Tax amendment aims to avoid VAT double taxation

The Federal Tax Authority (FTA) has confirmed the importance of Cabinet Decision No. (88) of 2021 to amend Article 51 of Cabinet Decision No. (52) of 2017 on the Executive Regulation of Federal Decree-Law No. (8) of 2017 on Value Added Tax (VAT), indicating the decision coming into effect as of on Saturday (Oct.30, 2021).

The amendment in the tax treatment for the supply of goods in Designated Zones and their connected shipping or delivery services aim to avoid VAT Double Taxation on supplied goods in the Designated Zones and facilitate procedures to non-resident suppliers operating in the Designated Zones, as these goods will be treated - under certain conditions – outside the scope of tax, hence, no tax registration is required from the supplier.

The Federal Tax Authority issued ‘Public Clarifications’ in relation to the Cabinet Decision to amend Article 51, explaining the new amendment in the tax treatment for the supply of goods in Designated Zones and their connected shipping or delivery services, available on the authority’s website in an effort to raise tax awareness among business sectors and ensure the best tax compliance rates.

Designated Zones have been defined by a Cabinet Decision and must meet certain conditions for specific supplies. A full list of all 27 Designated Zones be accessed through the Authority’s website; the Zones are treated as being outside the territory of the UAE for VAT purposes.

According to the Authority’s “Public Clarification”, the supply of goods in the Designated Zone must be transacted outside the scope of UAE VAT, if said goods are not consumed inside the country, or in the case that the goods are consumed outside the Designated Zone, and provided that evidence is obtained and retained proving that the goods were delivered to a place outside the UAE or that VAT was paid on the import of these goods from the Designated Zone to the UAE.

Shipping and delivery services of Qualifying Goods is also outside the scope of UAE VAT if they are supplied by the same supplier of the goods, under certain conditions, including the supplier being a non-resident who is not registered for VAT in the UAE. The Public Clarification offered a detailed explanation and guidelines on implementing the Amendment of Article (51) of the Cabinet Decision regarding the Executive Regulations of the Federal Decree-Law on Value Added Tax.

The Federal Tax Authority was established by Federal Decree-Law No. (13) of 2016 to help diversify the national economy and increase non-oil revenues in the UAE through the management and collection of federal taxes based on international best practices and standards, as well as to provide all means of support to enable taxpayers to comply with the tax laws and procedures.

Since its inception in 2017, the FTA has been committed to cooperating with the competent authorities to establish a comprehensive and balanced system to make the UAE one of the first countries in the world to implement a fully electronic tax system that encourages voluntary compliance, with simple procedures based on the highest standards of transparency and accuracy – beginning from registration, to the submission of tax returns, to the payment of due taxes through the Authority’s website.