignored. All that is considered is what is coming
into the group and what is going out of the group as a whole. What is happening
within the group is irrelevant.
Supplies to or from outside the group are treated as made by the representative
member, and so it is as if the representative member is the whole VAT group.
23.5 Advantages of Group Registration
rig
One of the most popular advantages that companies find with a group
registration is that it offers simpler VAT accounting, because there is only one VAT
return for the whole group, rather than each company completing its own
individual VAT return. The advantage of this could be questionable.
A group registration will centralise the VAT affairs of the group, and this can help
with compliance, because a greater central control will be needed over the VAT
comings and goings of the whole group.
The major advantage of group registration however, is that supplies between

group members are disregarded for VAT purposes. This is one of the most
important advantages group registration offers.
Where one group member is a large exporter, and therefore is in a repayment

py
situation, grouping the company with parts of the business which are in a tax
payable situation will improve the cash flow of the group.
By setting up a group registration and choosing which companies to include in

that group it is possible to include an exempt company in the group. Normally
companies making exempt supplies cannot register for VAT. However include such
a company in a group with just one or more companies making taxable supplies
and it is possible to register that exempt company. The other side of the coin to this
of course, is that by including an exempt company one makes the group partially
exempt, but at least it means that the input tax incurred by the exempt company
goes into the pot and in theory could be diluted.
23.6 Disadvantages of Group Registration

co
There is a requirement for only a single VAT return for the whole group. The same
time limit to submit that VAT return for the whole group still applies even though
there are lots of different companies providing the required information. It can be
quite difficult to collect all the information necessary to make that single VAT return
complete by the normal deadline. This can be quite a disadvantage for groups
and potentially they will incur default surcharge liabilities if returns are persistently
late.

One of the advantages of a group registration is being able to include an exempt

company. The disadvantage of that is including an exempt or a partially exempt
company in the group makes the group partially exempt. This of course, would
restrict the input tax recovery for the group as a whole.
The voluntary disclosure limit applies to the whole group and not to each member.
Another disadvantage is the personal and joint liability for VAT for the whole
ht
group. Let's say that one company became insolvent, the rest of the group would
have to pay its share of the overall VAT liability. This could be a major
disadvantage.
There are also certain cash flow advantages that may be lost by registering under
a group registration. For example, if one company in the group is a repayment
trader, for example an exporter, then it can recover input tax every month by
making monthly VAT returns. If included in a group registration it might have to go
on to the normal quarterly returns the group companies have decided on.
A basic cash flow advantage is for intra-group supplies where a quarterly
23.7
rig
company charges VAT to a monthly company, the monthly company reclaims this
as input tax before the quarterly company has even had to account for it to THE
AUTHORITY.
Refusal to Allow a Group Registration
THE AUTHORITY may refuse to register the companies as a group within 20 working
days from receipt of the application (Art. 10 of the Regulations). This may happen
where:

The registration requirements are not met; or
Allowing the registration would enable significant VAT avoidance, or evasion.

py
23.8 Changes to a VAT Group
The representative member may apply for another company to join the group, for
a company to leave the group, for a different company to become
representative member, or for cancellation of group registration. (Art. 11 of the
Regulations)
23.9 Anti-avoidance measures
THE AUTHORITY may issue a notice setting aside the effect of the tax group status,
so that supplies between members of the group are no longer disregarded.
co
THE AUTHORITY may also issue a notice that two or more companies will be treated
as a group from a certain future date. This may apply where related parties are in
association, with economic, financial and regulatory links include at least one
company which is not registered for VAT.
Factors taken into consideration include the following:
Economic practices:
 A common economic objective
 One part of the business benefits another part

 Different parts of the business serve the same customers
Financial practices:
 One part of the business financially supports another part
 One part of the business is not financially viable on its own
ht
 Proceeds are shared
Regulatory practices:
 Shared management
 Employees in common
 Common ownership
 Shared equipment
rig
Compulsory grouping prevents the related parties splitting the business artificially to
avoid VAT registration.
(Arts. 10 and 13 of the Regulations)
 Example 2
How many days after application for a group registration do THE AUTHORITY have
to refuse the application?
py
co

ANSWERS
 Answer 1
There are two things to look at in respect of the answer. First requirement is
common control by a single person and it can be an individual - it does not have
to be a company. Mr J can qualify and he controls A Limited, B Limited, C Limited
ht
and OS Inc.
The next thing for a group registration is that those companies under common
control must be established in the UAE or have a business establishment in the UAE
and hence OS Inc does not qualify under this condition.
In the VAT group there will be A Limited, B Limited and C Limited as the companies
which can be registered jointly under a group registration.
 Answer 2
rig
20 working days
py
co

co
py
rig
ht
CHAPTER 24
USED GOODS MARGIN SCHEME
ht
This chapter looks at how supplies are treated for VAT when Taxable persons buy their
goods from members of the public and sell their goods to other members of the public.
24.1 Introduction
The used (second-hand) goods margin scheme exists for taxable persons who
typically buy goods to sell from unregistered people, in other words, the public.
Therefore, customers are not charged input tax on their purchases. If such traders
rig
charged output tax on the whole sale price, then the VAT that they would
account for to THE AUTHORITY would be disproportionately large. Normal traders
pay VAT on purchases and charge VAT on sales but, because of offset of input tax
against output tax, they only account for VAT on the gross profits they have made.
For used goods, the margin is treated as VAT inclusive, so is calculated using the
VAT fraction, which for a VAT rate of 5% would be 1/21.
The margin scheme covers all used goods. (Art. 37 of the Agreement)
 Illustration 1
A second-hand car dealer buys a car from a member of the public for SAR 800. He
then sells the car two weeks later to a private customer for SAR 1,500.
py
Under the margin scheme the trader only accounts for VAT on the profit – on the
margin.
Margin scheme
VAT charged (1,500 – 800) × 1/21 = SAR 33.33
This is much lower than accounting for output tax of 1/21 on the full sale price with
no reduction for input tax.
24.2 Operation of the Margin Scheme
The margin scheme is compulsory. It is operated by all MEMBER STATES, but the
co
detailed rules vary between MEMBER STATES.
24.3 Exclusions from the Scheme
Almost all transactions in used goods are covered by the used goods margin
scheme. Any exclusions are detailed by each MEMBER STATE individually.

