I am a recruiter based in the UAE sourcing candidates for a client based in Bahrain. My client will come to Dubai to interview the final candidates for a Bahrain-based role. He has no office or other operations in the UAE. Do I need to charge VAT on my invoice? What would be the correct tax treatment if my client did the final interviews by telephone from outside of the UAE? BL, Dubai
The basic rule is outlined in Article 29 of the Decree Law, which states that the supply of services shall be the place of residence of the supplier. The Decree Law and Executive Regulations go on to give certain exceptions to this rule and set out the conditions under which the supply of services are considered to be an export, in which case they would be subject to 0 per cent VAT, rather than 5 per cent. Article 31 of the Executive Regulations states that the supply of services shall be zero-rated where the services are supplied to a recipient who does not have a place of residence in an implementing state and who is outside the state at the time the services are performed.
While your client does not have a place of residence in the UAE, in coming to the UAE to interview candidates he is inside the UAE in connection with the supply of your service and therefore it would be subject to VAT at the standard rate of 5 per cent. If he conducted the interviews remotely by telephone, your services would be considered an export and subject to VAT at 0 per cent.
It is worth noting that at some time in the future, when the VAT systems of GCC countries are linked, this service would be subject to VAT in Bahrain, rather than the UAE. This is covered in Article 30 of the Decree Law which states that where the recipient of services has a place of residence in another implementing state and is registered for tax therein, the place of supply shall be the place of residence of the recipient of services. In this case you will not add VAT on your invoices and your client will account for the input and output VAT under the reverse charge mechanism. However, until the VAT systems are aligned, your service is either vatable at 5 per cent or 0 per cent depending on whether the service is received in the UAE or wholly outside.
My company provides medical insurance for our employees, but also allows employees to include their dependants on the company health policy by deducting the cost of the premiums from the employee's salary. What is the correct VAT treatment for this? Do I need to add VAT on the amounts charged to my employees for their dependants? PA, Dubai
The VAT that your company is charged on the dependants' medical premiums cannot be deducted as input VAT. This is in contrast to the VAT on your employees' premiums, which is deductible. Interestingly, if you were based in Abu Dhabi, where there is a legal requirement to provide medical insurance to employees and their dependants, you would be able to reclaim all the input VAT on both employees' and dependants' premiums. In Dubai, because there is no legal requirement to provide health insurance to dependants, it is not a business expense and is therefore not recoverable. This would be the case even if the employee's contract includes that the employer will provide it and pay for it.
What you are describing is just passing on the full cost of the dependents' premiums to your employees. There is no taxable supply involved in this and no “value added”. Therefore, you do not need to add further VAT on to the premium, which already includes VAT from the insurance provider.
I have read that that if the FTA wants to audit me, I would need to provide something called an "FAF". I am not certain that my accounting system produces this. Do I need to change accounting systems to one that is fully FTA-accredited and provides this file type? KS, Abu Dhabi
An FAF (FTA audit file) is a specific file format that the FTA would request if you were subject to a VAT audit. This file can be recreated in excel from your accounting records, so as long as you can extract all the relevant data from your current accounting system, which you would use to prepare the FAF, you do not need to have a system that produces the FAF directly. It would certainly be worth looking at the requirements of an FAF and making sure that you are able to extract all the data required.
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 firstname.lastname@example.org