Tag: Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

UAE Corporate Tax – Real Estate Investment for Natural Persons

UAE Corporate Tax – Transfer Pricing Disclosure Form

The UAE Ministry of Finance cancels Economic Substance Regulations

UAE VAT Amendments: Cabinet Decision No. 100

UAE Corporate Tax Return Deadline Extended to 31st December 2024

UAE Corporate Tax – Real Estate Investment for Natural Persons

Insights

October 27, 2024

On 24 October 2024, the Federal Tax Authority (‘FTA’) published a Corporate Tax (‘CT’) Guide on “Real Estate Investment for Natural Persons”, aiming to provide general guidance on the taxation of Natural Persons in case of income from real estate investments under the Corporate Tax Law.

The objective of this guide is to provide clarity on taxation aspects with respect to what constitutes business income and what forms part of personal income from real estate investments.

The key highlights of the Guide are outlined below:

This guide addresses the tax implications for natural persons under Article 2(2)(c) of Cabinet Decision (‘CD’) No. 49 of 2023 in relation to Real Estate Investment and the income derived from it. Further, the CD defines Real Estate Investment as “Any investment activity conducted by a natural person related to, directly or indirectly, the sale, leasing, sub-leasing, and renting of land or real estate property in the State that is not conducted, or does not require to be conducted through a Licence from a Licensing Authority.” Accordingly, the gross amount of income, and related expenditure, derived by a natural person from Real Estate Investment is excluded from CT.

Natural persons shall be subject to CT only when the total Turnover derived from Business or Business Activities conducted by a natural person exceeds AED 1 million within a Gregorian calendar year.

Scope of Land or Real Estate Property

Real Estate means any of the following:

Any area of land over which rights or interests or services can be created.
Any building, structure or engineering work attached to the land permanently or attached to the seabed.
Any fixture or equipment that makes up a permanent part of the land or is permanently attached to the building, structure or engineering work or attached to the seabed.

Real Estate property can include the following:

Residential Property
Furnished Holiday Homes
Commercial Property
Showrooms
Warehouses and Storage Rooms
Parking Lots and Garages, etc.

Further, Land can include any of the below:

Agricultural Land
Industrial Land
Residential Land, etc.

Location of Land or Real Estate Property

The land or real estate property for investment purposes could be located in the UAE and/ or outside of the UAE.

Does Not Require to be Conducted through a Licence

The phrase “required to be conducted” is to be understood covering the situation where a License is required but it has not been obtained. Accordingly, lack of a valid License does not mean that the investment activity will be outside the ambit of CT.
Such activity would be considered a Business or Business Activity and the income derived from it would be subject to CT (subject to meeting the relevant Turnover threshold) even if the natural person does not have the required Licence.

Jointly Owned Land or Real Estate Property

In the case of co-ownership of land or real estate property by multiple persons, the income derived from Real Estate Investment activity must be allocated to each owner.
Where the owner is a natural person, their allocated income will be out of scope of CT if they do not conduct the Real Estate Investment activity through a Licence (or require a Licence to do so).

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Sole Establishments and Sole Proprietorships

A sole establishment or sole proprietorship is a Business which is owned and conducted by a natural person on his/ her own account and in their own name
In such situations, the natural person and the sole establishment/ sole proprietorship are the same Person as opposed to a single-owner company which has its own legal personality where the owner and the company are separate Persons.

Taxable Business and Excluded Real Estate Investment

A natural person may own land or real estate property in a non-business capacity and also operate a Business or Business Activity requiring a Licence.
A natural person should be able to clearly demonstrate the basis for separating real estate income earned in a non-business capacity from their other Business or Business Activities to benefit from the exclusion.
The real estate income earned in a non-business capacity can benefit from the Real Estate Investment exclusion. If a person has (or requires) a Licence for a Business or Business Activity, and those activities can clearly be distinguished from the Real Estate Investment activities, then the Real Estate Investment exclusion may still be available in relation to those Real Estate Investment activities.
On the other hand, if based on the facts, the land or the real estate property or any related income from it, forms part of the Business or Business Activity, and this is conducted or is required to be conducted through a Licence, then any income would fall outside the definition of Real Estate Investment and, therefore, be within the scope of CT.

Apportionment of expenditure

Expenditures related to Real Estate Investment may be shared between activities falling within the Real Estate Investment exclusion and activities falling within other Business or Business Activities.
Shared costs, such as general overheads must be allocated indirectly using a fair and consistent apportionment method to ensure each activity accurately reflects its share of expenses. These methods can be applied to factors such as headcount, floor space, usage, time spent, or any other measurable and reasonable basis.

General Anti-Abuse Rule

If a real estate transaction or arrangement is entered into with the main purpose of obtaining a CT advantage, such as the Real Estate Investment exclusion, and this lacks commercial substance as well as is inconsistent with the intention of the CT Law, the FTA can require the relevant income to be treated as Taxable Income.

Confused about how the new Corporate Tax Regime impacts your Real Estate Investments? We can navigate the taxation complexities to help you maximize your returns.

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Recent Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

Tax Procedures for Private Clarifications: UAE Corporate Tax

UAE Corporate Tax – Transfer Pricing Disclosure Form

The UAE Ministry of Finance cancels Economic Substance Regulations

UAE VAT Amendments: Cabinet Decision No. 100

UAE Corporate Tax Return Deadline Extended to 31st December 2024

UAE Corporate Tax – Transfer Pricing Disclosure Form

Insights

October 16, 2024

The Federal Tax Authority (FTA) has recently updated the Corporate Tax (CT) return form, particularly concerning the Transfer Pricing Disclosure Form (TP Disclosure Form). Now, taxable persons must disclose transactions with Related Parties and Connected Persons in the TP Disclosure Form.

