August 2019 / United Arab Emirates

On 30 July 2019, the Federal Tax Authority (FTA) published clarification VATP014 on VAT treatment of options and option premiums (the clarification). The main highlights of the clarification are summarized below.

The clarification provides definitions of "option", "option premium and "VAT treatment". It also provides guidance on adjusting any incorrect treatment made by the taxpayer before 31 July 2019.

Definitions

The clarification provides the following definitions of "option" and "option premium": Option: A financial "option" gives the holder the right to buy or sell the underlying financial instrument at a specified price. Option premium: is the fee received for selling an option.

VAT treatment

In accordance with the provisions of Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal Decree-Law No. 8 of 2017 on VAT (VAT Executive Regulations), the VAT treatment of options is as follows:

• if the options relate to debt or equity securities, they are exempt from VAT (article 42.3 of the VAT Executive Regulations); and
• if the options are non-debt or non-equity securities, including underlying commodities, they are subject to VAT (article 42.4 of the VAT Executive Regulations).

Adjustments for incorrect treatment

The clarification states that, if a taxable person has incorrectly treated the supply of exempt options as subject to VAT at 5% before 31 July 2019, the person must correct the treatment as follows:

• issue a tax credit note to the recipient for correcting the VAT treatment; and
• adjust incorrect output VAT discharged earlier in the tax return for the period in which the tax credit note has been issued wherein the supplier can show the tax credit notes are issued and are passed on to the recipients to whom the VAT was charged.

Similarly, if the recipient of the supply has already deducted the input tax in respect of the supply, it must make an input tax adjustment (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.

On 30 July 2019, the Federal Tax Authority (FTA) published clarification VATP013 on disbursements and reimbursements of expenses (the clarification). The clarification provides that where the taxpayer acts as an agent, the recovery of expenses is considered a "disbursement", which does not fall within the scope of VAT. However, where the taxpayer acts as a principal, the recovery of expenses is considered a "reimbursement", with the VAT treatment being the same as that regarding the main supply. The clarification also provides a number of principles determining whether a recovery of expenses can be considered a disbursement or a reimbursement. The principles are set out in the table below.

Reimbursements	Disbursements
the taxable person must have contracted for the supply of goods or services in his own name and capacity	the other party on whose behalf the taxable person acts must be the recipient of the goods or services
the taxable person must have received the goods or services from the supplier	the other party on whose behalf the taxable person acts must be responsible for making the payment to the supplier
the supplier must have issued the invoice in the taxable person's name, with the latter being under the legal obligation to make payment for it	the other party on whose behalf the taxable person acts must have received an invoice or tax invoice, as the case may be, in its own name from the supplier
in the case of goods, the taxable person must own the goods prior to making the forward supply to the other party	the other party on whose behalf the taxable person acts must have authorized the taxable person to make the payment on its behalf
	the goods or services paid for must clearly be additional to the supplies the taxable person makes to the person on whose behalf he acts;
	the payment must be shown separately in the invoice and the taxable person who acts as an agent must recover the exact amount, without a mark-up, paid to the supplier.

Report from our correspondent Mohamed Fayçal Charfeddine, Group Tax Manager, Aujan Group Holding

On 6 August 2019, the Federal Tax Authority (FTA) published an updated Clarifications User Guide (the updated guide), which was first published in April 2018. The update mainly addresses the manner in which the clarifications must be submitted and the FTA response delay. The updated guide explains that the clarifications request form, along with the supporting documents, must be uploaded onto the FTA's official website. Previously, the form had to be sent to FTA using the following email address: clarifications@tax.gov.ae. With regard to the response delay, the updated guide provides that the FTA may take up to 45 business days to respond to the clarifications request. Previously, the delay was 40 business days. It should be noted that the updated guide states that any request received after 3 pm on a specific business day will be deemed to have been received the following business day.

On 30 July 2019, the Federal Tax Authority (FTA) published clarification VATP015 on Transfer of a Business (the clarification). In accordance with article 7(2) of Federal Decree-Law No. 8 of 2017 on value added tax, the transfer of an entire or an independent part of a business, from a non-taxable person to a taxable person for the purposes of continuing the business is not considered a supply for VAT purposes. Such a transfer of business, commonly known as a "transfer of business as a going concern", or a "TOGC", is not subject to VAT. This rule has a compulsory application. The clarification provides that the conditions to be met for the transfer to be qualified as a TOGC under the provisions of the aforementioned article 7(2) are as follows:

• the transfer must be a transfer of an entire or an independent part a business; the transferred business must be operational before and at the time of the transfer. Depending on the facts, this may include, among other things, goodwill, licences, premises, machinery and equipment, employees, ongoing contracts and liabilities;
• the recipient must be a taxable person at the time of the transfer; the recipient must be registered or obliged to register for VAT purposes; and
• the recipient intends to continue the business which is transferred; this requirement is met once the recipient intends to continue carrying on the same kind of business it acquires. Whether the buyer operates this business separately, or as part of any other business that he is already operating, is irrelevant.

The clarification provides that the supplier must satisfy himself that the recipient intends to continue to carry on the same business. It states that if the transfer was incorrectly treated as a TOGC, VAT may be due on the supply with retrospective effect.

The Federal Tax Authorities in the UAE (FTA) issued clarification EXTP001 (the clarification) on scenarios requiring the return of Digital Tax Stamps (marks). Article 6.3.1 of Cabinet Decision No. 42 of 2018 on Marking Tobacco and Tobacco Products provides that marks must be returned to the FTA where the person becomes aware that it no longer has the intention to use the marks for the purposes of affixing them to designated excise goods. The clarification provides that the FTA will interpret this provision broadly, and the cases where a person would be considered as no longer having the intention to use the marks will include (but not be limited to) the following:

• cease of business;
• cease of trade in a particular product line;
• wastage during the production process, e.g. when the marks are damaged during the process of applying them to products; and
• damage of marks outside the production process, e.g. when marks are damaged as a result of water leakage or fire.

The FTA requires that marks are physically returned to the authorized operator of the Digital Tax Stamps scheme on the FTA's behalf. However, the clarification specifies that where it is not possible to return the marks if they are damaged, destroyed or stolen, the FTA will require sufficient evidence to prove the marks are no longer in the person's possession due to those reasons. Finally, the clarification provides that any person required to return marks must also report the return of the marks via the official Digital Tax Stamps system at the time the obligation to return the marks arises.