24.4 Records
There is a myriad of record-keeping requirements that go with the used goods

margin scheme. Each MEMBER STATE sets its own rules for these.
ht
rig
py
co

APPENDIX 1
CHAPTER 24 USED GOODS MARGIN SCHEME
ht
24.1 Introduction
Generally, a taxable person’s net VAT payable is calculated using the invoice
accounting basis. This nets input VAT off against output VAT to arrive at the
amount which must be paid over. The used goods margin scheme is an exception
to this, with the profit margin method used instead. VAT is payable on the trader’s
profit margin, and input VAT on purchase of the item is ignored. (Art. 48 of the
Regulations)
24.2
rig
Operation of the Margin Scheme
There are various conditions to fulfil for the used goods margin scheme to be used.
The used goods must be eligible goods, not excluded from the scheme.
The used goods must be bought by a VAT-registered taxable person from a non-
taxable person, that is:

A person not registered for VAT;
A VAT-registered taxable person making a non-business transaction; or
A VAT-registered taxable person who is operating the used goods margin

py
scheme.
Invoicing requirements must also be met.
A non-taxable person will not issue an invoice to a customer. But where used
goods are bought by a taxable person to sell on, an invoice is needed. The
taxable person who is buying is therefore required to draw up an invoice on behalf
of the non-taxable seller. In effect, the taxable buyer must invoice himself for the
used goods. This invoice must include the name and address of both parties, the
taxable person’s tax identification number, the purchase date, details of the
goods and the amount paid for them. (Art. 48(5) of the Regulations)
When the used goods are sold on, the trader must issue an invoice which clearly
co
refers to the profit margin method and no output VAT must be charged. (Art. 48(4)
of the Regulations)
The used goods margin scheme may only be used with prior approval from THE
AUTHORITY. (Art. 48(1) of the Regulations)
The profit margin is calculated as:
consideration received on sale – consideration paid on purchase
and is taken to be inclusive of VAT.

Any related expenses are ignored for the profit margin calculation and are dealt
with separately.
If the profit margin is zero, or if a loss is made, the value of the supply is zero for VAT
purposes. (Art. 48(8) of the Regulations)
 Example 1
ht
Joannie sells antique furniture. She bought a Victorian dresser from a member of
the public for SAR 300 on 1 July. She spent SAR 150 plus VAT on restoration by Y Ltd
on 15 July then sold the dresser for SAR 900 on 30 July.
Joannie is preparing her VAT return to 31 July.
State the output tax and input tax to be entered on to Joannie’s VAT return in
respect of the dresser.
24.3 Exclusions from the Scheme
24.4

 rig
The following are excluded from the scheme as they do not count as eligible
goods:
Goods situated outside the KSA;
Goods traded cross-border, entering or leaving the KSA.
If a trader buys used goods which do not qualify for profit margin treatment, either
because the goods are not eligible, or because another condition is not met, VAT
must be accounted for on the full consideration.
Records
py
Details of all invoices for purchases must be kept, including any self-issued invoices
relating to a purchase from a non-taxable person.
Details of all sales must be kept, including the number of the invoice issued, the
amount received, the customer’s name and address, the profit margin and the
VAT due from the trader to THE AUTHORITY on this.
Most details required will be covered if all invoices are retained together with a
VAT account and calculation for each item.
Records must be kept for six years from the end of the calendar year in which the
VAT period ended. (Art. 64 (1) of the Regulations)
co

 Example 2
Lucas, a VAT-registered trader, buys a vase from Hamed, who is not VAT
registered. Lucas sells the vase on at a profit to Laila, a private individual.
For each transaction under the used goods margin scheme, state whether a VAT
invoice is required and if so, who is responsible for producing this.
ht
rig
py
co

co
py
rig
ht
ANSWERS
 Answer 1
Margin (900 – 300) = SAR 600
Output tax 600 × 1/21 = SAR 28.57
ht
Input tax 150 × 5% = SAR 7.50
 Answer 2
An invoice is required for both transactions.
Lucas is responsible for preparing the invoice in both cases.
rig
py
co

co
py
rig
ht
APPENDIX 2
CHAPTER 24 PROFIT MARGIN SCHEME
ht
24.1 Introduction
Generally a taxable person’s net VAT payable is calculated by netting input VAT
off against output VAT to arrive at the amount which must be paid over. The profit
margin scheme is an exception to this, with the VAT to be paid to THE AUTHORITY
based on the profit margin earned on the taxable supplies rather than being
based on the value of these supplies.
24.2 Operation of the Profit Margin Scheme

rig
There are various conditions to fulfil for the profit margin scheme to be used. (Art.
29 of the Regulations)
The used goods must be bought by a taxable person from a non-taxable person,
that is:
A person not registered for VAT; or
A VAT-registered trader who is operating the profit margin scheme.
The used goods must fall into one of the following categories:
a) Second-hand goods.
py
b) Antiques, for these purposes meaning items over 50 years old.
c) Collectors' items, meaning stamps, coins and currency and other pieces of
scientific, historical or archaeological interest.
THE AUTHORITY must be notified if the profit margin scheme is to be used (Art. 43 of
the VAT Law). Using the scheme without notification may mean that the taxable
person is subject to a penalty (Art. 76 of the VAT Law).
Under the profit margin scheme, no invoice or other document must show any VAT
charged on the sale.
The profit margin is calculated as

co
consideration received on sale – consideration paid on purchase
and is taken to be inclusive of VAT.
Any related expenses are ignored for the profit margin calculation and are dealt
with separately.
If the profit margin is zero, or if a loss is made, the value of the supply is zero for VAT
purposes.

 Example 1
Joannie sells antique furniture. She bought a Victorian dresser from a member of
the public for AED 300 on 1 July. She then sold the dresser for AED 900 on 30 July.
Joannie is preparing her VAT return to 31 July.
State the output tax and input tax to be entered on to Joannie’s VAT return in
ht
respect of the dresser.
24.3 Records
Records must be kept as follows: (Art. 29(5) of the Regulations)
 A stock book or similar document showing all goods purchased and sold under
the scheme;
 Purchase invoices - where used goods are bought by a taxable person to sell
on, an invoice is needed, however where the seller is a private individual, none
 Example 2
rig
will be issued. The taxable person who is buying is therefore required to draw
up an invoice on behalf of the non-taxable seller. In effect, the taxable buyer
must invoice himself for the used goods.
Lucas, a VAT-registered taxable person, buys a vase from Hamed, who is not VAT
registered. Lucas sells the vase on at a profit to Laila, a private individual.
For each transaction under the profit margin scheme, state whether a VAT invoice
is required and if so, who is responsible for producing this.
py
co

ANSWERS
 Answer 1
Margin (900 – 300) = AED 600
Output tax 600 × 1/21 = AED 28.57
ht
Input tax = 0
 Answer 2
An invoice is required for both transactions.
Lucas is responsible for preparing the invoice in both cases.
rig
py
co

co
py
rig
ht
CHAPTER 25
EXCISE TAX
ht
Excise Tax is a form of indirect tax and in this case refers to the Excise Tax of the GCC. The
Unilateral Agreement for Excise Tax of the GCC is the primary legislation and is enacted
throughout the GCC into local law.
This chapter looks at the GCC law on Excise Tax.
25.1 Introduction
25.2
25.3
rig
Excise tax is a tax imposed by the GCC on goods that are considered harmful to
human health or the environment. It is also imposed on luxury goods. The
imposition is based on a list of goods and at rates as determined by the Ministerial
Committee. It is the Committee that has the right to modify the list and the tax
rate.
Definitions
The full list of definitions can be found in Chapter 1 Art. 1, however, the important
definitions will be explained in the sections below as they apply to this law.
Scope of Excise
As per Art. 4 of the Unilateral Agreement for Excise Tax (Agreement) tax is due on
py
the release of excise goods for consumption. Excise goods are deemed released
for consumption in the following cases:
a) The production of excise goods outside a tax suspension situation.
b) The release of excise goods from a tax suspension situation.
c) The possession of excise goods outside of any tax suspension situation, on

which due tax has not been paid.
d) Import of excise goods unless they are in a tax suspension situation.
e) Loss or damage of excise goods while in a tax suspension situation in the State
co
which they were physically in, and the licensee has not demonstrated that
such loss or damage resulted from causes beyond his control in accordance
with conditions and procedures set by the MEMBER STATE.
The Excise Law shall apply to any natural or legal person, public or private, or any
other form of partnership.
Excise goods are goods that are taxable under the provisions of the Agreement
and may be imported excised goods or locally produced excised goods.