With the introduction of Corporate Tax in the UAE, the TP Disclosure Form is a crucial element of CT Returns. It ensures transparency in related party transactions and plays a significant role in determining a Taxable Person’s tax liabilities.

It is worthwhile to note that it is an integral part of the CT Return process and these additional details are considered as part of the TP disclosure form. It is not a separate stand-alone form to be filled and filed but one of the segments/components of the CT return form.

In the TP Disclosure form, FTA seeks the following information to be provided by the Taxpayer:

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Related Party Transactions Reporting Schedule Requirements

Legal Full Name of the Related Party (RP)
Transaction Type with RP
Country of Tax Residence of the related party
Corporate Tax TRN of RP
Gross Value of Transaction with RP in AED
TP method adopted (TNMM, CUP, CPM, RPM)
Arm Length Value (shall be determined from the benchmarking conducted during the tax period)
Tax Adjustment (Difference of Income/expense & Arm Length Value)

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Payments/ Benefits to Connected Persons Reporting Requirements

Full Name of the Connected Person (CP)
Corporate Tax TRN of CP
Payment made or benefit provided to CP
Description of payment or benefit provided to CP
Actual value of payment or benefit to be provided in AED
Market value of payment or benefit (shall be determined from the benchmarking conducted during the tax period)
Tax Adjustment (Difference of Income/expense & Arm Length Value)

This comprehensive disclosure form aims to ensure compliance with the newly introduced UAE corporate tax law, allowing the tax authorities to evaluate the arm’s length nature of related party transactions effectively. Since the details required are many, we would urge Corporate not to take the TP compliance lightly. Unless one has carried out a Benchmarking exercise, one will not be able to complete and fill in the above details or will not have sufficient documentation to justify the market value or arm’s length value for the transaction and this needs to be done for each of the related party / connected person transactions.

Note: Accurate and complete disclosure is essential to remain compliant and avoid penalties. TP form is an integrated part of the CT Return and is required to be submitted along with the CT Return. Therefore, failure to submit the TP form/ CT Return would lead to a penalty of:

AED 500 per month for the first 12 months
AED 1,000 per month from the 13th month onwards

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Recent Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

Tax Procedures for Private Clarifications: UAE Corporate Tax

UAE Corporate Tax – Real Estate Investment for Natural Persons

The UAE Ministry of Finance cancels Economic Substance Regulations

UAE VAT Amendments: Cabinet Decision No. 100

UAE Corporate Tax Return Deadline Extended to 31st December 2024

The UAE Ministry of Finance cancels Economic Substance Regulations

Insights

October 15, 2024

The UAE Ministry of Finance cancels Economic Substance Regulations

With the Introduction of Federal UAE CT Law, the UNITED ARAB EMIRATES MINISTRY OF FINANCE issued Ministerial Decree No. (239) of 2023 on the Reconstitution of the Standing Committee to Follow Up the Implementation of Economic Substance Requirements

Consequently, The Ministry of Finance, with the approval of council of ministers have issued Cabinet Resolution No. (98) of 2024 (the resolution) amending some provisions of Cabinet Resolution No. (57) of 2020 concerning the Determination of Economic Substance Requirements – The Economic Substance Regulations

The Economic Substance Regulations (ESR)

The UAE introduced Economic Substance Regulations to honor the UAE’s commitment as a member of the OECD Inclusive Framework on BEPS, and in response to a review of the UAE tax framework by the EU which resulted in the UAE being included on the EU list of non-cooperative jurisdictions for tax purposes (EU Blacklist). The issuance of the Economic Substance Regulations on 30 April 2019 (the Regulations), and the subsequent release of the Guidance on the application of the Regulations on 11 September 2019, was a requirement for the removal of the UAE from the EU Blacklist on 10 October 2019.

On 30 April 2019, the Cabinet of Ministers of the United Arab Emirates (“UAE”) issued Cabinet Resolution No. 31 of 2019 Concerning Economic Substance Regulations (“Resolution 31”). On 10 August 2020 amendments were introduced to Resolution 31 by the Cabinet of Ministers by way of Cabinet of Ministers Resolution No. 57 of 2020.

The Regulations required UAE onshore and free zone companies and certain other business forms that conduct any of the defined “Relevant Activities” to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).

Is your business prepared for the latest ESR regulatory updates in the UAE? Ensure your business documentation is in order.

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Cabinet Resolution No. (98) Of 2024

The new resolution defines the period for applicability of the Economic substance Regulations (ESR). It provides information on the Fiscal years for which ESR compliance were required to be met and also confirms the cessation of Economic substance Regulation in the UAE.

It cancels the requirements for UAE entities falling under the Scope of ESR (Licensees) to submit Economic substance notification and Economic substance Report for financial years ending after 31 December 2022.

Article I and Article II of the Cabinet Resolution No. (98) of 2024 are discussed below in details

Article I – Applicability of Cabinet Resolution No. (57) of 2020

A new article No. (2) bis – Scope of Application shall be added to the aforementioned Cabinet Resolution No. (57) of 2020

As highlighted above, The Ministry of Finance has restricted the scope of application of Cabinet Resolution No. (57) of 2020 only until the fiscal year ending on 31/12/2022. Accordingly, the provisions of this resolution shall apply to the fiscal years commencing from 01/01/2019 to the fiscal year ending on 31/12/2022 – The ESR Period

Will the Entities need to file ESR Notification and Report on for FY starting on or after 01 January 2023?

