VAT in the UAE is charged on good or services that are to be used or incurred inside the state. Therefore, when goods are exported outside the state, they would be taxable at a rate of zero percent, in which technically, no tax is actually paid. When it is the other way around, in which goods are imported inside the state, tax at a rate of five percent shall be charged at the time of import by the customs department. For that, different treatments apply depending on whether the importer is VAT registered.
When the importer is not VAT registered, he is subjected to pay the tax amount immediately at the time of importation and is not entitled to recover the VAT, as he is not tax registered. While if the importer is VAT registered, the VAT amount will be automatically pre-populated through box #6 of the VAT report “Goods imported into the UAE”, and will be paid and recovered through the next VAT report.
In some cases, importation of goods might happen by VAT registered importing agents acting on behalf of the VAT registered persons. When the agent imports the goods on behalf of the taxable person, the taxable and tax amounts of the goods that are imported will be automatically populated in the VAT report of the agent himself, as he is the importer of the goods. By that, necessary adjustments must be made in box #7 “Adjustments to goods imported into the UAE”, because the agent (the importer) is not the actual owner of the goods at the time of import. In that case, the agent who is importing the goods on behalf of the taxable person (owner of the goods), shall reverse the amount that is automatically pre-populated in box #6, in box #7 to cancel out the tax amount as he is not the owner of the goods. In the meanwhile, the taxable owner of the goods shall add the same amounts that are automatically populated in the agent’s VAT report in his own VAT report in box #7 and then recover the same amount back in box #10 of the VAT report as per its normal recovery position.
For example, company A is designated zone company located in JAFZA, and company B is a mainland company inside the state, and company A is supplying company B with goods. If company A (the supplier) has permitted company B (the customer) to use their own TRN at the time of import while the ownership of the goods has already been transferred to company B, then company A will be treated as the importing agent in this import process. For that, the taxable amount and the tax amount will be automatically pre-populated in company A’s VAT report in box#6 because their own TRN has been used in the import process. But since the ownership of the goods is not with company A, then they have to reverse the same amount in box#7 of their VAT report. And on the other hand, company B must add the same amount in their own VAT report in box #7, and recover it in the box #9 in the VAT input section of the VAT report.
If the importer and the owner of the goods are VAT registered, then no actual VAT will be paid on the goods imported, because the person who will disclose the import in positive amounts in their VAT report, will recover the same amount back in the VAT input section of the VAT report.
The FTA has emphasized on proper documentation and record keeping by taxable persons to ensure that all necessary actions made by taxable persons are in compliance with the “VAT Law” and the “Executive Regulations”. For the above case, the FTA has identified that the owner of the goods that are imported and the importing agent shall agree in writing to perform the necessary adjustments in box #7. Moreover, both parties will have to keep copies of those writing agreements, as well as the corresponding import documents and customs documentations.
Where the owner of the imported goods and the importing agent do not wish to make adjustments in box #7 as mentioned above, the importing agent shall issue a statement to the owner of the goods. This statement will be considered as a tax invoice. The purpose of this statement is to enable the owner of the goods to recover the input tax on the corresponding supply. The owner will then recover the input tax through box #9 “Standard rated purchases or expenses”.
Ziad Khawaja – Fame Legacy DMCC
Tax Assistant Manager & Tax Agent, TAAN: 20040382