VAT q&a: 'Is a company allowed to back charge me for VAT on rent I've paid?'

The Dubai resident paid a full year's rent and a security deposit for a furnished hotel apartment prior to the introduction of VAT

Dubai skyline seen from Deyaar properties on Business Bay.
(Photo: Reem Mohammed/The National)

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In November 2017, prior to the implementation of VAT in January 2018, I signed a rental contract for a furnished hotel apartment and paid a security deposit of Dh3,250 along with a full year’s rent upfront. I rented the apartment for a second year and vacated it in November 2019.

I am now trying to get the security deposit returned, but the company is withholding Dh2,965.07 which they say is VAT owed for the period from January 1, 2018 to November 30, 2018. Is the company allowed to do this? The balance for the first year was paid and cleared prior to the introduction of VAT. WD Dubai

VAT is payable on rental of furnished hotel apartments, in contrast to annual rent on an unfurnished property which is exempt from VAT.

Before VAT was introduced, the FTA published detailed transitional rules in Article 80 of the Decree Law and Article 70 of the Executive Regulations to give some clarity on how VAT should be handled in such circumstances, where a contract was concluded prior to the introduction of the tax on January 1, 2018 but the service covered an extended period that fell into 2018.

The base rule in Article 80 is that if the contract does not contain clauses related to tax, the amount paid shall be considered inclusive of VAT. However, article 80 also states that the supplier is liable for VAT, regardless of whether it was considered at the time. This means that the supplier must account for VAT on the amount you paid relating to 2018.

Article 70 of the executive regulations on transitional rules, which covers when the amount paid is treated as VAT exclusive, states the recipient is obliged to pay VAT in addition to the amount already paid. The conditions are that the recipient of the service is VAT-registered and that he has the right to recover the input tax. For this to be applicable, the supplier should have requested this information from you before the introduction of VAT. If they did not make this request before December 31, 2017 then the payments you made are considered inclusive of VAT.

It was very common that suppliers concluding contracts in the last months of 2017 failed to include terms relating to VAT on their contracts. Once they realised they had to account for and pay VAT on the amounts that related to services provided in 2018, many went back to try to recover the tax from customers, which they are not entitled to do.

From your question it looks as though this company has not brought up the issues of the 2018 VAT with you until you tried to get your deposit refunded two years later. The Decree Law was published in August 2017 so all companies had adequate time to consider the implications for their business.

Unfortunately, this was their mistake which they cannot pass on to you. I would send them the VAT legislation I have referenced here and if that is unsuccessful and they still refuse to return the deposit in full, I would raise a complaint with the Department of Economic Development (DED) consumer rights team.

The website where you can file an online complaint is:

I recently sold my beauty salon business and transferred the trade license, the remaining lease and the company bank account. Should I now deregister for VAT? MH Dubai

The action required on sale of your business depends on whether it is a transfer of a “going concern” (a business that is operating and making a profit) or just the sale of selected assets and liabilities excluding the trade licence. As you have sold the whole business including the trade license, the existing VAT registration continues and should be amended so that the new owner is the authorised signatory and takes over VAT compliance going forward. Ideally you should make this change during the sale so that once the transfer is complete you have no further personal liability to the Federal Tax Authority.