The UAE Entity that meets the definition of Licensee post the ESR Period- starting on or after 01 January 2023- will no longer be required to comply with the ESR reporting obligations or demonstrate adequate substance in the UAE. We can conclude that ESR regime in the UAE stands cancelled from financial years starting on or after 01 January 2023

For the ESR filings that have been already submitted by Licensees for Financial years falling after the ESR Period – a further clarification is expected from the authorities

ESR filings done for applicable ESR period – 01/01/2019 to 31/12/2022, can be assessed by the National Assessing Authority – FTA. ESR Audit for the effective period has already been started by FTA for quite a sometime now (Refer our detailed article on ESR AUDIT)

Therefore, Entities should maintain proper documentation and be prepared for ESR Audits for ESR period 01/01/2019 to 31/12/2022.

Article II – Administrative fines stand cancelled

So, what happens to the administrative penalty for non-compliance levied on any financial years commencing after the ESR Period? The decision clarifies that such administrative penalties will be cancelled by FTA and the amounts collected will be refunded

The procedure to apply for refund in this regard is expected by the authorities

Key Takeaways

Scope of Cabinet Resolution No. (57) of 2020 concerning the Determination of Economic Substance Requirements shall remain applicable only for fiscal years commencing from 01/01/2019 to the fiscal year ending on 31/12/2022. The ESR regime in the UAE has been withdrawn for Financial Years starting after 31/12/2022
The Entities should maintain the proper documentation with regards to ESR submissions done for effective ESR period – FY starting on or after 01/01/22019 till Financial Year ending on or before 31st December 2022 as FTA may conduct ESR Audit
To that effect, administrative fines imposed post this effective period shall be ineffective and the authority shall refund the fines paid by the Licensees for fiscal year ending after December 31, 2022. All the grievances filed for fiscal year ending after December 31, 2022 shall be ended. If your entity being a licensee has filed any appeal request or paid any fines pertaining to fiscal years ending after December 31, 2022, such entity shall be eligible for refund towards fines paid and their grievances filed with National Assessing Authority shall be cancelled

With the End of ESR Period, the UAE Entities can now focus on UAE CT Regime and clarifications from the Authority are expected for administrative procedures post ESR Period for Administrative penalties Levied or already paid and ESR Filings done for Post ESR Period

Have you checked your eligibility for refunds after the ESR update? Act now to secure your refund

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Recent Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

Tax Procedures for Private Clarifications: UAE Corporate Tax

UAE Corporate Tax – Real Estate Investment for Natural Persons

UAE Corporate Tax – Transfer Pricing Disclosure Form

UAE VAT Amendments: Cabinet Decision No. 100

UAE Corporate Tax Return Deadline Extended to 31st December 2024

UAE VAT Amendments: Cabinet Decision No. 100

Insights

October 7, 2024

The FTA has introduced an amendment to the Executive Regulations of the UAE VAT law through cabinet decision no.100 of 2024 which is amending cabinet decision no 52 of 2017.

These changes will be effective from 15th November 2024 (unless otherwise specified in the article of this decision)

Key Amendment’s and their implications are discussed below

Financial Services

Article 1 includes definition of Virtual Asset. Virtual Asset are defined as “Digital representation of value that can be digitally traded or converted and can be used for investment purposes and does not include digital representations of fiat currencies or financial securities”.

Article 42- Tax Treatment for financial service

Article 42(2) has been amended to include the following within the definition of financial services,

Providing investment fund management services independently for a fee, for funds licensed by a competent authority in the state, including but not limited to managing fund operations and managing investments for the benefit of the fund or on its behalf and monitoring and improving fund performance;
Transferring ownership of virtual assets, including virtual Currencies;
Conversion of Virtual Assets;
Keeping and managing Virtual assets and enabling control over them

Article 42(3) exempt following financial services from VAT retrospectively from 1st Jan 2018,

Transferring ownership of virtual Assets, including virtual currencies.
Conversion of Virtual Assets

Impact– It brings clarity to the taxation of virtual assets. Investment fund management services, virtual currencies considered as exempt financial services from VAT.

Another important amendment is introducing exceptions for the supply effective from 1st January 2023:

Transfer of ownership or disposal rights of government building between government entities
Transfer of ownership or disposal of real estate asset between government entities
Above also covers the right to use or exploit those assets.

Impact – Significant impact for government entities transactions like transfer, lease of these assets will no longer considered to be supply hence such transactions are not subject to VAT.

Article 5 – Exceptions related to Deemed Supply

Exceptions related to Deemed Supply, now has extended to the following supply as well:

Where both the Supplier and Recipient are either government entity or charitable organization then, up to AED 250,000 for each supplier within 12-month period are also falls under exception to deemed supply.

Impact – Encouraging activities between government entities and/or charitable organizations without the burden of VAT.

Article 14 – Tax Deregistration

Clause 9 has been added which states that deregistration does not absolve a Person from having to comply with the provisions of the Decree-Law and this Decision, including filing another Tax Registration application when the Tax Registration requirements are met.

