March 2023 / United Arab Emirates

The Federal Tax Authority (FTA) has clarified the criteria and conditions for the electronic filing of UAE tax returns by qualified taxpayers.

Criteria and conditions for electronic commerce supplies

According to article 2 of Clarification VATP033 No. 26 of 2023, a supply of goods or services will be deemed to be made by electronic means if all the following criteria and conditions are met:

• the goods and services are listed or advertised in an electronic commerce medium;
• the goods and services are ordered through an electronic commerce medium, whether or not payment is made online;
• in the case of the supply of goods, the goods are delivered to a location specified by the customer and which is not owned or operated by the supplier; and
• in the case of a supply of services, the services are provided or the right to receive the services is granted to the customer with minimal or no human intervention.

According to the clarification, "e-commerce" is defined as "the process of selling goods or services through electronic means, an electronic platform, a social media shop or electronic applications, in accordance with the criteria and conditions established by the Minister of Finance". Support for e-commerce covers a wide range of concepts, such as metaverse shops, intelligent kiosks, robotic devices, etc.

Amendments to the UAE Declaration for E-commerce Supplies by Qualified Registrants

Qualified registrants are required to declare taxable supplies made through e-commerce in box 1 of the VAT return according to the emirate in which the goods or services are received by the customer, and to keep the relevant supporting documents. However, the FTA will accept the customer's place of residence as the default factor.

Qualifying registrants are defined as taxable persons supplying goods and services via e-commerce and whose turnover exceeds AED 100 million in a calendar year.

Once a registrant has been classified as a Qualifying Registrant and is subject to the relevant reporting obligations, it will be required to comply with the reporting mechanism clarified above for the following period(s):

• 18 months from the first fiscal period beginning on or after 1 July 2023 for registrants that exceeded the AED 100 million threshold in calendar year 2022; and
• 2 years from the first tax period of the calendar year beginning after the date on which the registrant exceeded the AED 100 million threshold for any year after 2022.

The Federal Tax Authority (FTA) has issued a Cabinet decision (the Decision), which clarifies and provides details on the tax residency rules for individual taxpayers.

State of usual or primary residence

The state of usual or primary residence of a natural person is the country in which the natural person habitually or normally resides. It is the country in which the individual spends most of his or her time, as compared with any other country, as part of the individual's settled routine.

Centre of financial and personal interests in the state

The centre of financial and personal interests of a natural person in the country is the jurisdiction where the personal and economic interests of the natural person are closest or most significant. Factors to be considered in determining the country of the centre of financial and personal interests include:

• the place of employment of the natural person;
• the family and social relationships;
• cultural or other activities;
• the place of business; and
• the place from which the property of the natural person is managed.

Permanent residence

According to article 5 of the Decision, a permanent residence is a furnished house, apartment, room, or any other form of accommodation that is permanently available to the individual. The permanent residence shall be considered as available to the natural person if the natural person has the continuous right to always occupy it and on a regular basis with a certain degree of permanence and stability and not only occasionally or for the purpose of a short stay. Ownership of the property is not a necessary condition. It may be rented or otherwise occupied by the individual as a dwelling.

Occupation

A natural person shall be deemed to be gainfully employed in the country in either of the following two cases:

• if he is party to a contract with an employer, incorporated or otherwise established or recognized in the country, under which the natural person undertakes to render a service to the employer under his management or supervision for a promised remuneration paid by the employer in the country; and
• if he is in a continuing relationship in which all or substantially all his income for his work is derived from one party, whereby the income received by him constitutes remuneration for his work performed in the country.

The nature of the employment may be temporary or permanent, and the work may be performed on a full-time or part-time basis.

Calculation of period spent in the state

The Decision provides that the period spent in the country corresponds to all the days or parts of a day on which a natural person is physically present in the country in relation to the total number of days in which he is present in the country during a relevant consecutive 12-month period. The days in which the natural person has been physically present in the country need not be consecutive for the purpose of determining whether the 183-day or 90-day period has been met during the relevant consecutive 12-month period.

The number of days during which the individual was present in the country would not be considered in determining whether the 183-day or 90-day period has been met. An exceptional circumstance is an event or situation beyond the individual's control, which occurs while the individual is already in the country, which the individual could not reasonably have foreseen or prevented, and which prevents the individual from leaving the country as originally planned.

The Federal Tax Authority (FTA) has clarified the general rules and special methods available for the allocation of input VAT, as well as the procedure for applying for these methods, by updating the guide on the allocation of input VAT.

Input VAT incurred in respect of goods or services that are used partly for making supplies that allow for VAT recovery and partly for other purposes for which VAT is not recoverable is referred to as "residual input tax". Residual input tax must be apportioned between those activities. Recovery will be restricted to the portion relating to supplies that allow for VAT recovery. At the end of the tax year, the taxable person proceeds to an annual wash-up to determine the annual wash-up adjustment.

If the taxable person considers that the standard method does not give a reasonable result, it has the possibility to apply one of the following special methods of apportionment depending on the nature of his activities:

• the outputs-based method;
• the transaction count method;
• the floorspace method; or
• the sectoral method.

The request form must be submitted to the FTA if the following conditions are met:

• the applicant has been registered for VAT for at least 6 months;
• the applicant makes both taxable supplies and exempt supplies / carries on non-taxable activities; and
• the standard method of input tax apportionment does not give a fair and reasonable result for the applicant's input tax recovery.