25.4 Tax Suspension (Art. 5)
A tax suspension situation is a situation in which the chargeability to tax of locally

produced excise goods or imported excise goods is suspended as per Art. 5 of the
Agreement.
1) Tax on excise goods shall be suspended in the following cases:
ht
a) Production of excise goods or the processing, possession, storage or
receipt of locally produced excise goods by a licensee
b) Transport of excise goods in a tax suspension situation in any of the

following cases:
1) From one tax warehouse to another tax warehouse in the same

MEMBER STATE;
2) From a Tax Warehouse to another Tax warehouse in another MEMBER

STATE;
25.5
rig
3) From a tax warehouse to the place where goods exit the GCC Territory
for export or re-export, according to the provisions of the Common
Customs Law;
4) Upon import to a tax warehouse in a MEMBER STATE.
The Ministerial Committee shall determine the rules for the application of the article
and the mechanism for the movement of excise goods in a tax suspension
situation among MEMBER STATES.
Registration
py
For excise tax purposes, any person designated by the tax administration as a
person obliged to pay tax shall be required to register.
The person obliged to pay tax is defined in Art. 7 of the Agreement as:
1) A person who produces excise goods outside of a tax suspension situation;
2) A person who possesses excise goods on which the due tax has not been paid
outside of the tax suspension situation as determined by THE AUTHORITY;
3) The licensee when the excise goods are released from the tax suspension
situation;
4) The licensee when the excise goods are released for consumption by reason of
co
loss or damage in a tax suspension situation according to the provisions of

paragraph (2e) of the tax becoming due Art. 4 of the Agreement;
5) The importer of excise goods;
6) The licensee when transporting excise goods in breach of suspension provided

for in Art. 5 of the Agreement;
7) Any other person releasing excise goods for consumption.

The definition of licensee is a person approved by THE AUTHORITY to produce

goods or to process, possess, store, transport or receive locally produced excise
goods or import excise goods in a tax warehouse in the course of carrying on his
business.
A tax warehouse is a place where the licensee is allowed to process, possess, store
or receive locally produced excise goods or import excise goods in a tax
suspension situation.
ht
25.6 Valuation of Excise Goods
Art. 6 separates tobacco from other excise goods:
1) The value on which tax shall be charged on tobacco shall be determined in

accordance with the decisions of the Supreme Council;
2) The value on which tax shall be charged on all other excise goods shall be
based on their retail price provided by the importer or producer of the excised
goods, or in accordance with a standard price list to be periodically agreed
25.7
rig
by the GCC tax administration, whichever is higher.
Exemption
Art. 10 gives 2 exemptions:
1) Diplomatic and consular bodies, international organizations and heads and

members of diplomatic and consular corps accredited by any MEMBER STATE
shall, on the condition of reciprocity, be exempted from tax on excise goods;
2) Excise goods accompanied by travellers entering any MEMBER STATE shall be

exempted from tax, provided that they are on non-commercial status, and
that they satisfy the terms and conditions specified in the Common Customs
py
Law.
25.8 Payment of Excise Tax
A person obliged to pay tax is covered in the registration section above.
Art. 8 covers the place of chargeability to tax and collection mechanism.
Tax will be imposed on locally produced excise good in the MEMBER STATE where
they are released for consumption as specified in Art. 4.
Tax shall be imposed on imported excise goods in the State of first point of entry of
the goods unless they are in a tax suspension situation (first point of entry shall be
co
the first customs point of entry in accordance with the Common Customs Law).
For excise goods that have previously been released for consumption and
subjected to tax in one MEMBER STATE and have been later transported to another
MEMBER STATE, the tax is imposed on the excise goods at the point of entry of that
other MEMBER STATE.
A person required to file tax returns shall pay the due tax for each month of the
calendar year within 15 days from the end of the month.

25.9 Tax Refund (Art. 9)
There is a right to a refund of tax paid on excise goods as follows:
 if they are released for consumption in a MEMBER STATE in the event of export
or re-export for business purposes outside the GCC Territory;
 if they are used in the production of other taxable excise goods.
ht
An application may be made to the tax administration in the first MEMBER STATE for
the refund of excise tax that has been paid.
The Ministerial Committee shall determine additional cases for tax refund in the
case of non-consumption of the excise goods in the MEMBER STATE.
Each MEMBER STATE shall determine the conditions and procedures for refunds.
25.10 Compliance on Import and Export
rig
Art. 11 sets out the compliance on import and export. An importer is required to
declare any due tax upon import as set out in the Common Customs Law. The
payment procedures will be set by each MEMBER STATE. The Common Customs
Law shall apply to all imports and exports transactions of excise goods in such a
way as not to conflict with the provisions of the Agreement.
Tax controls and inspections measures shall be determined by THE AUTHORITY in

each MEMBER STATE.
The Ministerial Committee shall determine the excise goods on which special
marks/stamps shall be placed, and the rules necessary for that purpose in the
GCC Territory.
py
25.11 Excise Records and Returns
Making and keeping records requirements are set out in Art. 14. Persons who are
obliged to pay tax are required to keep regular and independent accounting
books and records to record the movement of excise goods, including supporting
documentation. They are required to be kept in an organized and logical manner
so that THE AUTHORITY can monitor the accuracy of the tax calculation and
payments.
Accounting books and records must be retained for a period of 5 years from the
end of the fiscal year the operation took place, unless local law sets a longer
retention period.
co
A person required to register shall file tax returns. Each MEMBER STATE shall
determine its own tax period(s) which shall not be less than one month and not
more than one year. MEMBER STATES may except importers from filing tax returns.
25.12 Electronic Service Systems (Art. 20)
Each MEMBER STATE shall create an electronic services system for the purpose of
complying with requirements related to tax.
The GCC Secretary General shall take the necessary measures to set up a tax
information centre and to operate a website or electronic system to follow up
information and to exchange information between MEMBER STATES.