Article 14 (bis) – Tax Deregistration to Protect the Integrity of the Tax System (Newly Added Provision)

The Authority may deregister a Person for Tax if the Authority determines that maintaining such Tax Registration may prejudice the integrity of the Tax system, provided any of the following conditions is met;

The Registrant no longer meets the Tax Registration requirements

The Registrant has not submitted tax deregistration application to the Authority, or the Registrant has initiated a Tax deregistration application with the Authority but has not completed such application

Article 29-Profit Margin Scheme

In a further effort to clarify VAT calculations, Article 29 has defined “Purchase Price” will include all costs and fees incurred when purchasing goods.

Impact – Clarified that for calculation of profit margin under the scheme, whole cost associated with the acquisition of goods are considered.

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Proof for Export of Goods

Article 30 – Zero-rating the export of goods

FTA Specifies the documents which are required for Zero rating the export of goods. The FTA has clarified that any of the following documents would be acceptable to prove the export as zero-rated supply,

A Custom declaration and commercial evidence proving the export
A Shipping certificate and official evidence proving the export
A Custom declaration providing the custom suspension if the goods are under custom suspension

The clarification provided by FTA for “official evidence” and “commercial evidence”

Official Evidence

A certificate of export issued by the custom in the state or a clearance certificate issued by those authorities or the competent authorities (Exit Certificate) in the state regarding the goods leaving the state after verifying that the goods have left the state, or a document or clearance certificate certified by competent authorities in the destination country indicating that the goods have entered it.

Commercial Evidence

A document issued by shipping or air transport companies or agents proving the transportation and departure of goods from the state to outside the state, including any one of the following documents:

Airway Bill or Air cargo manifest
Bill of lading or Sea cargo manifest
Land transport bill or Land cargo manifest

In amended provision the term “Shipping certificate” has been clarified which states that certificate issued by shipping or air transport companies or agents equivalent to commercial evidence if it is not available.

Summary

Documents required for Zero rating the export of goods (Till 15th November 2024)

Business must require all the documents mentioned below for export of goods

Options	Particulars
Option 1	Exit Certificate, Custom declaration, Airway bill or bill of lading
Option 2	Custom declaration providing the custom suspension if the goods are under custom suspension

Documents required for Zero rating the export of goods (From 15th November 2024)

Business can retain documents based on any of the following option for export of goods

Options	Particulars
Option 1	Custom declaration and Bill of lading or Airway Bill
Option 2	Exit Certificate or Entry certificate of destination country and shipping certificate
Option 3	Custom declaration providing the custom suspension if the goods are under custom suspension

Impact – These clarity helps the exporter to understand the process and documents require for business applying zero rate on exports.

Article 31- Zero-Rated Services

Amendments have also been made regarding the zero-rating of specific services. Services listed in clauses 3 to 8 of Article 30, and Article 31 of the VAT Decree Law will be subject to the standard rate of VAT if the place of supply is within the UAE, even if they are considered exports of service.

Key Services Affected

Installation Services: Related to goods supplied by others, taxed at the place where the service is performed.
Transport Services: Provided to lessees who are not taxable persons, taxed where the means of transport are made available.
Hospitality Services: Restaurant, hotel, and catering services are taxed at the location of service performance.
Cultural and Educational Services: Taxed where the services are performed.
Real Estate Services: Taxed based on the location of the real estate.
Transportation Services: Taxed where the transportation begins.
Telecommunications and Electronic Services: Taxed based on where the services are enjoyed.

Clarifications on Repair and Maintenance Services

Article 35(1)(b) further clarifies VAT treatment for repair, maintenance, and conversion services for means of transport:

Repair Services: If performed onboard the means of transport.
Maintenance Services: Includes inspection, testing, cleaning, and similar services if carried out onboard.
Conversion Services: Should maintain compliance with conditions of Article 34 on post-conversion.

Impact – These clarifications provide a clear understanding of VAT treatment for these specific services, facilitating better compliance and planning for businesses involved in the transport sector.

Article 38- Zero-rating of Buildings Specifically Designed to be Used by Charities

The definition of “Relevant Charitable Activity” has been deleted.

Article 46- Tax on Supplies of More than One Component

When supplies don’t have a principal component, VAT treatment will be based on overall nature of the supply.

Impact – These changes provide clarity on how to treat composite supplies in VAT

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Input VAT Recovery on Health Insurance for dependent

Article 53 – Non-Recoverable Input tax

Allow recovery of input VAT for health insurance, including enhanced health insurance for employees and their dependents within the limit of one spouse and three children under the age of 18.

Nature of Expense	Input tax recovery (Till 15th November 24)	Input tax recovery (After 15th November 2024)
Employee Health Insurance	Yes, business can recover input VAT	Yes, business can recover input VAT
Dependent Health Insurance (Within limit specified)	No, business can’t recover VAT Input tax	Yes, business can recover input VAT

Impact– This amendment relieves businesses, as it allows them to recover VAT on the insurance of dependents.

Article 55-Apportionment of Input Tax

Tax year for the following cases has been amended:

where a Taxable Person applies for Tax deregistration, the Tax year shall end on the last day such Person was a Taxable Person,
where a member joins a Tax Group, the Tax year shall end on the last day before joining the Tax Group, or
where a member leaves a Tax Group, the Tax year shall end on the last day such Person was a member of the Tax Group.

If the tax year is shorter than twelve months, the limit of AED 250,000 mentioned in clause 11 shall be proportionate to the length of such tax period.

