August 2 2019
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.
DefinitionsThe 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 treatmentIn 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 treatmentThe 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.