The information retained must include as a minimum:
a) Tax identification number for each of the suppliers and customers;
b) Number and date of the tax invoice;
c) Description of the transaction;
ht
d) Consideration for the transaction.
If the information registered by each of the suppliers and customers matches,

each of them shall be given a confirmation number and that must be retained for
tax audits.
The system must be reliable and secure and shall not allow the supplier or the
customer access to any other information.
THE AUTHORITY in each MEMBER STATE shall have access to the information relating
to intra-GCC supplies.
rig
The system shall allow the tracking of evidence of the transportation of the goods
to the country of final destination.
25.13 Penalties
Each MEMBER STATE shall impose administrative penalties for violations of local
laws.
Each MEMBER STATE shall determine the conditions and rules for objecting to the
local administrations tax decisions.
Each MEMBER STATE shall determine the penalties for tax evasion.
py
Tax Evasion is defined as:
a) Bringing in or attempting to bring excise goods into a MEMBER STATE, removing

or attempting to remove them in violation of MEMBER STATE rules without
payment of the tax due.
b) The production, processing, possession, storage, transport or receipt of excise

goods on which the due tax has not been paid, in violation to the provisions of
the Agreement and local laws with the intent to avoid payment of the due tax
or to circumvent the laws in that MEMBER STATE.
c) Submitting incorrect, falsified or fabricated documents, returns or records or

placing false marks/stamps with the intent to evade due tax or to receive
co
refunds with claim of right.
d) Any other case as determined by each MEMBER STATE.

co
py
rig
ht
APPENDIX 2
CHAPTER 25 EXCISE TAX
ht
25.1 Introduction
Excise tax is a tax imposed by the GCC on goods that are considered harmful to
human health or the environment. It is also imposed on luxury goods. The imposition
is based on a list of goods and at rates as determined by the Ministerial Committee.
It is the Committee that has the right to modify the list and the tax rate.
Excise Tax is a form of indirect tax and in this case refers to the Excise Tax of the GCC.
The Common Excise Tax Agreement of the GCC is the primary legislation and is
25.2
25.3
rig
enacted throughout the GCC into local law.
This chapter looks at the UAE Law on Excise Tax Federal Decree-Law No 7 of 2017,
Cabinet Decision No (37) for 2017 being the Executive Regulations and Cabinet
Decision No (38) of 2017 being the Excise Tax Rates and Method of Calculating the
Excise price.
Definitions
The full list of definitions can be found in Art. 1 of each of the 3 documents
mentioned in the Introduction above. However, the important definitions will be
explained in the sections below as they apply to this law.
Scope of Excise
py
Within the UAE Federal Decree-Law No (7) 2017, Art. 2 Tax shall be imposed on the
following activities:
a) Production of Excise Goods in the State, where such production was in the
course of doing business;
b) Import of Excise Goods;
c) Release of Excise Goods from a Designated Zone;
d) Stockpiling of Excise Goods in the State, where such stockpiling was in the course
of doing business.
co
To gain a further understanding of what Excise goods are we refer to the Cabinet
Decisions No (38) of 2017 Arts. 2-5.
Excise Goods (Art. 2)
 Tobacco and tobacco products (Art. 3)
 Carbonated drinks (Art. 4)
 Energy drinks (Art. 5)

Tobacco and tobacco products (Art. 3)
Tobacco and tobacco products imported, cultivated or produced in the state and
listed within Schedule 24 of the GCC Common Customs Tariff.
Examples being:
 All forms of tobacco (stemmed or stripped)
ht
 Tobacco refuse
 Cigars and similar
 Cigarettes containing tobacco
 Cigars/Cigarette substitutes
 Water pipe tobacco
rig
Chopped or processed tobacco for Cigarettes, Cigars or Pipes.
For full definitions refer to Schedule 24 of the GCC Common Customs Tariff.
Carbonated drinks (Art. 4)
Carbonated drinks shall mean all of the following:
a) Any aerated beverage except unflavoured aerated water;
b) Any concentrates, powder, gel or extracts intended to be made into an

aerated beverage.
However, carbonated drinks shall not include any beverage containing alcohol,
py
even if the product is otherwise considered an aerated beverage.
Where a Non-taxable Person combines the products mentioned in (b) above with
an aerating agent at the selling place, the final aerated product shall not be levied
to excise tax and the tax paid on the product mentioned in (b) above shall not be
deductible.
Any product that meets the definition of a carbonated drink but also meets the
definition below of an energy drink shall be taxed at the rate of an energy drink.
Energy drinks (Art. 5)
Energy drinks shall include:

co
a) Any beverages marketed or sold as an energy drink that may contain stimulant
substances that provide mental and physical stimulation;
b) Any concentrates, powder, gel or extracts intended to be made into an energy

drink.
However, carbonated drinks shall not include any beverage containing alcohol,
even if the product is otherwise considered an aerated beverage.

Where a Non-taxable Person combines the products mentioned in (b) above with
other product at the selling place, the final product shall not be levied to excise tax
and the tax paid on the product mentioned in (b) above shall not be deductible.
25.4 Liability to Tax
Within the UAE Federal Decree-Law No (7) 2017 Art. 4 Tax obligations apply.
ht
The Due Tax shall be the responsibility of:
a) The Person who conducts the activities referred to in Art. 2 detailed above in the
scope of excise.
b) The Person involved in any of the activities referred to in Art. 2 detailed above in
the scope of excise should the Person referred to in (a) above failed to meet his
obligation.
c) The Warehouse keeper, in the case of the released Excise Goods from
aDesignated Zone, and where the Tax Due has not already been paid.
25.5
rig
There are 2 cases where the above does not apply:
a) The Person who imports Excise goods of a value of less than that specified in the
Customs Legislation, if such Excise Goods are accompanied by the Person within
the frame of an international voyage and are used for non-commercial
purposes;
b) A Stockpiler in specific circumstances
Registration (UAE Federal Decree-Law No (7) 2017 Arts. 5-6)
For Excise Tax purposes, any Person designated by the Tax Administration as a Person
py
Obliged to Pay Tax shall be required to register. Such a Person shall apply to THE
AUTHORITY within 30 days from the end of month in which the Person carries out or
intend to carry out activities mentioned in the scope of tax.
Art. 3 of the Executive Regulations lays down the requirement for registration
application.
For the purposes of Tax registration the Taxable Person shall meet the following rules
and conditions:
a) Submit an application for Tax registration containing all the information needed
by the Tax authority, this will be specified by THE AUTHORITY;
b) Provide a financial security, as specified by THE AUTHORITY;

co
c) Comply with any additional requirements in terms of keeping records or reports

or resolutions that THE AUTHORITY specifies and issues.
THE AUTHORITY shall respond to the Person’s application for Tax Registration within
20 business days of receipt of the application.
The effective date of the Tax Registration is the first day of the month in which the
Person starts to conduct business activity, within the scope of Excise Tax