Article 58-Adjustments under the capital Assets Scheme

Clause 17 is included in the article which states that the first tax year for a self-developed capital asset is the year it is first used.

Article 59- Tax Invoices

The timeline for issuing Tax invoices has been changed in specific scenarios, such as simplified and tax invoices.
If the tax invoice is a simplified tax invoice (invoice amount up to AED 10,000), the registrant must issue the simplified tax invoice on the date of supply itself.
Business has 14 days to issue the tax invoices (invoice amount over AED 10,000) from the end of the calendar month that includes the date of supply.
Where an agent who is a Registrant makes a supply of Goods or Services for and on behalf of the principal of that agent, that agent may issue a Tax Invoice in relation to that supply as if that agent had made the supply, provided that the principal shall not issue a Tax Invoice, subject to:
- The agent retaining sufficient records in such a manner as to determine the name, address and Tax Registration Number of the principal supplier,
- The principal supplier retaining sufficient records in such a manner as to determine the name, address and Tax Registration Number of the agent

The Authority may specify the cases in which a Tax Invoice must be issued, even if one of the cases provided for simplified tax invoice of this Article applies.

Impact – These updates aim to streamline compliance and reduce penalties

Article 69 – Foreign Governments

The VAT refund request for foreign governments, international organisations, diplomatic bodies and missions must submit within 36 (thirty-six) months from the date the official incurred such Tax or during any other period specified under the provisions of any international treaty or other agreement in force in the State

Impact – This amendment introduced a timeline for foreign governments for applying for VAT refund.

These changes enhance clarity and flexibility for businesses across various sectors. It is an ideal time to review your VAT practices and ensure compliance with the new regulations.

With the recent amendments to the VAT law, it’s crucial to reassess your VAT practices. FAME Advisory can help you navigate the implications.

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Recent Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

Tax Procedures for Private Clarifications: UAE Corporate Tax

UAE Corporate Tax – Real Estate Investment for Natural Persons

UAE Corporate Tax – Transfer Pricing Disclosure Form

The UAE Ministry of Finance cancels Economic Substance Regulations

UAE Corporate Tax Return Deadline Extended to 31st December 2024

UAE Corporate Tax Return Deadline Extended to 31st December 2024

Insights

September 26, 2024

Postponement of the Deadline to File a First Tax Return and Settle the Corporate Tax Payable for new companies incorporated on or after 01 June 23.

Federal Tax Authority (FTA) released decision no.7 of 2024

On 26 September 2024, the Federal Tax Authority (FTA) released decision no.7 of 2024 stating the Postponement of the Deadline to File a Corporate Tax Return and Settle the Corporate Tax Payable for Certain Tax Periods for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments.

This decision states that the deadline to file the Corporate Tax Return and settle the Corporate Tax liability has been extended to 31 December 2024 subject to the fulfillment of all the following conditions :

Entities that are incorporated, established or recognised on or after June 2023 and
Entities have a tax period ending on or before 29 February 2024.

Don’t miss this critical deadline. Ensure compliance and avoid penalties by filing and settling your Taxes on time. Act now to avoid last-minute stress!

Note - Failure to file a Corporate Tax Return and Pay Corporate Tax Liability before 31 December 2024 shall attract a penalty of AED 500 for each month for the first twelve months and AED 1,000 for each month from the thirteenth month onwards.

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Recent Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

Tax Procedures for Private Clarifications: UAE Corporate Tax

UAE Corporate Tax – Real Estate Investment for Natural Persons

UAE Corporate Tax – Transfer Pricing Disclosure Form

The UAE Ministry of Finance cancels Economic Substance Regulations

UAE VAT Amendments: Cabinet Decision No. 100

UAE Federal Tax Authority: Refund Policy for Private Clarification Requests

Insights

September 18, 2024

The UAE Federal Tax Authority (FTA) issued Decision No. 5 of 2024 on July 19, 2024. The decision, effective from August 1, 2024, sets out the conditions under which fees paid for private clarification requests will be refunded.

Key Provisions of the Decision

The decision outlines specific circumstances under which the FTA will refund fees for private clarification requests:

Withdrawal of request Within Two Days: If the applicant withdraws their private clarification request within two business days of submission, they will be eligible for a refund.
Persons not registered under the Corporate Tax: Private Clarification Requests submitted by individuals or entities not registered under the corporate tax and requests are not related to the inquiry about tax registration.
Tax Audits: Applicants undergoing a tax audit at the time of submitting the private clarification request will receive a refund.
Post-Decision Procedures: Private clarification requests are related to the decision issued by the FTA after submitting the request.
Duplicate Requests: If the duplicate private clarification request is submitted by the same applicant on the same subject, the fee will be refunded.
Legislative Review: If the private clarification requests are related to the subjects under review for legislative amendment in coordination with the Ministry of Finance (MoF) will qualify for refunds.

Refund Process

Refunds will be processed based on the nature and scope of the private clarification request:

Full Refund: If the FTA decides not to issue a clarification for a request covering one or more taxes, the entire fee will be refunded.

Partial Refund: For requests involving multiple taxes where a clarification is issued for only one tax, a partial refund will be given. The refunded amount will be the difference between the fee for a single tax clarification and the fee for multiple tax clarifications.

Don't know how to submit your Private Clarification Request under the new refund policy? Our team is ready to assist you in the submission process.

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Positive Implications of the Policy

This refund policy has several positive effects:

Encouraging Proactive Guidance Seeking: By reducing the financial risk associated with seeking private clarifications, more taxpayers may actively seek guidance on complex tax issues. This can lead to better compliance and fewer errors in tax filings.