The guide provides a diagram showing which special method is most appropriate for each type of activity.

DP World’s Jebel Ali Free Zone (Jafza) witnessed the highest customer registrations in a decade, marking a 30 per cent year-on-year growth, and taking the total number of companies to over 9,500 in 2022. The Free Zone zone has created unparalleled opportunities in a variety of sectors through end-to-end logistics solutions, digital trade platforms and access to DP World’s global portfolio offering trade enablement support at every step of the supply chain.

An ideal business hub for diverse industries

During the past 10 years, Jafza has seen a 13-fold increase in logistics customers, while the vehicle and transport segment saw a compound annual growth rate of 26 per cent. The increased reliance on manufacturing, logistics and e-commerce opened new market opportunities for retailers and general traders and created a demand for logistics and transport companies to handle the movement of goods through the Free Zone.

Strengthening ties with key trade markets

China and India remain key trade and economic partners for the Free Zone. The number of newly registered Chinese companies in Jafza saw a 4X increase in 2022, indicating a post-pandemic, healthy demand from the Far East. In recent years, the UAE and China have strengthened their relationship through initiatives such as the Belt and Road Initiative and the UAE-China Economic Partnership.

The total number of new registrations of Indian companies increased by 30 per cent from 2021. DP World’s India-UAE Trade Bridge, and economic partnerships like the UAE-India CEPA (Comprehensive Economic Partnership Agreement) have increased customers’ confidence in expanding their reach through Jebel Ali.

Abdulla Bin Damithan, CEO and Managing Director, DP World UAE and Jafza said: "At Jafza, we have aligned our efforts with the vision of the leadership of the UAE, in diversifying the country’s economy and increasingly relying on alternate industries. Last year, the UAE’s non-oil foreign trade reached a record AED 2.23 trillion, increasing more than 17 per cent year-on-year. We can proudly say that we have played a significant role in enabling this achievement. With trade facilitated through our Jebel Ali hub increasing considerably in 2022, Jafza continues to take the lead in achieving national goals.”

“The notable increase in newly registered Chinese and Indian companies in the Free Zone has undoubtedly played a vital role in UAE-China trade, valued at AED 264.5 billion, and that of UAE-India trade at AED 180.9 billion, in 2022. Initiatives such as trade bridges, alongside multimodal connectivity and access to DP World’s global portfolio for end-to-end logistics and supply chain solutions have only enhanced the attractiveness of Jafza to business owners and allowed them to stay ahead of the curve,” Bin Damithan added.

In addition to its multimodal connectivity via sea, air, and land, Jafza’s proposition is strengthened by its strategic location, connecting its customers with international markets and clients around the world. These advantages, coupled with the Free Zone’s range of services such as 100 per cent foreign ownership, no corporate and income taxes, and easy access to state-of-the-art facilities, make it an ideal destination for doing business, expanding reach, and strengthening global competitiveness.

Source: Media Office - Government of Dubai

 The Central Bank of UAE (CBUAE) jointly held a signing ceremony with G42 Cloud and R3 to mark the implementation of the CBUAE Central Bank Digital Currency (CBDC) Strategy, one of the nine initiatives of the CBUAE’s Financial Infrastructure Transformation (FIT) Programme.

The CBUAE has engaged with G42 Cloud and R3 as the infrastructure and technology providers respectively for its CBDC implementation.

Following several successful CBDC initiatives including Project “Aber” with the Saudi Central Bank in 2020, which confirmed the possibility of using a digital currency issued by two central banks to settle cross borders payments and was awarded the Global Impact Award by Central Banking Magazine, in addition to the first real-value cross-border CBDC pilot under the “mBridge” Project with the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People's Bank of China and the Bank for International Settlements in 2022, the CBUAE is now ready for entering into the next major milestone of the CBDC journey and implementing its CBDC Strategy.

The first phase of CBUAE’s CBDC Strategy, which is expected to complete over the next 12 to 15 months; comprises three major pillars, the soft launch of mBridge to facilitate real-value cross-border CBDC transactions for international trade settlement, proof-of-concept work for bilateral CBDC bridges with India, one of the UAE’s top trading partners and finally, proof-of-concept work for domestic CBDC issuance covering wholesale and retail usage.

CBDC is a risk-free form of digital money issued and guaranteed by the central bank and serves as a secure, cost-effective and efficient form of payment and a store of value.

As part of the UAE's digital transformation, CBDC will help address the pain points of domestic and cross-border payments, enhance financial inclusion and the move towards a cashless society.

It will further strengthen the UAE's payment infrastructure, providing additional robust payment channels and ensuring a resilient and reliable financial system. More importantly, the CBUAE aims to ensure the readiness of the UAE to integrate the payment infrastructures with the future potential tokenisation world, the tokenisation of financial and non-financial activities.

Khaled Mohamed Balama, the Governor of the CBUAE, said, “CBDC is one of the initiatives as part of the CBUAE’s FIT programme, which will further position and solidify the UAE as a leading global financial hub. The launch of our CBDC strategy marks a key step in the evolution of money and payments in the country. CBDC will accelerate our digitalisation journey and promote financial inclusion. We look forward to exploring the opportunities that CBDC will bring to the wider economy and society.”

Source: Emirates News Agency - WAM