VAT q&a: ‘Should I be charged VAT on a mobile top-up card?’

The Fujairah resident says the cost differs depending on whether it is purchased from the telecom provider or a retail store

Abu Dhabi, U.A.E., June 14, 2018. Eid Al Fitr shopping at LULU Hypermarket, Mushrif Mall.Shoppers queuing at the cashier counters. Victor Besa / The National Section: National

I purchase top-up cards for my mobile phone and find it confusing that sometimes I am charged VAT on the amount I pay and sometimes my receipt shows no VAT. For example, if I buy a Dh100 top-up card from the mobile provider itself there is no VAT. If I buy the same Dh100 top-up from another store, I am always charged Dh105, which includes Dh5 VAT. Which is correct? FS, Fujairah   

I see a lot of inconsistencies with how mobile phone top-up cards are treated for VAT purposes.

The VAT treatment of these are covered under Article 40 of the Decree Law and Article 28 of the Executive Regulations. If you are purchasing a top-up card for a specified value which you can then use at a later date to obtain a number of different services from your mobile provider, this should not have VAT added at the point of purchase. You are simply exchanging cash for credit with the mobile provider and this is not a taxable supply as per the VAT legislation. VAT should be accounted for by the service provider when you use the credit and purchase specific mobile services.

Supermarkets tend to get this wrong and will often charge you VAT on the amount of the top-up purchased. You will then pay VAT again when you use the credit with the mobile provider.

However, if you purchase a specific service or add-on, for example you buy 60 minutes of additional calls to use in the next month, then you should be charged VAT at the point of purchase as this is a taxable supply of a specific service.

To avoid the risk of paying double VAT, I suggest you buy top-ups directly from the mobile provider.

I run a recruitment consultancy and recently placed a candidate in Bahrain. The role is working for a long-standing UAE client who established a subsidiary in Bahrain. I have been asked to invoice the UAE client for my services. What is the VAT treatment for this placement? Can my service be classified as an export, and therefore be exempt of any VAT? BL, Dubai

To understand the relevant VAT treatment of recruitment services for candidates based overseas you need to look at Article 31 of the Executive Regulations to the Decree Law. The basic rule for the supply of services is that the “place of supply” is where the service provider is located. However, the regulations set out a number of exceptions to the rule.

As a recruiter, all of your sales transactions will either be zero-rated or standard-rated. Supplies which are exempt from VAT are specifically listed in the Decree Law and are only for certain financial services, certain residential buildings, supply of bare land and local passenger transport. Therefore, you do not qualify for an exempt VAT code under those conditions.

For a service to be rated as an export, and therefore taxable at 0 per cent rather than the standard 5 per cent, the service must be provided to a recipient whose place of business is outside of the UAE and the recipient must be outside of the country when the service is delivered. Also, the services should not be connected with real estate or movable personal property. Obviously, your recruitment services are not in these restricted categories. So typically your services to a company located outside of the UAE will be classed as an export and taxed at 0 per cent.

This example, however, is complicated by the fact that you have a contract in place with the UAE client and are invoicing the company here. It could be argued that your services are being supplied to the UAE company, albeit the candidate will be working in Bahrain. I recommend that in future you have an agreement in place with the Bahraini company and invoice them directly. Once that paperwork is in place, your services would certainly be classified as an export and taxable at 0 per cent.

To complicate matters further this tax treatment will change once the VAT systems of the implementing GCC countries are aligned (it is unclear when this will happen). From that point, if you are supplying services to a VAT-registered company in another GCC state, you will raise invoices without any UAE VAT as the transaction will be taxable in the recipient’s country.

You will need to code the transaction on your invoices as outside the scope of VAT and state on the invoice that the recipient should account for VAT under the reverse charge mechanism. Any services to non-VAT registered customers will be zero-rated as long as they meet the criteria I have mentioned above.

Lisa Martin, a chartered accountant with more than 20 years of commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to [e-mail]