IMPORTS AND DESIGNATED ZONES Faculty Name CA Mayank Sawhney Email: - - PowerPoint PPT Presentation

TOPIC- TIME OF SUPPLY, EXPORTS- IMPORTS AND DESIGNATED ZONES

Indirect Taxes Committee The Institute of Chartered Accountants of India

Faculty Name –CA Mayank Sawhney Email: sawhneymayank@yahoo.co.in Date: 31st October 2018

TIME OF SUPPLY

TIME OF SUPPLY UNDER VAT

The following key concepts detail when and how much VAT is due. Output VAT: The amount calculated and charged on a taxable persons’ sale of goods and services. Time of supply: When the liability arises to account for output VAT. It ensures VAT is declared and paid in the correct tax period. As per the VAT Decree Law, the Time of Supply is considered as earlier of the following three events: Receipt of payment Date of invoice Receipt of goods/services

TIME OF SUPPLY

Determines when liability to pay VAT arises :

Earliest of following: —Transfer of goods

• Transfer of goods under supplier’s

supervision

• Possession of goods by recipient
• Date of completion of assembly or

installation —Import of goods —Acceptance of supply by buyer or 12 months post transfer of goods / possession by buyer – if supplied on returnable basis —Receipt of payment —Issuance of tax invoice

Date of Supply of goods

Earliest of following: —Completion of service —Receipt of payment —Issuance of tax invoice

Date of Supply of services

Tax invoice must be issued within 14 days from date of supply (DL Article 67)

TIME OF SUPPLY OF GOODS- WHEN IS TAX DUE ?

Time of supply of goods for sales within UAE is earliest of the following: a)Date of delivery of goods b)Date of tax invoice c) Date of payment Time of supply for Imports of goods: Time of supply for imports is the date the goods are brought into UAE i.e. the date of the customs declaration in UAE

ILLUSTRATION - SALES OF GOODS

Invoice date Payment date Delivery date Time of supply 1 January 2018 1 February 2018 1 March 2018 1 January 2018 1 February 2018 31 January 2018 1 March 2018 31 January 2018 To be raised 31 January 2018 1 October 2018 31 January 2018 1 January 2018 2 February 2018 To be delivered 1 January 2018 1 February 2018 1 February 2018 5 January 2018 5 January 2018

TIME OF SUPPLY OF SERVICES- WHEN IS TAX DUE ? Time of supply of services is, earliest of the following: a)Date on which services are provided b)Date of tax invoice c)Date of payment

SPECIAL CASES- SUPPLIES INVOLVING PERIODIC PAYMENT & INVOICING

The date of supply of goods or services for any contract that includes periodic payments or consecutive invoices is the earliest of any of the following dates, provided that it does not exceed one year from the date of the provision of such goods and services: a) The date of issuance of any Tax Invoice. b) The date payment is due as shown on the Tax Invoice. c) The date of receipt of payment.

TIME OF SUPPLY IN WORKS CONTRACTS

• The date of supply for any works contract involves additional challenge in

determining the date of completion of the works contract or each milestone forming part of that works contract.

• The standard industry practice in UAE is that any works contract or each

milestone forming part of that works contract is considered as completed only when the same is certified by the Customer or a Project Consultant appointed by the Customer.

• The liability to report VAT and issuance of Tax Invoices in such cases arises on

the Supplier, upon the certification of the work.

• For Advance Payments, the liability to report VAT arises on the date of payment.

EXPORTS UNDER VAT

EXPORTS OF GOODS & SERVICES

EXPORT: Goods departing the state or the provision of services to a person whose Place of Establishment or Fixed Establishment is outside the State. GOODS: Physical property that can be supplied including real estate, water and all forms

• f energy as specified in the Executive Regulation of this Decree – Law.