Any Person required to apply for registration may also apply to be a Warehouse
keeper subject to certain conditions.
Subject to certain condition, where a Person proves to THE AUTHORITY that he will
not regularly import or release excise goods from Designated Zone, such Person may
be excepted from registration requirement. (Art. 4 of the Executive Regulations)
THE AUTHORITY may reject a tax registration application if it finds that the applicant
ht
has no intention of conducting any business activities within the scope of Excise tax
or if the applicant fails to provide required data. (Art. 5 of the Executive Regulations)
25.6 Tax Deregistration (Arts. 6-7 of the Executive Regulations)
If a registrant is no longer responsible to pay tax, he must let THE AUTHORITY know
within 30 days of such date and apply for deregistration.
THE AUTHORITY has 20 business days to respond to the deregistration application.
To deregister the Taxable Person must complete the following:
rig
a) Settle all Tax due;
b) Settle all Administrative penalties due;
c) Submit all Tax returns due.
THE AUTHORITY may refuse a deregistration application in the following cases:
a) If THE AUTHORITY believes the registrant has the intention to conduct Excise
business activities within the following 12 months;
b) The Person does not prove to THE AUTHORITY that he is no longer a Person
responsible for Due Tax;
py
c) The Person has been registered for less than 6 months.
If THE AUTHORITY rejects a Deregistration Application, THE AUTHORITY must notify the
Person on this with 20 business days.
25.7 Warehouse Keeper
A Person who intends to carry out such activity is required to register as a Warehouse
keeper. The Registration process will require the Person to provide information to THE
AUTHORITY. What this comprises will be advised by THE AUTHORITY.
The effective date of registration shall be the date the application is approved or
co
an agreed date between the Person and THE AUTHORITY.
THE AUTHORTITY will issue a Warehouse Keeper’s Registration certificate. This

certificate will detail the Designated Zones that the Person is responsible for, where
the Person will be allowed to produce or stockpile Excise goods without Excise Tax
becoming due.


THE AUTHORITY may impose the following conditions on a Warehouse Keeper:
a) Specify the amount of Excise goods that can be kept in each Designated Zone
at any one time;
b) Specify the type of Excise Goods that can be kept in each Designated Zone;
c) May require a security deposit for each Designated Zone;
ht
d) Impose additional reporting requirements, record keeping and reports, that will
need to be submitted to THE AUTHORITY;
e) Specify the level of physical security required for each Designated Zone;
f) Specify what additional checks are required on the Goods held in each
Designated Zone;
g) Specify the conditions for entry and exit of each Designated Zone, which the
Warehouse Keeper will be required to impose.
25.8
rig
Deregistration of a Warehouse Keeper
A Warehouse Keeper is required to let THE AUTHORTIY know of any changes in his
circumstances, affecting his Registration i.e. he no longer operates the Designated
Zone, within 30 days.
A response, from THE AUTHORITY, to this notice will be given within 20 Business days.
However, the Warehouse keeper will not be deregistered until all his duties and
responsibilities for the period he was registered are met.
Designated Zones (Art. 15)
Excise Goods stored, preserved or processed in a Designated Zone or transferred

py
between Designated Zones will be treated as not released for consumption.
Designated Zones are any of the following:
A free zone that meets the following conditions:
1) Has security measures in place to restrict entry and exit of individuals and
movement of goods to and from the Designated Zone;
2) The Designated Zone is controlled and supervised by a Customs department;
3) A Warehouse Keeper has been appointed for the Designated Zone.

co
Any area specified by THE AUTHORITY provided it meets the following conditions:
1) It has a specific geographical area;
2) It has security measures in place to restrict entry and exit of individuals and
movement of goods to and from that area, according to controls specified by
THE AUTHORITY;
3) A Warehouse Keeper has been appointed.
The Designated Zone shall be registered via an application by the Warehouse

Keeper to THE AUTHORITY.

THE AUTHORITY may require a financial guarantee for the registration of the
Designated Zone.
Every Person appointed as a Warehouse keeper shall be required to control and

supervise the Designated Zone and the transfer for goods without release for
consumption to another Designated Zone. Calculation of Excise Tax (Refer to
Cabinet Decision No 38 to determine the tax rates and method of calculating excise
price)
ht
Rates of Excise Tax
Excise Good Rate
Tobacco and tobacco products 100%
Carbonated drinks 50%
Energy drinks 100%
rig
Excise price will be the higher of the following:
a) The price published by THE AUTHORITY for the Excise Good in a standard price
list, if available;
b) The designated retail sales price for the Excise Good, less the Tax included
therein.
For Excise goods with a Tax rate of 50% the Excise price will be two thirds of the retail
selling price.
 Illustration 1
py
Retail selling price = 99 AED
Excise price = 99 / 3 x 2 = 66 AED
For Excise goods with a Tax rate of 100% the Excise price will be half of the retail
selling price.
 Illustration 2
Retail selling price = 99 AED
Excise price = 99 / 2 x 1 = 49.5 AED
25.9 Designated Retail Sales Price (Art. 8 of the Cabinet Decision No 38)
co
The designated retail sales price shall be the higher of:
a) The recommend sales price in the course of retail sale by the importer or the
producer. This is the price that results when the Excise goods are sold in a retail
outlet and not the increased price in a hotel, restaurant or the like where they
are consumed on the premises;
b) The average retail selling price of the goods on the market.


The average retail selling price of the goods on the market shall be calculated as
follows:
a) Identify the different retail selling prices of the Excise Goods with reference to
the previous 12 months.
b) Deduct the VAT within that retail price or if the previous 12 months is prior to the
introduction of VAT, use the full value of the retail selling price in the market.
ht
c) Calculate the total amount of Excise Goods sold at each retail selling price in to
the market to determine a total market revenue during the 12 month period.
d) Divide the total market revenue by the total amount of Excise Goods sold during
the 12 month period.
e) Multiply the figure at para (d) by the Tax rate applicable to the Excise goods to
arrive at the notional Due Tax on the Excise Goods.
f) Add the figure resulting from Para (d) and (e) together to arrive at the average
rig
retail selling price of the goods in the market.
The average retail selling price of the goods in the market shall be re-calculated at
least once in every 6 months. Where this calculation leads to an adjustment in the
designated retail sales price, the adjustment should be applied from the earlier of
the Tax periods following the calculation of the average retail sales price, or the Tax
period following the date in which the calculation should have been made.
If a Taxable Person has reasonable grounds for being unable to identify the
designated retail selling price he must notify THE AUTHORITY within a period not less
than 15 calendar days before the tax return submission deadline. Where THE
AUTHORITY is satisfied that the Taxable Person is unable to identify the price as set
out above THE AUTHORITY may grant permissions of the Taxable Person to account
for Tax based on the cost of the Excise Goods.
py
Finally, the designated retail sales price shall include all other duties and taxes due
in respect of Excise Goods, with the exception of VAT.
25.10 Exemption
The UAE Law Federal Decree-Law No (7) of 2017 on Excise Tax Art. 12 states that
Excise Goods that are exported shall be exempted from Tax. Details of that
exemption and how it has to be evidenced is found in the Executive Regulations
Art. 14.
Section 1: Excise Goods Exported will be exempt from Tax where they have not been
released for consumption in the State and have not been previously subject to tax,
co
in any of the following cases:
a) Where they are exported to a location outside the State, provided they are
transferred to the point of Export in suspension and in accordance with the
Customs law.
b) Where they have been consumed in the course of an international journey

departing from the State and they are transferred in suspension to the point of
Export in accordance with the Customs Law.

