We are a UAE startup, whose sales for the first year did not cross the UAE VAT threshold of Dh375,000. However, recently we realised that our sales will exceed the threshold in the next 30 days. Therefore, while we did not charge VAT for the first 10 months, we will now be charging it. We have heard we can reclaim the entire input VAT paid before registration. Is this process acceptable to the Federal Tax Authority? We did not register in the first few months of operation as were unsure we would cross the threshold. HJ Abu Dhabi
Article 56 of the Decree Law allows the recovery of input tax paid on goods, services and imported goods prior to the date of VAT registration, “provided that these goods and services were used to make supplies that give the right to input tax recovery upon tax registration”. Input VAT is the VAT you are charged by your suppliers on goods and services purchased.This means that you can only recover VAT paid before registration if VAT charged on the same goods and services post registration would be recoverable. You should understand the exclusions to input tax recovery contained in the full decree law and executive regulations and apply the same rules that apply to input VAT recovery generally, when determining how much pre registration input VAT can be offset.
There are four exceptions to this rule listed in the decree law. The first is receipt of goods and services for purposes other than making taxable supplies. The next is for input tax related to capital assets that are already partially depreciated before the date of registration, for example, if you purchase a fixed asset with an expected life of five years and when you register for VAT the asset has only two years of use left, you can only reclaim two fifths of the VAT you originally paid. The third exception is for services received more than five years prior to the date of registration. Note this refers to services only, rather than goods and services.
Finally you cannot reclaim input tax paid if you have moved goods to another implementing GCC state prior to the registration in that state. This is because if you supply goods to another GCC state then the recovery of input tax is permitted only in that other state. Therefore, to recover input VAT you need to be registered in that other GCC state.
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I have read about UAE companies receiving invoices without UAE VAT, where such companies need to record the VAT under the reverse charge mechanism. In such cases, this means the FTA will not receive any VAT. Is it logical that some non-resident companies are obliged to register for and charge VAT but others do not? Is there ambiguity in the law here? HJ Abu Dhabi
This question highlights why the reverse charge mechanism is a hard concept to grasp and at first does not seem to make sense. The reverse charge mechanism applies if you make input and output VAT adjustments on your VAT return where you have purchased goods or services from an overseas company and have not been charged VAT.
When considering this, remember the end consumer bears the cost of VAT not the companies involved in the production chain. The companies have to charge VAT, but can also reclaim any VAT they are charged.
If a UAE resident company is purchasing services from another UAE resident company, and both are VAT registered, then the supplier will charge the recipient company VAT and will pay this over to the FTA on their next return. Meanwhile, the recipient company will pay the supplier VAT but will then reclaim this from the FTA on their next return. So from the FTA’s perspective, there is a zero net effect from this transaction, albeit that there are equal and opposite actual cash flows.
If a UAE company buys services from an overseas company that is not registered for UAE VAT, the UAE recipient company must use the reverse charge mechanism when accounting for this VAT. They will record equal and opposite VAT payable and VAT reclaimable on their VAT return. As these amounts net each other off on the same VAT return, there will not be any actual movement of cash, but the zero net effect is the same. So there is no ambiguity in these two scenarios, the net effect for both the FTA and the UAE-registered company is the same.
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
Key changes
Commission caps
For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:
• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term).
• On the protection component, there is a cap of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).
• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated.
• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.
• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.
Disclosure
Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.
“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”
Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.
Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.
“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.
Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.