SERVICES: Anything that can be supplied other thanGoods. PLACE OF ESTABLISHMENT: The place where a business is legally established in a country pursuant to the decision of its establishment, or in which significant management decisions are taken and central management functions are conducted. FIXED ESTABLISHMENT: 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. STATE: United ArabEmirates

EXPORTS UNDER VAT

Goods departing from UAE UAE Outside UAE UAE Place of Establishment/ Fixed Establishment Outside UAE Place of Provision

In case of Goods: In case of Services:

EXPORTS- RELEVANT PROVISIONS OF VAT LAW

Rate of Tax on Exports:

• As per Article 45 of the VAT DL of UAE, Export of Goods and Services will be Zero Rated Sales.

Recovery of Tax on Export:

• Any input tax paid by the business in making an export shall be recoverable against output tax.
• Excess of input tax over output tax may be either given as Refund or carried forward to subsequent tax

periods. Record Keeping: All taxable persons are required to keep proper records of exported goods and services. Export of Goods- Require both Official and Commercial Evidence:

• “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) Airway bill. 2) Bill of lading. 3) Consignment note. 4) Certificate of shipment.

IMPORTS UNDER VAT

IMPORT OF GOODS & SERVICES

IMPORT: The arrival of Goods from abroad into the State or receipt of Services from

• utside the State.

CONCERNED GOODS: Goods that have been imported, and would not be exempt if supplied in the State. CONCERNED SERVICES: Services that have been imported , where the place of supply is in the State, and would not be exempt if supplied in the State IMPORTER ON RECORD FOR GOODS: The importer of concerned goods who clears the goods from the Customs Authorities in UAE, under its Import Code issued by the Customs Authorities in UAE and the Tax Registration Number (TRN) issued by the Federal Tax Authority (FTA) in UAE. DATE OF IMPORT OF GOODS : The date on which concerned goods are imported under the Customs Legislation in UAE. IMPORTER OF SERVICES: The recipient in the State who is receiving services being used for its business in the State, from an Overseas Supplier. STATE: United ArabEmirates

WHAT IS REVERSE CHARGE MECHANISM (RCM)?

Reverse Charge Mechanism (RCM) is a mechanism under which the recipient of goods or services is required to pay VAT instead of the supplier, when the supplier is not a taxable person in the State where the supply has been made.

Let’s Understand

When goods are imported to UAE from UK, the importer of goods will pay VAT under reverse charge mechanism, if the same goods were taxable in UAE and importer would account for Input VAT and at the same time for output VAT as if he was making the supply, under UAE VAT Law, tohimself.

HOW REVERSE CHARGE MECHANISM WORKS ?

▪Reverse Charge Mechanism (RCM) rules will apply to International Supplies of Concerned Goods and Concerned Services from Business to Business ▪RCM applies when a VAT registered person in UAE imports into the UAE Goods or Services from suppliers established outside the State and those Goods or Services would be subject to VAT,if purchased in theUAE ▪The recipient accounts for the VAT due on the supply on his VAT return (self account)

• The output VAT accounted for by the recipient is deductible as input VAT
• n the same VAT return where it is incurred as a cost of making taxable

supplies

ILLUSTRATION OF REVERSE CHARGE MECHANISM

PROVISIONS OF ARTICLE48 OF DL –FOR REVERSE CHARGE

Article 48 of DL- Provides Specific Obligations to Account for Tax under Reverse Charge: If the Taxable Person imports Concerned Goods or Concerned Services for the purposes 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 Due Tax in respect

• f these supplies.

ACCOUNTING ENTRIES UNDER REVERSE CHARGE

Business imports goods under Article 48 (Reverse Charge): Cost of Goods imported AED 3,000. Purchase Account Debit 3,000 Input Tax (Under RCM) Debit 150 To Output Tax (Under RCM) Credit 150 To Payable Account Credit 3,000

FAQ’s FOR EXPORTS & IMPORTS UNDER VAT

▪Is only raising of an invoice to a Company or Person outside UAE enough to qualify a transaction as Exports? ▪Is Physical Inspection Report

• f

Goods from UAE Customs Authorities a Mandatory Document for Export of Goods ? ▪What are the various factors to be analyzed to assess whether the Services provided qualify as Export of Services ? ▪If goods are handed over to a Customer who came from outside UAE, physically in UAE, does it qualify as Exports ? ▪What does the term ‘Importer on Record’ mean ? ▪Is VAT applicable in case the transfer of ownership of goods takes place on High Sea Sales basis or outside UAE ? ▪Box 6 of VAT Returns is not showing correct RCM figures ?

