Nothing drives an accountant to distraction like the release of a clarification document from the Federal Tax Authority. We have had 40 so far, with the last one including clarifications on earlier clarifications.
In a recent discussion with a client, I was asked when these updates take effect. The answer to that is at the end of each document.
For simplicity, let us make this the January 1, 2018 for VAT. As we are still receiving and awaiting law on corporate tax, clarifications for this have not yet begun.
I want to highlight one specific example of how monumentally tax law can change using the recently released VATP040. That is VAT Public Clarification, Amendments to the executive regulations of Federal Decree-Law No 8 2017 on Value Added Tax – Cabinet Decision No 100 of 2024.
Let us dive into details. Is the VAT on health insurance provided to employees reclaimable? It depends – that was the answer until VATP040 was released.
In Abu Dhabi, you could reclaim VAT on a compliant supplier invoice for the employee and up to three dependents. I believe that you could choose which ones if there were more.
In Dubai, you could only reclaim on the employee element, no dependents allowed.
In the Northern Emirates, meanwhile, you could not reclaim anything, employee or dependents.
For any Emirati employee, you could not reclaim anything for them or their dependents in any emirate.
Why? The right to reclaim was based on the cost being related to a requirement as part of an employee’s visa. This coupled with the particular rules of a given emirate. As Emiratis do not require a visa, they did not contain the same health insurance provision requirements that came with the said visa.
The above did not preclude a company from providing more insurance cover beyond that required by law, federal and emirate.
Interestingly, it was not clear whether the same approach would have applied to corporate tax in the form of deductible costs against taxable revenue. There are differences even now, so be careful when completing your annual return, which, for most, will be due imminently.
VATP040 removed this anomaly. It does state that employees’ families are covered under the new definition. Spouse and kids would certainly be covered, however, in a country where parents might be brought over – something normal in an expats country – would they or broader relations be covered as well?
Let us move on to a recent update on the FTA portal that affects everyone with a juridical entity.
One of the standard elements when registering is the requirement to list your business activity. You might have many, in which case, you need to choose the main one.
The legacy version was a four-step process. Ultimately, a four-digit code appeared representing the outcome. It was quite a limited data set and it was not unusual to have to submit your application multiple times before the FTA was content that your choice was sufficiently close enough.
The underlying issue was driven by the multitude of trade licence issuing authorities in the UAE. Without an agreed centralised list, each has been free to create their own. The variations are, as you might imagine, vast.
The replacement solution is a single text searchable field, which is much simpler. The data set of options is now vast. Unfortunately, or fortunately, I am still unsure which one is a better solution. It is not a collation of all options offered by the trade licence issuing authorities.
General trading is missing. Wholesale goods offers a myriad of detailed options, but none of them are general wholesaling. There is no guidance as to whether you might wish to pick the one in which you conduct the most activity by volume or value.
I appreciate that the system is new, however, this evolution could be supported by user feedback requesting that useful missing options are added.
When you log on to your FTA portal and click on an entity profile, a pop-up message and option box will appear. You are then asked to update your business activity. You may skip the request, just once, from what I can tell. On your second login, you will not be able to progress until you complete the request.
Check your trade licence main activity and choose the search result that best matches it. Are there repercussions for getting this wrong? I don’t know. I cannot imagine anyone doing it on purpose.
What is driving this request? It would facilitate the collation of siloed macroeconomic activity data, which would feed into national planning models and decisions, ultimately benefitting us all.
