KHALEEJ TIMES, Monday, Mar 29, 2021 | Shaaban 15, 1442
Tax conversion: Importance of context in tax policies, guidance
Emirates:
Certain words in tax guidance/clarifications are often taken out of
context. I started the fireside chat with UAE manufacturers and trading
companies.
“Do you mean that the clarifications are ambiguous?” an audience member asked.
“Not really, but people occasionally miss out the context behind the
clarification. An interesting case in point is FTA’s Public Clarification
VATP012.” I replied.
What is VATP012?
VATP012 clarifies the VAT implications where a VAT-registered owner of the goods
may request another VAT-registered person (“importing agent”) to import goods on
behalf of the former. It clarifies the disclosures that the importing agent and
the owner needs to make in their respective VAT returns.
Interpretation
The clarification mentions that ‘as the importing agent is not the owner of the
goods at the time of importation, it is unable to recover VAT incurred on the
importation’.
If read without context, the above statement could result in huge costs. In
international trade, it is common to purchase goods on DDP terms and the
ownership is transferred to the buyer only upon delivery in the buyer’s country.
If ownership at the time of importation becomes a mandatory criteria to recover
input credit, UAE importer-buyers will be at a loss. They will not be able to
recover import VAT paid by them on the goods purchased from overseas suppliers
as they are not the owners at the time of importation.
Interestingly, the VAT law does not correlate import VAT, input credit and
ownership at the time of importation. The activity of import of goods itself is
a ‘taxable event’. The tax obligation on the said taxable event of import is on
the person listed as the ‘importer’ of the goods for customs clearance purposes
irrespective of the ownership thereof. Further, ‘input tax’ includes tax paid by
a person when conducting an import. Therefore, VATP012 should not be interpreted
to mean that import VAT can be recovered only by the person who is the owner of
the goods at the time of import.
VATP012 is a trade facilitating measure and addresses a different business
situation. A supplement clarification by the authorities would help UAE
companies to correctly recover import VAT credit on their overseas purchases.
VATP012 and
Designated Zones
“What about supplies from Designated Zone to mainland? They are also treated as
import.” another audience member remarked.
“Interesting point! Incidentally, VATP012 mentions in its summary section that,
in some cases, the importing agent could be the customer of the owner of the
goods. And businesses have misconstrued it to cover mainland customers of the
Designated Zone suppliers”, I replied.
Mainland customers and/or Designated Zone suppliers have often contemplated
VATP012 implications on the supplies from Designated Zones. VATP012 does not
directly refers to the supplies from Designated Zones or contain a detailed
discussion on the customer acting as an importing agent.
A Principal-Agency relationship is very different from a Seller-Buyer
relationship. The mere absence of ownership at the time of importation should
not convert a mainland buyer into an importing agent. VATP012 implications on
Designated Zones should be understood in the right context.
As VAT is fairly new in the UAE, the authorities must be commended for periodic
guidance on various issues. It is now on the businesses need to understand and
implement the tax correctly.
As I concluded the session, the organiser suggested “Should we discuss VAT
valuation in our nextvconversation”.
“Absolutely” I smiled.
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