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02 December 2023

Federal Tax Authority issues guidelines on foreign business refunds

By Wam

The Federal Tax Authority, FTA, has outlined four conditions that would allow foreign businesses to recover Value Added Tax, VAT, incurred in the UAE in a new guide on "VAT Refunds for Business Visitors", published on its official website.

To be eligible for the VAT refund, the first condition is that foreign businesses must not have a place of establishment or fixed establishment in the UAE or in any of the VAT-Implementing GCC States that fully comply with the provisions of the Common VAT Agreement of the Cooperation Council for the Arab States of the Gulf.

Second, such foreign businesses must not be a Taxable Person in the UAE. Third, they must also be registered as an establishment with a competent authority in the jurisdiction in which they are established, and the fourth condition is that they must be from a country that implements VAT and that equally provides VAT refunds to UAE businesses in similar circumstances.

FTA Director-General, Khalid Ali Al Bustani, described the refund procedure as clear and transparent, noting that it supported economic activities in the areas in which the visiting business of the country participate, which reflects positively on many sectors including tourism, trade, exhibitions, conferences, etc. Al Bustani stated that the mechanism is in accordance with the Federal Decree-Law No. 8 of 2017 on Value Added Tax and the terms and conditions set in its executive regulations, which call for refunding taxes paid on supplies or imports made by a foreign entity not residing in the UAE or any of the Implementing states, subject to meeting certain conditions.

He further explained that reciprocity is a key condition for the procedure, whereby the authority will refund the VAT to businesses resident in countries that refund VAT for UAE businesses visiting their territories.

The Federal Tax Authority clarified that the period of each refund claim will be a calendar year, noting that for claims in respect of the 2018 calendar year, refund applications can be made as of 1st April, 2019. However, for subsequent calendar years, the opening date for accepting refund applications will be 1st March of the following year. This means that for the period from 1st January to 31st December, 2019, applications will be accepted as of 1st March, 2020.

The FTA went on to stress that the minimum claim amount of each VAT refund application submitted by business visitors is AED2,000, which may consist of a single purchase or multiple purchases. The authority urged potential applicants to hold on to the original tax invoices on the purchases for which they would like to reclaim VAT, as they would be required to be submitted along with the refund applications.

Businesses residing in any GCC State that is not considered to be an Implementing State may still submit a VAT refund application to reclaim VAT incurred in the UAE under this scheme, the FTA assured, outlining only three situations where VAT cannot be reclaimed, The first situation is if the foreign business in question makes supplies in the UAE, unless the recipient is obliged to account for VAT under the Reverse Charge Mechanism. Secondly, a VAT refund cannot be processed if the Input Tax in respect of any goods or services is "blocked" from recovery and, therefore, not recoverable by a taxable person in the UAE. The third and final situation where a refund is not possible is if the foreign business is a non-resident tour operator.