March 2020 / United Arab Emirates

The UAE Federal Tax Authority (FTA) has published the Refund of VAT paid on goods and services connected with Expo 2020 Dubai Guide for Official Participants (the guide).

The guide provides that the offices of the Official Participants are able to reclaim VAT incurred on the import and acquisition of the following five categories of goods or services without the need to use them for making taxable supplies:

• goods and services in direct connection with the construction, installation, alteration, decoration and dismantlement of their exhibition space;
• goods and services in direct connection with the works and activities of organizing and operating the Official Participant's exhibition space and any presentations and events within the Expo 2020 site;
• goods and services relating to the actual operations of the Official Participant provided that the value of each goods and services, for which the Office of the Official Participant makes a claim, is not less than AED 200;
• all operations, services and activities provided for the purpose of participation in Expo 2020 Dubai, whether located within or outside the boundaries of the Expo 2020 Dubai site; and
• import of goods for personal use of the Official Participant's Section Commissioner-General, Section Staff and the Beneficiaries.

Official Participants are entitled to obtain refund of input VAT whether they are VAT registered or not. Those who are VAT registered may claim the refund on their regular return.

Those who are not registered may apply for the VAT refund using a special refund application process within the following time frame:

• within 15 days of the end of the calendar month in which the total VAT value to be claimed is AED 10,000 or more; and
• within 15 days of the end of the calendar quarter where the total VAT value to be claimed is less than AED 10,000.

On 3 March 2020, the Federal Tax Authorities (FTA) issued clarification (EXTP005) on the renewal of designated zone registrations.

In accordance with provisions of article 15(3) of Cabinet Decision No. 37 of 2017 on the Executive Regulations of the Federal Decree-Law No. 7 on Excise Tax, a warehouse keeper must submit an application to the FTA in order to register each of the designated zones over which it is responsible.

The FTA requires the warehouse keeper to pay a registration fee in order to register the designated zone for a period of 12 months. Hence, the warehouse keeper should renew the registration for the designated zone in order to maintain its status.

The renewal form must be available to be filed 30 days before the expiry date of the designated zone registration. As part of the renewal process, the warehouse keeper will be required to provide the following:

Details relating to designated zone based on previous 12-month period

• an estimate of the value of the annual throughput of excise goods entered into the designated zone (the total value of excise goods passing through the designated zone in a 12-month period); and
• an estimate of the average value of excise goods held at month-end in the designated zone. This should be based on the average end of month stock value, calculated over a 12-month period to allow for seasonal variations.

Financial guarantee

The warehouse keeper should provide a financial guarantee which will be calculated by The FTA based on the aforementioned details. The new financial guarantee must be received by the FTA within 20 business days from the date requested.

Where the calculation indicates that the value should be less than the current guarantee, the warehouse keeper will be given the option of whether to arrange for a lower guarantee to be lodged or to maintain the current value.

Payment of renewal fee

The renewal fee for a designated zone is AED 2,000 payable no later than 20 business days of the expiry date of the current registration.

In the event where a warehouse keeper fails to pay the renewal fee within the allowed period, the designated zone will be treated as suspended for 20 business days, after which if no action is taken, it will be treated as 'expired'.

On 23 February 2020, the Supreme Legislative Committee announced that the ruler of the Emirate of Dubai has issued new Law No.3 of 2020 on the Dubai Multi Commodities Centre (DMCC). The DMCC free zone was established through Decision No.4 of 2002 to enhance commodity trade through Dubai.

Under the Law, the DMCC Authority established as per the guidelines of the new Law will be responsible for supervising the free zone. It is stated that entities and individuals operating in the DMCC will be exempt from all taxes including income tax for a period of 50 years.

The new Law also regulates customs duty exemptions and tax exemptions for commodities trade, re-export and storage within the DMCC and the establishment of private, commercial and joint venture companies. As per the law, all companies registered within the DMCC must identify themselves as a free zone company in all of their correspondence, contracts, advertisements, invoices and stationery. Also, DMCC companies may not transfer their license to any third party without obtaining prior written permission from DMCC Authority.

The DMCC Board of Directors will issue the by-laws required to implement the DMCC Law at a later stage.

On 9 March 2020, the Federal Tax Authority (FTA) updated the list of designated zones (for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax) by modifying the names of 2 designated zones as follows:

• Emirate of Dubai: the "Free Zone Area in Al Qusais" is changed to "DAFZA Industrial Park Free Zone – Al Qusais"; and
• Emirate of Ras Al Khaimah: the "Ras Al Khaimah Free Trade Zone" is changed to "Ras Al Khaimah Port Free Zone".

This amendment has no implication of the effective date for both areas becoming designated zones.

On 17 March 2020, the Dubai International Finance Centre (DIFC) issued a communication with regard to Economic Substance Regulations providing inter alia the following:

• all DIFC firms are required to submit an Economic Substance notification on the DIFC Portal;
• the 31 March 2020 deadline previously advised is no longer applicable;
• the UAE Ministry of Finance will issue a Relevant Activities Guide which should assist businesses in determining whether a business conducts a relevant activity and falls within the scope of the Economic Substance Regulations. Once the Relevant Activities Guide has been issued, the Registrar will make the requisite notifications available on the DIFC Portal and issue a communication to all DIFC firms about the notification process and deadlines involved; and
• businesses may be required to file an Economic Substance Return within 12 months of the financial year end to demonstrate that a business meets the Economic Substance Regulations requirements. Information relating to the return will be issued in the second half of this year.

On 22 March 2020, the Dubai customs authorities issued Customs Notice 1/2020 on the implementation of the government's economic stimulus package to mitigate the consequence of the Covis-19 pandemic.

The Notice provides the following incentives:

• a refund of 1% of the customs duty imposed on imported goods sold locally into the UAE market which are normally subject to a customs duty rate of 5%; and
• traditional wooden commercial vessels registered in the United Arab Emirates will be exempted from berthing service for fees for arrival and departure, as well as direct and indirect loading fees at Dubai Creek and Hamriyah Port.

These incentive are valid during the period from 15 March 2020 to 30 June 2020.

In addition, the Notice provides that the AED 50,000 bank or cash guarantee required to undertake customs broker activities will be revoked, and that the bank or cash guarantee deposited by existing customs brokers and clearing companies will be refunded.

On 21 March 2020, the UAE Federal Tax Authority (FTA) updated the VAT administrative exceptions Guide by adding an exception related to "Evidence to prove export of goods".

In accordance with the provisions of article 30 of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax (The Executive Regulations), in order to prove the export of goods, the taxpayer must provide the following documents:

• "official evidence" meaning export documents issued by the local Emirate Customs Department in respect of goods leaving the state; and
• "commercial evidence" which must include an airway bill, a bill of lading, a consignment note, or a certificate of shipment.

Furthermore, article 30 (6) of the Executive Regulations provides that the FTA may specify alternative forms of evidence according to the nature of the export or the nature of the goods being exported.

The Guide provides that the taxpayer may request the FTA to allow the use of an alternative form of evidence to prove the export of goods. In its request, the taxpayer must provide the actual reasons or circumstances for seeking an approval to allow the use of an alternative form of evidence.