How to claim VAT Refund in UAE

Introduction

How to claim VAT Refund

Government of UAE has facilitated VAT registered entity by allowing reduction of  tax to the extent of Input Tax that is already paid, and pay the balance Output taxable amount of the finished goods to the FTA. In this process if input tax is higher than output tax then Carrying Forward Input Tax Credit or to claim VAT refund is applicable. It is possible to have unclaimed input credit.  You can have an unclaimed input tax credit due to tax on purchase being higher than tax on sale. In such case you can carry forward or claim VAT refund.

If tax on inputs > tax on output –> carry forward input tax or claim VAT refund

If tax on output > tax on inputs –> pay balance

No interest is paid on input tax balance by the government

Index of the Post

• How to claim VAT Refund
• Example
• Conditions for VAT Refund
• Process to claim VAT refund
• Products and Services not eligible for VAT Refunds
• VAT Refund to the tourists
• Some of the key conditions to apply on Tax Refunds for Tourists
• VAT Refund Scheme for Businesses in UAE
• Foreign Businesses VAT Refund Scheme in UAE
• Conditions for eligibility under the Foreign VAT Refund Scheme
• Conditions for ineligibility for Business VAT Refund Scheme
• List of Business Expenses on which VAT Credit is not allowed
• Conclusion

Example

When a registered VAT entity pays an input tax of AED 4000 but collects an output tax of AED 2,000 on its sales, it can claim a refund of AED 2000 that is AED 4000-AED2000

Conditions for VAT Refund

• The business has to be registered under VAT.
• The traders or businesses must charge VAT at the set rate.

• Inappropriate VAT charged on goods and services are not refundable.
• Compliant VAT invoices must be presented to the FTA as part of the VAT refund claim for input tax returns.

The amount paid or payable beyond six months of the date of supply date cannot be eligible for VAT refund.

Process to claim VAT refund

The VAT registrant has an option available on the VAT Return form to request a refund. Registrant needs to select ‘Yes’ in box no. 15 ‘Do you wish to request a refund for the above amount of excess recoverable tax’. If you select ‘No’, your excess recoverable tax will be carried forward to subsequent Tax Periods and can be used to offset against payable tax and / or penalties.

On submitting VAT return form, registrant is required to complete the VAT refund application ‘Form VAT311’. The following are the steps to submit VAT refund form ‘VAT311’:

1 .Login to FTA e-Services Portal using your username and password

2. To access the refund form, navigate to the ‘VAT’ tab and then to the ‘VAT Refunds’ tab
3. Click ‘VAT Refund Request’
4. Click on ‘VAT Refund Request’, the refund form will open. Fill the details in all the necessary fields. Mandatory fields are mandatorily to be completed in order to submit the Refund Form. Many details are auto-populated. The fields available in the VAT refund form 311 are

1. TRN, Legal name of entity (English) etc.:The details in this section are auto-populated from information provided in the account of the user. Therefore it is very important to ensure information provided in account holder’s profile is correct and accurate. A careful go through is advisable before completing the refund form.

1. Total amount of Excess Refundable Tax (AED) : This field is auto-populated from excess refundable tax reported in the last VAT returns less administration penalties due (except for the late registration penalty which is shown separately)

c.The amount you wish to have refunded (AED): Please enter the amount you wish to have refunded here. This amount must be equal to or less than the ‘Total amount of Excess Refundable Tax’

d.Remaining amount of eligible Excess Refundable Tax: This field is auto-populated and represents the remaining amount of excess refundable tax which you may apply for a refund in the future.

1. Late registration penalty amount (in AED) :Details in this  field is auto-populated depending  upon whether you have a penalty to pay and have settled the late registration penalty for VAT or not. Below is the table showing how it would appear in the form.

f.Authorized Signatory and Declaration: Name of the Authorized signatory will be auto-populated and need to tick the declaration before submitting

5. On completing the form, click on the ‘Submit’ button.

The refund form 311 will be processed within 20 business days of submission. An email notification from the FTA on the result of your application will be received. Once the claim is approved, the amount will be refunded within 5 business days. A confirmation email of the refund will be sent by FTA and you can check your balance in ‘My Payment’ tab -> Transaction History section displaying the amount refunded.

Products and Services not eligible for VAT Refunds 

Zero-Rated: Zero-rated products and goods are VAT taxable. The rate of the VAT is 0%. Any supply made has to be reported when filing Tax returns. Basic educational and health services, export of good outside GCC, first sale/rent of residential buildings etc have been zero-rated.

Any input tax paid on zero-rated products and services comes under Tax refund policies. The FTA is the final authority on this. Businesses supplying zero-rated products and services have to register for VAT.

Exempted: Any input tax charged for goods and services in the exempted category is non-refundable. Exempted supplies include local transport, financial services like life insurance as well as zero charge financial services. Businesses supplying only exempted products and services need not register for VAT. 

VAT Refund to the tourists

Tourists visiting UAE can claim the VAT paid on purchases made in  UAE except residents of the GCC countries and airlines crew members.

As per FTA, approved scheme, sales points and outlets will be connected to the announced tax refund system. Tourist will receive a VAT refund at the outlet where he/she has purchased the product by sending the appropriate documents. , special points will be organized at the airports where tourists can receive a refund, as well as a number of return points, something like cash terminals at retail outlets. At these points, after presenting all the necessary documents confirming the fact of purchase and the tourist’s documents, a person can immediately get his/her VAT money back. Such a mixed structure is designed to prevent excessive queues of tourists at airport at the VAT refund points.

