UAE tax authority clarifies VAT rules for 2017 contracts

The UAE’s Federal Tax Authority (FTA) has clarified that consumers will not in most cases be responsible for paying value added tax on contracts issued last year.

The statement from the tax authority follows confusion after the tax was implemented on January 1, with some companies asking customers to pay the 5 per cent rate on the portion of a service they had paid for in 2017 but would receive in 2018.

Gym chain Fitness First was subject to complaints from customers after it made them pay the tax on the 2018 duration of their membership even if they had paid in full the previous year.

Read: Most residents expect VAT to be a challenge for UAE – survey

“The only case where consumers are directly responsible for paying VAT on received services that are delivered fully or partially after VAT went into effect, is where the contract, issued before January 1, 2018, states that the amount due is exclusive of tax,” the FTA said.

It further added that suppliers would be liable for VAT in two cases – if the contract states that the amount received against the good or service is inclusive of VAT, or if the contract issued to the consumer did not refer to VAT.

“In the latter case, if the recipient is registered for tax, the amount due is treated as exclusive of tax and the supplier would have needed to ascertain whether the recipient is registered and the recipient able to recover tax.”

Last week, the UAE also extended a deadline for companies to register for the tax until April 30 due to a perceived lack of readiness among some businesses.

Read: VAT: UAE extends penalty deadline for non-registered firms