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UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
FROM%20THE%20ASHES
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MATCH INFO
Euro 2020 qualifier
Croatia v Hungary, Thursday, 10.45pm, UAE
TV: Match on BeIN Sports
Greatest Royal Rumble results
John Cena pinned Triple H in a singles match
Cedric Alexander retained the WWE Cruiserweight title against Kalisto
Matt Hardy and Bray Wyatt win the Raw Tag Team titles against Cesaro and Sheamus
Jeff Hardy retained the United States title against Jinder Mahal
Bludgeon Brothers retain the SmackDown Tag Team titles against the Usos
Seth Rollins retains the Intercontinental title against The Miz, Finn Balor and Samoa Joe
AJ Styles remains WWE World Heavyweight champion after he and Shinsuke Nakamura are both counted out
The Undertaker beats Rusev in a casket match
Brock Lesnar retains the WWE Universal title against Roman Reigns in a steel cage match
Braun Strowman won the 50-man Royal Rumble by eliminating Big Cass last
The specs: 2018 Renault Megane
Price, base / as tested Dh52,900 / Dh59,200
Engine 1.6L in-line four-cylinder
Transmission Continuously variable transmission
Power 115hp @ 5,500rpm
Torque 156Nm @ 4,000rpm
Fuel economy, combined 6.6L / 100km
The%20specs
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Generation Start-up: Awok company profile
Started: 2013
Founder: Ulugbek Yuldashev
Sector: e-commerce
Size: 600 plus
Stage: still in talks with VCs
Principal Investors: self-financed by founder
The specs
Engine: 2-litre 4-cylinder and 3.6-litre 6-cylinder
Power: 220 and 280 horsepower
Torque: 350 and 360Nm
Transmission: eight-speed automatic
Price: from Dh136,521 VAT and Dh166,464 VAT
On sale: now
Company%20Profile
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In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
Five famous companies founded by teens
There are numerous success stories of teen businesses that were created in college dorm rooms and other modest circumstances. Below are some of the most recognisable names in the industry:
- Facebook: Mark Zuckerberg and his friends started Facebook when he was a 19-year-old Harvard undergraduate.
- Dell: When Michael Dell was an undergraduate student at Texas University in 1984, he started upgrading computers for profit. He starting working full-time on his business when he was 19. Eventually, his company became the Dell Computer Corporation and then Dell Inc.
- Subway: Fred DeLuca opened the first Subway restaurant when he was 17. In 1965, Mr DeLuca needed extra money for college, so he decided to open his own business. Peter Buck, a family friend, lent him $1,000 and together, they opened Pete’s Super Submarines. A few years later, the company was rebranded and called Subway.
- Mashable: In 2005, Pete Cashmore created Mashable in Scotland when he was a teenager. The site was then a technology blog. Over the next few decades, Mr Cashmore has turned Mashable into a global media company.
- Oculus VR: Palmer Luckey founded Oculus VR in June 2012, when he was 19. In August that year, Oculus launched its Kickstarter campaign and raised more than $1 million in three days. Facebook bought Oculus for $2 billion two years later.
Don't get fined
The UAE FTA requires following to be kept:
- Records of all supplies and imports of goods and services
- All tax invoices and tax credit notes
- Alternative documents related to receiving goods or services
- All tax invoices and tax credit notes
- Alternative documents issued
- Records of goods and services that have been disposed of or used for matters not related to business
The struggle is on for active managers
David Einhorn closed out 2018 with his biggest annual loss ever for the 22-year-old Greenlight Capital.
The firm’s main hedge fund fell 9 per cent in December, extending this year’s decline to 34 percent, according to an investor update viewed by Bloomberg.
Greenlight posted some of the industry’s best returns in its early years, but has stumbled since losing more than 20 per cent in 2015.
Other value-investing managers have also struggled, as a decade of historically low interest rates and the rise of passive investing and quant trading pushed growth stocks past their inexpensive brethren. Three Bays Capital and SPO Partners & Co., which sought to make wagers on undervalued stocks, closed in 2018. Mr Einhorn has repeatedly expressed his frustration with the poor performance this year, while remaining steadfast in his commitment to value investing.
Greenlight, which posted gains only in May and October, underperformed both the broader market and its peers in 2018. The S&P 500 Index dropped 4.4 per cent, including dividends, while the HFRX Global Hedge Fund Index, an early indicator of industry performance, fell 7 per cent through December. 28.
At the start of the year, Greenlight managed $6.3 billion in assets, according to a regulatory filing. By May, the firm was down to $5.5bn.
The Travel Diaries of Albert Einstein The Far East, Palestine, and Spain, 1922 – 1923
Editor Ze’ev Rosenkranz
Princeton
The 10 Questions
- Is there a God?
- How did it all begin?
- What is inside a black hole?
- Can we predict the future?
- Is time travel possible?
- Will we survive on Earth?
- Is there other intelligent life in the universe?
- Should we colonise space?
- Will artificial intelligence outsmart us?
- How do we shape the future?
Profile
Company name: Marefa Digital
Based: Dubai Multi Commodities Centre
Number of employees: seven
Sector: e-learning
Funding stage: Pre-seed funding of Dh1.5m in 2017 and an initial seed round of Dh2m in 2019
Investors: Friends and family