DESIGNATED ZONES

TREATMENT OF DESIGNATED ZONES IN UAE

➢Under Article 51 of the Decree Law, goods may be transferred from one Designated Zone to another Designated Zone without any tax becoming due ➢The zones that qualify as Designated Zones are designated by the Cabinet

• decision. Currently, the Cabinet Decision has specified 23 Free Trade Zones in

UAE as Designated Zones. ➢The Executive Regulations provide the procedures and conditions for the transfer of goods and the method of keeping, storing & processing such goods ➢The Executive Regulations detail the conditions under which business conducted in Designated Z

• nes will be regarded as being conducted in UAE.

Under Article 1 of the Decree Law, a Designated Zone is any area specified by a Cabinet Decision as a Designated Zone and considered to be outside the UAE in certain cases, for tax purposes.

REQUIREMENTS FOR DESIGNATED ZONES

Designated Zones – any area specified by Cabinet Decision (Definition Article 1) Designated Zone is a specific fenced geographic area with the following: — Security measures — Customs control — Monitor entry and exit and movement of goods Designated Zone internal procedures required regarding method of keeping, storing and processing goods Operator of Designated Zones to comply with procedures set by FTA

IMPLICATIONS OF DESIGNATED ZONES IN UAE

▪

Article 50 of Decree Law A “Designated Zone” that meets the conditions specified in the Executive Regulation of this Decree– Law shall be treated as being outside the State. PS: NOT ALL 50+ FREE TRADE ZONES IN UAE ARE DESIGNATED ZONES FOR THE PURPOSES OF VAT. ONLY THE FREE TRADE ZONES SPECIFIED IN THE CABINET DECISION AS DESIGNTAED ZONES WILL BE CLASSIFIED AS SUCH. IMPLICATIONS OF VAT ON DESIGNATED ZONES IN UAE The VAT status of Designated Zones, gives rise to some complex issues in terms of the implementation

• f VAT and consideration should be given to the following:
• Whether the particular Free Trade Zone falls within Designated Zone category as per Cabinet decision.
• VAT classification and treatment of goods and services obtained inside the Designated Zone, brought from outside

the Designated Zone and f rom overseas.

• VAT treatment of supplies from one Designated Zone to another Designated Zone.
• Organizational and structural changes required if any, to optimize competitiveness.

DESIGNATED ZONES (ABU DHABI) 1) Free Trade Zone of Khalifa Port 2) Abu Dhabi Airport Free Zone 3) Khalifa Industrial Zone 4) Al Bateen Executive Airport Free Zone DESIGNATED ZONES (DUBAI) 1) Jebel Ali Free Zone(North-South) 2) Dubai Cars and Automotive Zone (DUCAMZ) 3) Dubai Textile City 4) Free Zone Area in Al Quoz 5) Free Zone Area in Al Qusais 6) Dubai Aviation City 7) Dubai Airport Free Zone 8) International Humanitarian City in Jebel Ali DESIGNATED ZONES (SHARJAH) 1) Hamriyah Free Zone 2) Sharjah Airport International Free Zone DESIGNATED ZONES (AJMAN) 1) Ajman Free Zone DESIGNATED ZONES (UMM AL QUWAIN) 1) Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port 2) Umm Al Quwain Free Trade Zone on Sheikh Mohammed Bin Zayed Road DESIGNATED ZONES (RAS AL KHAIMAH) 1) RAK Free Trade Zone 2) RAK Maritime City Free Zone 3) RAK Airport Free Zone DESIGNATED ZONES (FUJAIRAH) 1). Fujairah Free Zone 2) FOIZ (Fujairah Oil Industry Zone) DESIGNATED ZONES (AL AIN) 1)Al Ain International Airport Free Zone

