|Applicability of VAT on Disbursements and Reimbursements and Options and option premiums.
The FTA has recently issued two public clarifications under the UAE VAT law that discusses the VAT treatment on -
We have summarised below, the gist of the key UAE VAT positions discussed in the clarification:
- Disbursements and Reimbursement of expenses claimed from the customer.
- VAT treatment on options and option premiums.
- Disbursements and reimbursements of expenses claimed from the customer:
|Revenue on account of
Taxability under UAE VAT law
|Disbursement of expenses claimed from the customer
||Outside the scope of UAE VAT
||Company (i.e. supplier incurring expenses) needs to have acted as an agent when incurring such expenses
|Reimbursement of expenses claimed from the customer
||Within the scope of UAE VAT and follows the same treatment as the main supply
||Company (i.e. supplier incurring expenses) needs to have acted as a Principal when incurring such expenses
The clarification also discusses indicative principles to determine if a transaction is a disbursement or reimbursement of expenses from the customer.
||Principles of disbursement
||Principles of reimbursement
||The other party (customer) should be the recipient of the goods/services.
||The company should have contracted for the supply of goods/services in its own name and capacity.
||The other party (customer) should be responsible for making payment to the supplier from whom such expenses have incurred.
||The company should have received the goods/services from the supplier.
||The invoice should have been received by the other party (customer) and in its own name.
||The supplier should have issued an invoice in the name of the company and the company should be under the legal obligation to make payment for it.
||The other party (customer) should authorize the company (i.e. the supplier incurring the expenses) to make a payment on its behalf.
||In the case of goods, the company should own the goods prior to making an onward supply to another party.
||The goods/services paid for should be clearly in addition to the supplies made by the company.
||The payment should be separately shown on the invoice and only the exact amount should be recovered, without a mark-up.
The principles stated above should be used as an indicator to analyze whether recovery of expense amounts to reimbursement or disbursement. The taxpayer should consider all the facts and circumstances of the transaction on a holistic basis.
- VAT treatment on options and option premiums:
|Supplies of options with respect to debt securities or equity security in return for premiums.
||Exempt from VAT [under Article 42(3) of the Executive Regulation to Federal Decree-Law No. (8) of 2017 ]
|Supplies of options in respect of commodities, other non-debt or non-equity instruments in return for the premium.
||Taxable under VAT [under Article 42(4) of Executive Regulation to Federal Decree-Law No. (8) of 2017]
Further, the clarification also states that wherever any supplier has treated the supply of options as taxable and charged 5% VAT, they should -
The recipients of such an invoice, who have claimed credit of the invoice, would have to adjust the input tax (as a negative in the net and VAT column of Box 9) in the tax return for the tax period in which the recipient received the tax credit note.
- Issue a credit note to the recipient for correcting the treatment;
- Report the same in the returns in the tax period during which the tax credit notes were issued and passed on to the recipients to which the VAT was charged.