Enhancing Trust and Cooperation: Providing clear guidelines and fair treatment helps to build trust and cooperation between taxpayers and the FTA. This can lead to smoother tax administration and more effective dispute resolution.

Supporting SMEs: Small and Medium Enterprises (SMEs), which often have limited resources, will benefit significantly from this policy. It makes obtaining clarifications easier and less costly, ensuring that SMEs meet their tax obligations correctly without incurring excessive expenses.

Improving Request Quality: With clearer guidelines and the possibility of refunds, taxpayers are more likely to submit accurate and complete requests. This diligence reduces the administrative burden on the FTA in processing and responding to requests.

Conclusion

The UAE FTA’s new refund policy for private clarification requests offers taxpayers several benefits. By providing refunds under specific conditions, the policy aims to reduce financial risks and encourage proactive guidance seeking. The policy enhances trust between taxpayers and the FTA, fostering a better quality in clarification requests and supporting efficient tax administration.

Have questions about the new refund policy? Ensure clarity with expert guidance at FAME Advisory

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Recent Insights

MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax

Tax Procedures for Private Clarifications: UAE Corporate Tax

UAE Corporate Tax – Real Estate Investment for Natural Persons

UAE Corporate Tax – Transfer Pricing Disclosure Form

The UAE Ministry of Finance cancels Economic Substance Regulations

UAE VAT Amendments: Cabinet Decision No. 100

Taxability of Director’s Services under UAE VAT: Key Insights

Insights

September 4, 2024

Effective Date for Checking Taxability of Director Service – 01 January 2023

Basic Rule for Taxability of Directors Service

Director services were Taxable where the Director performed the services on a regular, ongoing, and independent basis, and the total value of taxable supplies and imports made by the Director, not limited to but also including the Director services, exceeded the mandatory registration threshold.

Performing the function of Director on a Board of Directors by a Natural Person

Performing the Function of Director by any person on a Board of Directors was considered as supply of service and was Taxable but as per the new clarification issued by FTA if the performance of a

Director’s function After 01 January 2023 by a natural person in Board of Directors of any government entity or of any private sector entity then performance of those Director’s function will not be considered as Supply of Service therefore will not be Taxable whereas if the Director Service is given by either natural person or legal person to Public Joint Stock entity then it will be considered as supply of service and will be Taxable, also Directors Services Provided Before 01 January 2023 is taxable.

Director’s function means services performed in the formal capacity as Director only which means Only Director services performed by any natural person in the formal capacity as director will not be considered as supply of service for the purpose of VAT and will not be taxable i.e. if any other professional Services are provided by director in individual capacity then it will be considered as supply of Service and will be taxable only when the Director is a Taxable person (i.e. Director is registered under VAT).

If any Director who is not the Resident of UAE providing director Service as above then those services will also not be considered as supply of service. There will be no application of the reverse charge mechanism or need for the natural person to register in the UAE for VAT purposes.

If Services performed as a member of a committee derived from the same Board as above on which the Director serves then such services will also be not considered as supply of service for Vat purpose but other services provided by the member, are considered to be supplies of services for VAT purposes and may be taxable subject to meeting conditions for taxable supplies as stated in the VAT legislation

How will a natural person decide VAT Obligation before January 1 2023 or on or after January 1 2023?

If any natural person provides both director service and other professional service then he will have to check the Date of Supply of director service.

If date of supply of director service is before 01 January 2023 then all services by that natural person will be considered as supply of service and will be taxable if meeting the requirements for mandatory registration

But if date of supply of director service is on or after 01 January 2023 then directors service will not be considered as supply of service and will be excluded from calculating the mandatory registration threshold.

If a natural person is registered for Vat and date of supply for director service is on or after 01 Jan 2023 as a result if that person is not meeting the requirements for mandatory registration any more then such natural person must deregister from VAT.

Taxability of Director Service VS Non-Taxability of Director Service

Sr. No.	Particulars	TAXABLE (All Conditions to be Fulfilled)	NON-TAXABLE (All Conditions to be Fulfilled)
1.	Date of Supply	Date of Supply of Director Service is Before 01 January 2023	Date of Supply of Director Service is On or After 01 January 2023
2	Type of Person	The director is either a Natural Person or a Legal Person	If the Director is a Natural Person (Either Resident or Non-Resident of UAE)
3	Board of Directors	If Director services performed as Director on a “Board of Directors” of a Government Entity or a Private establishment or Any Other Establishment.	If Director services performed as Director on a “Board of Directors” of a Government entity or Private establishment only
4	Type of Service	Any Service provided by the Director- If the Total value of All taxable supplies and imports made by the Director, also including the Director’s services, exceeded the mandatory registration threshold.	AED 10,000 + VAT Only the services performed in the formal capacity as the Director

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How to determine the Date of Supply for Director Services

The date of supply is determined either as per the general rules or the special rules, depending on whether there will be periodic payments or consecutive invoices.

General Rules

Rule No. 1- Normal for supply of Services –

Date of supply shall be the earliest of any of the following dates:

The date on which the provision of services was completed.
The date of receipt of payment or the date on which the tax invoice was issued.

Rule No. 2- Supply of Services for any contract that includes periodic payments or consecutive invoices -

The date of supply shall be the earliest of any of the following dates:

The date of issuance of any tax invoice.
The date payment is due as specified on the tax invoice.
The date of receipt of payment.
The date of expiration of one year from the date the services were provided.