Among the documents required for refund, a tourist must provide his/her passport, and show this passport to a seller at the time of the purchase, in order to ensure the tourist is not to be subject to Value Added Tax.

Some of the key conditions to apply on Tax Refunds for Tourists:        

• Tourist must have purchased the goods with personal presence in the country.
• Tourist must be intending to leave the country within 90 days of purchase along with goods.
• Goods must be exported outside the state within 3 months from the date of purchase.
• Some of the goods may not be eligible for Tax Refund schemewhich will be notified by the FTA.

VAT Refund Scheme for Businesses in UAE

The FTA has announced a proper mechanism for foreign companies visiting UAE for business purposes to claim a refund of the taxes paid by them on expenses in the country. The scheme introduced by the FTA is more or less similar to the one already in practice in some European countries.

Under the foreign VAT refund scheme, eligible foreign companies can claim a refund of VAT paid by them on expenses in UAE. However, there are certain conditions which need to be fulfilled.

A foreign business, for VAT purposes, is any business that is authorized and registered with an eligible authority in the place where it is located.

Foreign Businesses VAT Refund Scheme in UAE

A foreign business can apply for VAT refund under this scheme as per the following rules:

1. Businesses situated in a GCC State where VAT has not been implemented yet

A business which is registered and located in a Gulf State where VAT is not in practice, as of now, can claim VAT refund under this scheme. This includes all the GCC member States, except for Saudi Arabia and the UAE. Businesses situated in these VAT-free GCC States can claim VAT refund in the UAE.

2. Businesses situated in a country other than GCC States can claim a refund of VAT only if they fulfill the eligibility conditions mentioned below.

Conditions for eligibility under the Foreign VAT Refund Scheme

• The business must be registered officially as a company with the eligible authority in the state/jurisdiction where it is located.
• Should not have a registered place of business or fixed property in the UAE or any other gulf state where VAT is practiced.
• Should not be registered (or liable to register) as a taxable person under UAE VAT.
• The business/person claiming a refund of VAT under this scheme must be from a country that offers the same facility (of claiming a refund of VAT) to UAE businesses in such situations.

Conditions for ineligibility for Business VAT Refund Scheme

There are certain conditions under which even a foreign business is not eligible to claim VAT refund on expenses in UAE.

• VAT refund cannot be claimed on goods or services on which tax recovery is not allowed.
• Foreign tour operators cannot claim tax refund under this scheme.

The business VAT refund scheme is a really good option for those foreign companies that visit the country for the business purposes.

The Federal Tax Authority (FTA) has confirmed that the credit of input tax will not be allowed on certain types of business expenses. Common business expenses that incur on a daily basis, including entertainment and other personal expenses, are not eligible for tax refund

It is important for businesses in UAE to know which of their taxable business expenses are eligible for VAT refund and which ones are not. They should, therefore, not claim a refund of tax paid on non-eligible expenses.

The following 3 types of business expenses are not eligible for input VAT recovery in the UAE:

• The use of company motor vehicles for personal purposes
• Expenses on entertainment
• Expenses related to business employees

List of Business Expenses on which VAT Credit is not allowed

Entertainment Expenses

VAT registered businesses in the UAE cannot claim a refund of input VAT paid on any expense related to entertainment for anyone other than the company employee, including business customers, clients, officials, owners, shareholders and/or investors.

The entertainment expenses not eligible for input tax recovery are:

• Hospitality, such as accommodation, drinks and food, not provided during a meeting
• Trips for pleasure or entertainment
• Shows or events

A business cannot recover the VAT paid on any such expenses.

Employee Expenses

Input tax credit will not be available for certain business expenses made for the benefit of employees. This includes any expenses for which employees are not charged and the ones which are incurred for the personal benefit of the employees, i.e. a company cannot recover VAT paid on such expenses.

However, input VAT credit shall be available on certain employee expenses, including –

• VAT paid on goods or services which are mandatory by a UAE labour law for employers to provide to their employees
• The goods and services provided by the employer to the employees as part of a contractual agreement or documented policy to enable them to do their job or as a normal practice of the business.

For example, if a company has it mentioned in their employment contract that employees will be provided conveyance to and from the company office, for late night shifts. Since this is a type of a contractual agreement, so the company can claim back the VAT paid on these expenses.

 Personal Use of Company Motor Vehicles

In normal situations, a UAE organization can recover the VAT paid on the purchase, lease or rental of a motor vehicle for the business purpose. However, the credit of VAT shall not be available on the purchase, lease or rental of motor vehicles which can be used by anyone in the business for personal purpose.

The term ‘motor vehicle’ here represents any road vehicle which can accommodate no more than 9 people, apart from the driver. A commercial vehicle, such as a truck, hoist, forklift or any other similar vehicle will not be treated as a motor vehicle. The VAT calculation on commercial vehicles is separate from this rule.

A motor vehicle from any of the following categories cannot be used by an organization employee for any personal purpose:

• A licensed taxi
• A motor vehicle registered to be used by a particular emergency service, such as fire brigade or the police or similar emergency services
• A vehicle registered to a vehicle rental business for the purpose of renting to a customer.

All the above expenses incurred by an organisation are not liable to recover the tax 

Conclusion

VAT rate for standard products and services in UAE has been fixed at 5%. If the input tax on purchases is greater than the output tax collected by business owners/firms and other service providers, VAT is refundable.