c) Where they have been purchased from a Duty Free Shop by a Person who will
immediately Export the Excise Goods on the condition that he can prove that
the goods will be leaving the Implementing States at the point of sale.
25.11 Payment of Excise Tax
Taxable Persons shall submit Tax Returns through such procedures as set out by THE
AUTHORITY. A taxable Person is required to submit those Tax returns to THE AUTHORITY
ht
no later than the 15th day of the month following the end of the relevant Tax Period.
The Payable Tax shall be settled through the means specified by THE AUTHORITY.
A Taxable Person shall pay the tax liability no later than the 15th day following the
end of a calendar month.
The Customs department shall:
a) Reconcile the quantity of Excise Goods imported into the State with the
Declaration of importation received from the importer before releasing the
rig
Excise Goods, and where the Person is not a Taxable Person, it shall check the
payment of any Due Tax and fees.
b) Reconcile the Quantity of Excise Goods exported from the State with documents
of Export.
25.12 Definition of Stockpiling (Art. 11 of the Executive Regulations)
1) A Person will be considered to be a stockpiler when they own ”excess Excise

Goods” in free circulation and available in the course of doing Business in the
State where Tax on such goods has not previously been paid, returned or
deferred.
py
2) “Excess Excise Goods” shall mean Excise Goods on which the following applies:
a) Owned by the stockpiler on the earliest date the Tax obligation arose, or an
increase in Tax obligation arose or the date the Decree-Law comes into
force;
b) In excess of the stockpiler’s average monthly stock level for that type of
Excise goods as determined over a 12 month period, starting one month
before the date specified in para (a);
c) Acquired by the stockpiler before the date specified in para (a);
d) The stockpiler intends to sell these goods in the course of conducting

business in the State.
co
As an exception to para 2b above, where the average monthly sales of Excise

goods for the period of 12 months prior to the date referred to in para 2a above is
calculated, and it appears that the stockpiler has Excise Goods exceeding 2 months
of such an average, having disregarded the monthly stock level of such stockpiler,
any goods exceeding 2 months level shall be considered excess and tax shall be
due.
A Person, in the course of conducting business, shall keep audited records showing
the quantity of this stock of Excise Goods from the date the Degree-Law comes into
force, for the purposes of his stock of Excise Goods.

25.13 Definition of release for Consumption (Art. 12 of the Executive

Regulations)
Goods are released for consumption when either of the following has occurred:
a) Producing Excise Goods;
b) Releasing the Excise Goods from a Designated Zone and offering such for free
ht
circulation.
If we look at para a), Excise goods shall be treated as produced at such a time the
goods reach the stage they are:
a) Ready to be held out for retail sale;
b) Fit for consumption or sale where the goods are not intended for retail sale;
c) Ready to be sold to a retailer, if the Excise Goods are of the type which are not
rig
fit for consumption until they are combined with another product at the point of
retail sale.
Leaving a Designated Zone and entering free circulation will be at the occurrence
of any of the following:
a) The Excise Goods leave a Designated Zone, unless they are moved to another
Designated Zone without being released for consumption or will be exported in
accordance with the regulations;
b) They are consumed or bought for consumption within a Designated Zone;
c) There is an irregularity in the course of a transfer of Excise Goods between

Designated Zones which resulted in the Excise Goods being released for
py
consumption;
d) They are found to be deficient or there is a shortage in their quantity from

Designated Zone or during transfer between Designated Zones or whilst being
held in a suspension arrangement in accordance with the Customs Law.
There are specific rules around the treatment of irregularity and destruction of Excise
goods which should be referred to in such cases.
25.14 Tax Refund (Arts. 21-22 of the Executive Regulations)
It is possible to claim a refund of excess tax, to which the Taxable Person is entitled,
information will be requested by THE AUTHORITY, and this information must be
co
submitted within 5 years from the date the Person had the right to apply for the
refund.
THE AUTHORITY shall refund any excess tax to the Taxable Person where it is satisfied
that the Taxable Person is entitled to a refund. Subject to the refund claim being
valid THE AUTHORITY the refund must be made by the later of:
a) Two calendar months of submitting the claim;
b) Where THE AUTHORITY undertakes an audit of the claim for refund within 21 day
after conclusion of the Audit.

THE AUTHORITY is not obligated to refund any remaining excess Tax to the Taxable
Person if less than two Tax Periods have passed since the end of the Tax period when
the excess arose.
 Illustration 3
Excess Tax arose in the period to 31 January.
ht
The earliest the reclaim can be made is April of that same year (the two tax return
periods being February and March).
THE AUTHORITY may, at their own discretion, refund the amount of excess tax before
the end of the two tax periods in the following situation:
a) The Taxable Person’s registration is cancelled;
b) Where the Taxable Person will be conducting taxable activities for at least one
year and there is likely to be excess refundable tax.
rig
Where a Taxable Person has failed to submit a tax return for any tax period THE
AUTHORITY may withhold any refund until the outstanding returns are submitted.
Tax refund in special cases (Art. 22)
Where the Tax is incurred by a foreign government, international organisation,

diplomatic bodies and missions, a claim for refund of the Tax may be made subject
to the following conditions:
a) Excise Goods are acquired exclusively for official use;
b) On the condition of reciprocity;
c) Excise goods are not acquired for the purposes of resale or any other
py
commercial purposes.
Subject to certain conditions and evidence being provided, where tax is paid in one
Implementing State and goods are then exported to another Implementing State
and tax is paid in the second State as well. Subject to Art. 21, above, a refund of Tax
may be made according to the following:
a) The claim must contain the information and data set out by THE AUTHORITY;
b) The claim covers a minimum period of one calendar month;
c) The claim covers Tax paid on goods where the goods have a value not less than
the value prescribed by decisions by the Minister;
co
d) The claim is supported by the documentary evidence specified by THE

AUTHORITY.
A decision in such claims must be made within 20 business days of an application

being submitted.