Special Rules for determining the Date of supply for the Board fees paid to Independent Directors-

Rule No. 3 -

If fees for the Independent Directors are not known in the beginning and are determined only upon the conclusion of the Annual General Meeting, the date of supply would be triggered when such fees are known.

Rule No.4 -

If fees for the Independent Directors are known in the beginning then date of supply will be as per Rule No. 1 and Rule No. 2 as above.

Examples for better understanding of Taxability or Non-Taxability of Director Service

Example 1 Natural person performs the function of Director for the calendar year 2022 whereby fees for the services were known at the beginning on 1 January 2022, no payments were released to the natural person during 2022 and no Tax invoices were issued, what will be the Date of Supply in this case? (Refer Rule No.1 & Rule No.4 Above)

In this scenario, the date of supply will be the date of actual completion of the services, and the Director’s services will be considered as Supply of Service and will be taxable regardless of whether payment was made in 2023 or not.

Example 2 The natural person is appointed as Director for 2 consecutive calendar years, i.e., 2022 and 2023. Fees for services to the Board, and any committee derived therefrom, are fixed and known as on 01 January 2022 and automated payments are made on the first business day after the end of each calendar quarter (1 April 2022, 1 July 2022, 3 October 2022, 2 January 2023, 3 April 2023, 3 July 2023, 2 October 2023 and 2 January 2024). It is also agreed between the Director and the entity that the Director issues his/her tax invoice after receipt of the payment, what will be the Date of Supply in this case? (Refer Rule No. 2 & Rule No. 4 Above)

In this scenario, the date of supply will the date of receipt of payment, being the earliest of the dates mentioned in Rule No.2 above. Hence, the payments received on 1 April 2022, 1 July 2022 and 3 October 2022 will be considered as triggering the date of supply for Director’s service which will be considered as a supply of services and will be taxable

But the other payments received on 2 January 2023, 3 April 2023, 3 July 2023, 2 October 2023 and 2 January 2024 will not be considered as Supply of service and will not be taxable because the Date of supply is on or after 01 January 2023.

Example 3 The natural person provide the Director Service for the calendar year 2022 but the fees allocated for that calendar year are only determined after the conclusion of the Annual General Meeting, to be held on 31 March 2023. (Refer Rule No. 3 Above)

In this scenario, the Directors fees was not known on 01 January 2022, the Fees will be known upon the conclusion of AGM on 31 March 2023 despite the fact that the provision of the services may have been physically completed earlier.

Date of supply will be 31 March 2023 which is after 01 January 2023 therefore this service will not be considered as Supply of Service and will not be taxable.

Formal Capacity as Director

Some of the Examples of Director performing the Services in the formal Capacity of Director –

Director Participating in board meetings to take some strategic decisions,
Director Managing the day-to-day affairs of the company,
Director approving the financials or any other documents of the company as an Authorized Signatory Director providing any compliance services in a capacity of director to the company

Some of the Examples of Director performing the Services in Individual Capacity as a professional which will not be considered as Director Performing the Services in the formal Capacity of Director-

Director providing any Professional Services to the company as a freelancer for which issuing Separate Invoices for the Services Rendered.
Director representing the company in a court as lawyer in an individual capacity
Director providing any consultancy services to the company in an individual capacity as a Chartered Accountant.

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Navigating Estate Succession in the UAE: Options for Non-Muslim Expatriates

Insights

August 30, 2024

The concept of Wills is fairly common in most countries around the world. Wills offer individuals a legitimate way to have their estate distributed after their demise. It is very important to note that a Will does not have an effect until the testator dies and can be modified at any point of time during the life of the testator. It is also pertinent to note that the distribution of the estate may be handled by an executor of your choice under Wills as opposed to leaving the same in the hands of an authority of the State.

Non-Muslim expatriates in UAE may find the available platforms for their Will registration particularly handy owing to the fact that the absence of a Will leaves the distribution of their estate to be done under Shariah law, which may not be their preferred means of distribution. Wills registered with various authorities in UAE provide the much-needed flexibility to non-Muslim expatriates to choose how exactly their estate will be distributed.

We will be exploring the distribution of the estate after the demise of a non-Muslim expatriate in UAE. In this article, we will be delving into the avenues available to non-Muslim expatriates to legitimately plan their estate succession in the UAE for after their demise.

Different Avenues of Wills' Registration

1. DUBAI COURTS

Non-Muslim expatriates may register their Wills with the Dubai Courts Notary if they wish their Will to be governed under the Civil Law Jurisdiction of Dubai. The Will shall be drafted in the Arabic language by a sworn translator. The Will ensures that Shariah law is not applicable and the testator has the right to distribute their assets in any manner they wish. Estate to be distributed can be anywhere across the seven Emirates in the UAE. It is pertinent to note that Dubai Courts Notary Will also provides for guardianship of minor children in the event of the demise of either one or both parents/caregiver(s).

2. DIFC WILLS

The DIFC Wills and Probate Registry operates under a unique system, granting individuals the autonomy to choose the governing law for their Will. This flexibility allows for the application of either their home country’s legal code or the legal code of another preferred jurisdiction.

The DIFC Courts Wills Service offers five distinct Will categories:

Full Will: This comprehensive Will encompasses the distribution of all movable and immovable property within the UAE, along with the designation of temporary and permanent guardians for minor children residing in Dubai or Ras Al Khaimah (if applicable).