LIST OF DESIGNATED ZONES

VAT IMPACT ON DESIGNATED ZONES IN UAE

➢Goods imported from outside the State into a Designated Zone are generally not subject to VAT. ➢ VAT will become applicable once the goods are transacted from Designated Zone and imported into the mainland of UAE. ➢Designated Zones will be treated as being outside of the UAE for VAT

• purposes. The UAE VAT Law states that goods may be transferred from one

Designated Zone to another without any VAT becoming payable. ARTICLE 52 of Decree Law specifies the exception to Article 50 of this Decree Law, by statingthat the Executive Regulation of this Decree Law shall specify the conditionsunderwhichthe businessconductedwithintheDesignatedZoneswill beregardedasbeingconductedin theUAEforVATpurposes. DESIGNATED ZONES

VAT IMPACT ON DESIGNATED ZONE TRANSACTIONS

VAT IMPACT ON SUPPLY OF GOODS-For DZ’s

Mainland UAE DZ

Standard Rated

Overseas DZ

Out of scope

DZ DZ

Out of scope

DZ Mainland UAE

Standard Rated/ RCM

DZ Overseas

Out of scope Goods consumed within a Designated Zone are subject to VAT

ARTICLE 51 OF EXECUTIVE REGULATIONS ON DZ

The transfer

• f

Goods between Designated Zones will not be subject to Tax if the following two conditions are met: (A) (B) Where the Goods, or part thereof, are not released, and are not in any way used or altered during the transfer between the Designated Zones. Where the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law. Where Goods are moved between Designated Zones, the Authority may require the owner of the Goods to provide a financial guarantee for the payment of Tax, which that Person may become liable for should the conditions for movement of Goods not be met.

ARTICLE 51 OF EXECUTIVE REGULATIONS ON DZ

• Where a supply of Goods is made within a Designated Zone to a Person to be used by

him or a third person, then the place of supply shall be the State unless the Goods are to be incorporated into, attached to or otherwise form part of or are used in the production or sale of another Good located in the same Designated Zone which itself is not consumed.

• The Place of supply of Services is considered to be inside the State if the place of

supply is in the Designated Zone.

• The Place of supply of water or any form of energy shall be considered to be

inside the State if the place of supply is in a Designated Zone.

• For the purposes of this Article, a movement of Goods into a Designated Zone from

a place in the State or a supply of Goods to a Designated Zone shall not be considered an Export of those Goods. PS: For all Free Trade Zones in UAE, which are not specified as Designated Zones in the Cabinet Decision, all the provisions of the VAT Law in UAE as applicable to the Mainland UAE, will be applicable to such Free Trade Zones, and there are no differential treatments for applicability of VAT, which is available to Companies in such Free Trade Zones.

SCENARIO 1 - GOODS

Designated Zone1 Import R O W UAE Mainland Designated Zone2 R O W Export

RCM /5%

Out of Scope Out of Scope Out of Scope

SCENARIO 2 - GOODS

Invoice UAE Mainland UAE Mainland R O W Invoice Designated Zone1

RCM /5%

SCENARIO 3 - GOODS

Designated Zone UAE Mainland

Non Registrant Registrant RCM VAT

ROW Out of Scope Out of Scope Designated Zone

SCENARIO 4 - SERVICES

Designated Zone UAE Mainland

Non Registrant Registrant VAT 5%. VAT 5 %

ROW Export0% Designated Zone VAT 5 % Import- RCM

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Indirect Taxes Committee The Institute of Chartered Accountants of India ฀ idtc@icai.in www.idtc.icai.org; www.icai.org