25.15 Compliance on Import and Export
The Taxable Person must file declarations in the manner specified by THE AUTHORITY.
This will include the following:
a) Details of the Excise Goods to be imported;
ht
b) Details of the Excise Goods produced in the State;
c) Details of the Excise Goods transported from the Designated Zone.
25.16 Excise Records and Returns
The Taxable Person will also be required to keep the following records:
1) Price lists of Excise Goods produced, imported or sold by him. He must be able
to produce these at the request of THE AUTHORITY;
rig
2) The list referred to in point 1) above shall be sufficient to identify the Excise Goods
produced, imported or sold by him and shall include details of the value of the
Goods;
3) The Tax records must be kept in accordance with the timeframe for all Tax
record keeping, 5 years after the end of the calendar year.
In addition the general provisions confirm that the following records should be kept:
a) Records of all produced, imported or stockpiled Excise Goods;
b) Records of exported Excise Goods and evidence of such export;

py
c) Records of stock levels, including details of lost or destroyed items;
d) Tax records that include the following:
1) Due Tax on imported Excise Goods;
2) Due Tax on produced Excised Goods;
3) Due Tax on Excise Goods that have been stockpiled.
25.17 Penalties
Federal Decree Law (7) of 2017 on Excise Tax, Art. 22 specifies the following:
co
THE AUTHORITY shall issue an Administrative Penalty Assessment to the Taxable

Person, and notify him of the same within 5 business days from date of issuance, if
the Taxable Person committed any of the following violations:
1) Failure to display prices inclusive of Tax according to Art. 11 of this Decree Law;
2) Failure to comply with the conditions and procedures related to the transfer of
Excise Goods from a Designated Zone to another and the mechanism of
preserving, storing and processing such Excise Goods;

3) Failure to provide THE AUTHORITY with the price lists of Excise Goods produced,
imported or sold by the Taxable Person.
Art. 23 of Federal Decree Law (7) of 2017 on Excise Tax, refers to Instances of Tax
Evasion.
Notwithstanding the instances of Tax Evasion referred to in Federal Law No (7) of

2017 on Tax Procedures, a Person will be deemed to have committed Tax Evasion
ht
in the following circumstances:
1) Bringing or attempting to bring Excise Goods into or out of the State without
payment of the relevant Due Tax in part or full;
2) Producing, transferring, acquiring, storing transporting or receiving Excise Goods

the due tax which was unpaid with the intention of avoiding the payment of the
due tax;
3) Placing false distinguishing marks on Excise Goods with the intent of evading the
payment of Due Tax or receiving unlawful refunds;

rig
4) Submitting any false, counterfeit or unreal documents, returns or records, with
the intent of evading the payment of Due Tax or receiving unlawful refunds.
py
co

EXAMPLES
 Example 1
In what Schedule of the GCC Common Customs Tariff will we find the definitions of
Tobacco and Tobacco products?
ht
 Example 2
Is Carbonated water subject to Excise Tax?
 Example 3

rig
After submissions of a registration application, how many days does THE AUTHORITY
have to respond?
a) 30 days
b) 20 days
c) 30 business days
d) 20 business days
py

co

co
py
rig
ht
ANSWERS
 Answer 1
Schedule 24
ht
 Answer 2
No, unless it is flavoured
 Answer 2
rig
d) - 20 business days
py
co

co
py
rig
ht
CHAPTER 26
ROLE OF THE TAX AGENT
ht
In this chapter we will understand the obligations of a tax agent, the conditions they must
satisfy and their responsibility to their client and THE AUTHORITY.
26.1 Who is the Tax Agent
A tax agent is someone who a client appoints to discuss, correspond or transact

with the relevant tax authorities on their behalf. This can be, for example, an
accountant or a professional tax adviser.
26.2
rig
The Agreement does not specifically cover the role of the tax agent (tax
representative). The Agreement leaves this to the relevant Government entity in
each MEMBER STATE responsible for the administration, collection and
enforcement of the tax law.
Appointment of the Tax Agent
As a tax agent, you must be formally authorised by an individual or a business to

deal with THE AUTHORITY.
Non-resident: A non-resident of a MEMBER STATE can register directly or through

the appointment of a tax representative (tax agent) with the consent of the
Competent Tax Administration. The tax representative (tax agent) shall take the
py
place of the non-resident person in all its rights and obligations. (Art. 50(3) of the
Agreement)
26.3 Conditions to be satisfied to be a Tax Agent
A tax agent should comply with the relevant laws and regulations.
26.4 Registration
In order to act as a tax agent, the appropriate tax authorities’ registration rules
should be followed.
A tax agent should hold a professional qualification for expertise he/she is

co
providing.
There should be a centralised register of tax agents kept by each TAX AUTHORITY.
26.5 Payment of Tax and Filing of Return
The taxpayer (and not the tax agent) has primary responsibility to submit correct
and complete VAT returns, and make payment to the best of his/her belief. Also,
the final decision as to whether to disclose any issues, for example estimates
included in the return, to THE AUTHORITY is that of the client.

A tax agent who completes a VAT return on behalf of the client is responsible to
the client for the accuracy of the return based on the information provided.
It is essential that the tax agent advises the client to review his tax return before it is
submitted. Attention should be drawn to any judgemental areas or positions
reflected in the return to ensure that the client is aware of these and their
implications before he approves the return.
ht
26.6 Responsibility during a Tax Audit
A tax agent is obliged to comply with any tax audit requests from the relevant
authorities. The tax agent should also advise the client of the tax audit and keep
the client informed of progress and developments.
It is important to note that a tax agent is not required to audit the figures in the
books and records provided or verify information provided by a client or by a third
party. The tax agent should take care not to be associated with the presentation
of facts he knows or believes to be incorrect or misleading nor to assert tax
26.7
26.8 Records
rig
positions in a VAT return which he considers have no sustainable basis.
Notification to Tax Agent
A tax agent should be sent copies of all correspondence sent to his/her clients by
the tax authorities.
Tax records consist of:

 Invoices
 Books and records
 Accounting documents
py
It is the responsibility of the taxable person to keep these records.
26.9 Confidentiality
Confidentiality is one of the fundamental principles expected from a tax

professional. The other fundamental principles that a tax professional should
adhere to are: integrity, objectivity, professional behaviour and professional
competence and due care.
It is important to respect the confidentiality of information acquired as a result of

professional and business relationships and, therefore, not disclose such
information without proper and specific authority unless there is a legal or
professional right or duty to disclose, nor use the information for the tax agent’s
co
personal advantage or the advantage of third parties.
In dealing with THE AUTHORITY in relation to a client’s tax affairs a tax agent must
keep in mind his duty of confidentiality to the client and that he is acting as the
agent of his client. He has a duty to act in the best interests of his client.

APPENDIX 2
CHAPTER 26 ROLE OF THE TAX AGENT
ht
26.1 Who is a Tax Agent?
The role of the tax agent for the UAE is covered under the Federal Law No 7 of
2017 on Tax Procedures. This Federal law provides a definition for a tax agent.
See below:
 Any person registered with THE AUTHORITY (FTA) in the Register, who is
appointed on behalf of another person to represent him before THE AUTHORITY
26.2

rig
and assist him in the fulfilment of his tax obligations and the exercise of his
associated tax rights. (Art. 1 of the Tax Procedure Law).
THE AUTHORITY will keep a register of tax agents (Art. 12 of the Tax Procedure
Law). Only those tax agents listed in the register and licensed for this purpose
will legally be allowed to represent a taxable person in the UAE.
Appointment of Tax Agent
A taxable person can appoint a tax agent by notifying the FTA. This can be done
as part of their online tax registration form, or the FTA can be notified separately in
writing. It is important to note that this does not take away the taxable person’s
responsibility under the law.
py
The taxable person has the right to dismiss the tax agent by notifying the FTA. The
20 business days rule should apply to the amendment of information submitted to
the FTA. The FTA will cease all communications with the tax agent after this
notification.
A non-resident can appoint a legal representative to be in-charge of its tax affairs.

