VAT q&a: 'Do I have to pay VAT twice on an item posted to the UAE?'

I have a question relating to VAT applied to goods being posted to the UAE, with receivers having to pay for them at the point of pick up. Is this still the case if you have already paid VAT in the country of origin? I recently purchased an item from Australia where the price included 10 per cent GST. Now I have incurred another 5 per cent VAT upon receiving the item in the UAE, along with a service charge from the parcel carrier, which does not seem fair. RM Dubai

Unfortunately the 10 per cent sales tax you paid to the Australian supplier is totally unrelated to the 5 per cent UAE VAT that you have been charged from the parcel carrier. Article 50 of the Executive Regulations of the Decree Law states that where goods are imported into the UAE by a consumer (defined as someone not registered for VAT) then UAE VAT must be paid to the authority before the goods are released. This is why the courier will charge you UAE VAT plus a fee for collecting the VAT at the point of delivery, and this process is entirely compliant with the legislation.

The Australian Goods and Service Tax is governed by Australian tax legislation. I briefly reviewed the Australian GST rules and can see that exports of goods and services are generally GST free. It appears that the Australian supplier should probably not have charged you GST knowing the goods were being shipped abroad. I have seen a number of examples of this double charging and it is often due to the supplier’s systems not being able to deal with GST-free export sales, rather than any intentional over charging. I would approach the Australian supplier and see if they can refund or credit the amount. In my experience, you are unlikely to be successful, but it is worth an email to try.

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Our company deals in the real estate business and has two companies: one is a property management company and the other a general maintenance company. The property management company receives VAT from tenants but there are no tax input invoices because the building - including its commercial and residential units - is maintained by the general maintenance company. This company, therefore, receives all VAT input tax invoices from suppliers, but there is not any VAT output. So, how do we claim the VAT input amount for the general maintenance company? AA Dubai

I understand from the question that you have two separate companies, one that leases commercial and residential properties and a separate company that maintains them. The property management company will receive VAT from commercial tenants, which it must report in its VAT returns and pay to the FTA. The maintenance company pays VAT on invoices from third party suppliers. In this kind of arrangement, you would usually expect the maintenance company to invoice the property company for its services in maintaining the properties. Assuming the two companies are not covered by a tax grouping this would generate taxable revenues in the maintenance company against which you would offset the input VAT charged by suppliers.

The property management company would receive a tax invoice from the maintenance company that it could offset against its output VAT on rental incomes. Bear in mind that there will likely be restrictions on the input VAT reclaimable by the property management company as rental income on residential buildings are exempt from VAT, other than for the first supply in the first three years after completion when they are zero rated.

Another option​, if eligible to do so, would be for the two companies to form a tax group. This means there is no VAT on transactions between the grouped companies, but the input VAT charged to the maintenance company could be offset against the output VAT payable by the property management company.

A final option would be for the maintenance company to simply declare no vatable revenues on its return but to report the input VAT, which would give rise to a reclaim and repayment position. This is my least preferred option as asking the Federal Tax Authority to make a repayment of VAT is going to be more difficult than offsetting input VAT against output VAT. In the case of an audit, it would likely also give rise to questions being asked about why the maintenance company is not charging the property management company for its services.

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Lisa Martin, a chartered accountant with over 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to pf@thenational.ae