Guardianship Will: Focused solely on child custody, this Will specifies guardians for minor children.
Property Will: This online template Will facilitates the distribution of up to five real estate properties situated within the UAE.
Business Owners Will: Another online template Will; this document addresses the distribution of up to five shareholdings in UAE-based companies.
Financial Assets Will: Limited to online templates, this Will allows for the designation of beneficiaries for up to ten bank and/or brokerage accounts held at UAE branches.

3. ADJD WILLS

Similar to the approach followed by Dubai Courts, the Abu Dhabi Judicial Department (“ADJD”) allows non-Muslim expatriates to register their Will within the Civil Law jurisdiction of Abu Dhabi. ADJD ensures that UAE Shariah shall not be applicable to individuals who register their Wills with them and state their needs. The assets in the Will can be from any of the seven (7) Emirates in UAE. The Will must be drafted in the Arabic language or translated by a sworn translator for the same to fall within the purview of the on-shore courts of Abu Dhabi.

One notable modus operandi followed in ADJD is that the testator need not be physically present for the registration of their Wills. The same can be done by utilising virtual platforms.

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Dubai Courts Will Vs DIFC Will Vs ADJD Will: Difference Matrix

While the three jurisdictions for Wills’ registration have their own advantages and disadvantages, please find below some of the key differences we have observed to be material when selecting a jurisdiction for estate succession:

Sr. No.	Scope	Dubai Courts	DIFC	ADJD
1.	Jurisdictions Covered	All seven (7) Emirates	Only Dubai and Ras Al Khaimah	All seven (7) Emirates
2	Language	Arabic or Bilingual (Arabic translation by a sworn translator)	English	Arabic or Bilingual (Arabic translation by a sworn translator)
3	Governing Law	Law No. (15) of 2017 Concerning Administration of Estates and Implementation of Wills of Non-Muslims in the Emirate of Dubai	DIFC Wills and Probate Registry Rules	ABU DHABI LAW NO. 14/2021 On Civil Marriage and its Effects in the Emirate of Abu Dhabi & Regulation 8/2022
4	Cost of Single Full Wills	AED 2,167	AED 10,000 + VAT	AED 950
5	Cost of Mirror Full Wills	AED 4,334	AED 15,000 + VAT	AED 1,900
6	Cost of Other Wills	N/A	Property Single Will: AED 7,500 + VAT Property Mirror Wills: AED 10,000 + VAT Business Owners Single Will: AED 5,000 + VAT Business Owners Mirror Wills: AED 7,500 + VAT Financial Assets Single Will: AED 5,000 + VAT Financial Assets Mirror Wills: AED 7,500 + VAT	N/A

Procedural Guidelines for Executors Post-Testator Demise

The implementation and execution of the registered Will shall be handled by the Executor(s) nominated in the Will itself. It is ideal to appoint not just one Executor (primary Executor) but alternate Executor as well to provide for any and all contingencies.

The process to be followed by Executors at the time of implementation of the Will is as follows:

1. Obtain Probate

The executor will be responsible for initiating the legal process to validate your will and authorise the management of your estate. The specific procedures will depend on where your Will is registered. If it’s registered with the Notary Public, a local lawyer will be needed to handle the process. However, if it’s registered with the DIFC Courts Wills Service, the Executor can either handle it directly or through a probate specialist.

2. Take Inventory of Assets

The Executor will create a detailed list of all your assets.

3. Settle Debts and Expenses

The Executor will identify and pay all the outstanding debts and related costs on behalf of the Testator.

4. Distribute Assets

Once all debts, expenses, and specific gifts mentioned in your will are paid, your executor will divide the remaining assets among your beneficiaries as outlined in your will. The exact distribution process will vary depending on whether your will is registered with the Notary Public or the DIFC Courts Wills Service.

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CONCLUSION

In conclusion, the UAE offers non-Muslim expatriates several avenues to establish their desired estate distribution post-demise. By registering a Will with Dubai Courts, DIFC Wills and Probate Registry, or ADJD, individuals can effectively bypass the application of Shariah law and exercise control over their assets.

While each jurisdiction presents distinct advantages and costs, the ability to choose the governing law and specify beneficiaries provides invaluable peace of mind. It is essential to carefully consider factors such as jurisdiction, language requirements, and associated costs when selecting the most suitable option.

By understanding the available platforms and the processes involved, non-Muslim expatriates can proactively plan for their future and ensure their wishes are honoured, providing comfort and security to both themselves and their loved ones.

FAME ADVISORY’S PROVISION OF SERVICES

We can provide you with a wide variety of services from the stage of drafting the particulars of the Will to getting the same executed.

If you would like our assistance with succession planning, please do not hesitate to contact us.

FAQs

Does the Executor have to be a UAE resident for DIFC Wills?

No, the Executor need not be a UAE resident for the implementation of DIFC Wills.

What is the minimum age to register a Will as a Testator?

The minimum age of a Testator must be 21+ years.

Bijal

Bijal is a legal and tax compliance expert with over five years of experience in the UAE. She specializes in indirect tax reviews, corporate tax, and company secretarial compliance for multinational corporations. Bijal excels in preparing management accounts and securing UAE tax residency certificates. Currently focused on the proposed UAE Corporate Tax framework, she provides strategic advice for corporate restructuring and cross-border transactions, making her an essential resource for businesses navigating UAE Corporate Tax.

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