The legal representative will take over the tax obligation of the non-resident. See
below for payment and tax returns.
Any person appointed as a legal representative of a taxable person or his funds or

his inheritance shall inform THE AUTHORITY within 20 business days from the date of
his appointment. (Art. 7 of the Tax Procedure Law).
co
26.3 Condition to be satisfied to be a Tax Agent
The Tax Procedure Law give guidance on the qualifications of a tax agent under
Art. 14(1). These are as follows:
 To be of good conduct and behaviour and have never been convicted of a

crime or misdemeanour prejudicial to honour or honesty, notwithstanding that
he may have been rehabilitated.
 To hold an accredited qualification from a recognised university or institute

showing his specialisation and practical.

 To be medically fit to perform the duties of the profession.
 To hold a professional indemnity insurance contract.
Additional conditions are listed under the FTA’s website. These are:
 The tax agent must have at least three years’ relevant recent experience as:
ht
o a tax professional;
o a qualified lawyer;
o an accountant.
 The tax agent must have the ability to communicate orally and in writing in
both Arabic and English. This requirement is added as tax returns are required
to be in Arabic. However, Art. 5(2) of the Tax Procedure Law allows a
translated copy. The tax agent must have passed any tests to meet
qualification standards as specified by the FTA. The tax agent is required to
26.4 rig
notify the FTA of any changes to his profession that will impact his ability to
practice as a tax agent in the UAE. An example of this will be if the agent has
retired from the profession is or no longer associated with a tax agency. (Art.
14(2) of the Tax Procedure Law)
Registration
Registration of a tax agent can be done online, using the FTA’s website at
https://eservices.tax.gov.ae. Once the registration is completed, a tax agent
registration certificate which has the Tax Agent Approval Number (TAAN) will be
provided.
Once registered, a tax agent must apply to the FTA to be associated with a
registered Tax Agency (usually an accounting, tax or law firm) before he or she will
py
be able to practice.
26.5 Payment of Tax and Filing of Return
The payment and the filling of the tax return is the sole responsibility of the taxable
person.
A legal representative for a taxable person will be responsible for the payment
and the filling of their tax return. A failure to discharge this duty will result in
penalties being incurred from the legal representative’s own funds. (Art. 25 of the
Tax Procedure Law)
The FTA will communicate any tax payable and administrative penalties within five
co
working days. (Art 36(2) of the Tax Procedure Law)
26.6 Responsibility during a Tax Audit
THE AUTHORITY is entitled to view the records of any person available with his tax
agent and may rely on them for the purposes of a tax audit. This is the case even
after the expiry of the agency engagement or the dismissal of the tax agent. (Art
16(2) of the Tax Procedure Law)
The tax agent and the taxable person have legal responsibility to facilitate and
offer assistance to the tax auditor.

THE AUTHORITY will inform The Taxable person at least five business days prior to the
tax audit.
26.7 Notification to Tax Agent
Notifications will be sent to the taxable person’s address stated in the tax return.
No other addresses can be used (for example, an accountant or tax agent).
However, for a non-resident taxable person, the address details of the tax agent in
ht
the UAE can be provided
26.8 Records
The FTA can request the tax agent to provide access to all the information held for
any taxable person they currently or previously represented.
In terms of the period the tax records should be kept, the FTA may not issue a tax
assessment after the expiration of five years from the end of the relevant tax
period. In cases of proven tax evasion or non-registration, the FTA may issue a tax
26.9
rig
assessment within 15 years from the end of the tax period in which the tax evasion
occurred or the taxable person should have registered. (Art. 42 of the Tax
Procedure Law)
Confidentiality
It is important that tax agents respect the confidentiality of information acquired

as a result of professional and business relationships and, therefore, do not disclose
such information without proper and specific authority unless there is a legal or
professional right or duty to disclose, nor must they use the information for their
personal advantage or the advantage of third parties.
There are no specific articles relating to confidentiality in terms of tax agents.

However, Art. 41(5) of the Tax Procedure Law states that more guidance will be
py
issued to clarify the obligations of the tax agent in this regard.

co

co
py
rig
ht

PWC Study - Manual GCC + KSA + UAE PDF

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

PWC Study - Manual GCC + KSA + UAE PDF

Caricato da

Copyright:

Formati disponibili

ht

GCC VAT Compliance Diploma

1 Chapter 1 General principles 5

1.1 VAT Legislation and interpretation 5

1.2 GCC Legislation 5

1.3 VAT Territory of the GCC 5

1.4 Interpretation of the law by the Tax Authorities in each 6

1.6 Scope of VAT 6

1.7 Place of Supply 6

1.8 Time of Supply 6

1.9 Value of Supply 7

1.13 Exempt supplies 8

1.17 Transactions with other GCC Member States 10

1.19 Returns and Payment of VAT 10

1.21 Bad debts 10

1.23 Fines and Penalties 11

Appendix 1 KSA Chapter 1 13

Appendix 2 UAE Chapter 1 19

2.2 Who is Required to Register 26

2.3 Registration of Non-residents 26

2.4 Types of Registration 27

2.5 Historic test 27

2.7 VAT Registration threshold: Taxable supplies 28

2.9 Exemption from Registration 29

Appendix 1 KSA Chapter 2 31

Appendix 2 UAE Chapter 2 41

3 Chapter 3 Definition of Supplies 53

3.2 Five conditions 53

3.3 Goods or Services 54

3.4 Supply must be made by a taxable person 54

3.5 Supply in the Member State 54

3.6 Supply by a taxable person conducting Economic 55

Appendix 1 KSA Chapter 3 59

Appendix 2 UAE Chapter 3 63

4 Chapter 4 Liability of the Supply 67

4.2 Taxable supplies 67

4.4 Outside the scope of VAT 68

Appendix 1 KSA Chapter 4 69

5.2 Zero-Rating in the Agreement 73

5.3 Discretion of the MEMBER STATES to Apply Zero-Rating or 73

5.7 Supply of Goods and Services Outside the GCC 74

5.8 Supply of Gold, Silver and Platinum 74

5.9 Financial Services as an Exception to Exemption 74

Appendix 2 UAE Chapter 5 85

6.2 Exemptions in the Agreement 95

6.3 Discretion of the Member States to apply exemptions 95

6.4 Mandatory exemption 96

6.5 Financial services 96

6.6 Exemptions on Importations 96

6.7 A Word of Warning 97

Appendix 1 KSA Chapter 6 99

Appendix 2 UAE Chapter 6 103

7.1 Introduction 107

7.2 Deemed supplies 107

7.4 Gift of goods 108

7.5 Private use of business assets 109

7.6 Private use of motor dealers’ stock in trade 109

7.7 Private use of services supplied to a business 109

7.8 Motor fuel provided for business use 109

7.10 Motor cars 110

Appendix 1 KSA Chapter 7 111

Appendix 2 UAE Chapter 7 117

8 r Chapter 8 Value of the Supply 123