VAT on UAE Education Sector

Harish Elimban, Manager

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    It has been 2 years since UAE introduced VAT and the implementation has been successful so far. But people are still sceptical about the whole process and its application across various sectors. The FTA has issued a bulletin to provide information on tax treatment for the education sector in UAE, which discusses the below points;

    Standard-rated, zero-rated and exempted supplies

    VAT is not chargeable on all the supplies in the education sector. Certain supplies are exempted from VAT and for certain others standard rate is applicable.

    Standard-rated supplies

    • Supplies made to persons who are not enrolled in the educational institution;
    • Uniforms, electronic devices, food and beverages;
    • Field trips which are unrelated to the curriculum;
    • Extracurricular activities provided for an additional charge;
    • Supply of membership in a student organization;
    • Goods/services provided by a business that is not an educational institution

    Zero-rated supplies

    Cases wherein both the curriculum and the educational institution are recognized by the competent federal or local government, the service/ supply won’t be charged any VAT and will be treated as zero-rated, which are;

    • Supply of goods or services where the supply is directly related to the zero-rated educational service;
    • Supply of printed or digital reading material which are related to the recognized curriculum.

    Exempted supplies

    VAT won’t be applicable for services that involve transporting students from home to the location of the educational institution and vice versa.

    Educational institutions that make zero-rated and standard-rated supplies should register for VAT, if the value of their supplies exceeded the mandatory registration threshold of AED 375,000, in the past one year. The institutions must also register for VAT, if the value is expected to exceed the threshold limit in the next 30 days.

    Voluntary registration can be done if the value of taxable supplies or taxable expenses incurred exceeded the threshold limit of AED 187,500 in the last 12 months or is anticipated to exceed in the next 30 days.

    Where an educational institution only makes zero-rated supplies, an exception from VAT registration may be applied for via the registration application.

    Tax invoices

    Tax invoices are mandatory for all standard-rated and zero-rated supplies. Cases wherein the supply is made to an unregistered recipient or the consideration for the supply made to a registered recipient is AED 10,000 or less, simplified tax invoices may be issued. If the supply qualifies to be wholly zero-rated and there are enough records to establish particulars of the supply, then tax invoice may not be issued.

    Input tax

    Educational institutions that make zero-rated or standard-rated supplies, can recover the full input tax. But certain entertainment services and purchased, leased or rented motor vehicles that are available for personal use, are considered as blocked and full recovery of input VAT is not possible on these.

    If the educational institution renders exempt transportation services, only proportionate input VAT is recoverable.

    FAQ

    1. Will VAT be applicable on extra-curricular activities offered by a school, provided the activities are wholly related to the curriculum?

      If the extra-curricular activities are offered without any additional fee, then the supply of extra-curricular activities will be zero- rated. VAT will be applicable if additional fee is charged.

    2. Are supplies from vending machines subject to VAT?

      Yes, The date of supply is the date on which the funds are collected from the vending machines.

    3. If a school offers a pick-up and drop-off facility for students, will the service be charged VAT?

      No, it will be exempt from VAT.

    4. Are supplies of food and beverages in the canteen subject to VAT? What is the treatment for vouchers?

      Yes, the supply of food and beverages in the school canteen is subject to VAT. The supply of monetary vouchers for consideration up to the face value (or less) is disregarded for VAT purposes and the VAT liability crystallizes only upon redemption of the voucher.

    5. Is the supply of school uniforms subject to VAT?

      Yes, even if they are supplied as part of educational services.

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    Timeframe for recovering Input Tax in UAE

    Harish E, Manager - TAX

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    HLB HAMT - Accounting Firm in UAE
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    Mobile:- +971 50 677 5860
    Email:- dubai@hlbhamt.com

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      The Federal Tax Authority has issued a Public Clarification (VAT P017) for “Timeframe for recovering Input Tax”. This Public Clarification clarifies the FTA’s position relating to

      Input tax must be recovered in the first tax period in which two conditions are satisfied:

      • The tax invoice is received and
      • An intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed

      It is important to note that one should receive the tax invoice from the supplier and intention to make the payment is formed. In many cases the intention to make the payment arises after certain internal process. In the case of a manufacturing industry, intention to make the payment for raw material is generally formed after completion of quality control. Unless the quality control approves, the company doesn’t have an intention to make the payment. Hence, the second condition, intention is formed on the date when the quality control accepts the raw material. Similar situation arises in construction industry.

      Therefore, the taxable person should refrain to claim the input when tax invoice is received and intention to make the payment is not formed.

      What happens if the input tax is not claimed in the first tax period when both the conditions are satisfied?

      • The taxable person can claim in the next tax period subsequent to the first tax period in which both the conditions were satisfied.
      • In case, taxable person miss to claim the input tax in the subsequent tax period , the taxable person should recourse to the voluntary disclosure.

      What happens if the input tax is claimed but the taxable person fails to pay the supplier after the expiry of 6 months from the due date of payment?

      • Taxable person should reduce the input tax in the VAT Return in the tax period following the expiry of the six-month period and
      • Once the payment is made, the taxable person will be entitled to recover the input tax in subsequent tax period.

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        Excise Tax in the UAE – What you need to know

        Jay Krishnan, Partner

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          The UAE government is continuing to show leadership when it comes to clamping down on unhealthy products being produced for human consumption following its decision to double the number of products that will now be subject to excise tax.

          In 2017, more than 1700 products were subjected to this new excise tax with 60% of them being fizzy soft drinks, 26% were tobacco products and 14% were energy drinks.

          However, in December 2019, the UAE government decided to bolster its campaign by doubling the amount of produce that will be subject to increased taxes. Partner at HLB HAMT, Jay Krishnan said, “The excise tax was first introduced on 1700 products in 2017, as part of the UAE government’s objective which was to ultimately reduce the consumption of carbonated energy drinks and cigarettes.”

          The primary objective of this health initiative being spearheaded by the UAE is to ultimately reduce the consumption of unhealthy and harmful commodities. There is a lot of consumption of carbonated drinks, energy drinks-and tobacco products in the UAE, and the government are attempting to reduce the consumption of these products, but the other benefit of the excise tax on these products is the fact it’s going to generate additional revenue,” says Krishnan.

          Facts: Introduced in Oct. 2017, based on GCC Common excise introduction rules.

          Purpose:

          • To reduce the consumption of harmful and unhealthy commodities.
          • Additional revenue raising.

          Who are required to register for excise tax?

          • Importer of excise goods.
          • Manufacturers.
          • Stockpiles.
          • Warehouse keepers – distributor from a designated zone.

          No registration threshold limit Products included under excise duty:

          • Carbonated drinks.
          • Energy drinks.
          • Tobacco and tobacco products.

          Advancement: 1.12.2019

          • All sweetened drink with added sugar is included under excise tax.
          • Electronic smoking devices and tools, liquids etc.

          Rate of Excise tax:

          • 50% on carbonated drinks.
          • 50% on any drink with added sugar.
          • 100% on tobacco and tobacco products.
          • 100% on energy drinks.
          • 100% on liquids used in smoking devices.

          What is sweetened drink:

          • Source of sugar or other sweeteners is added and ready to drink beverages.
          • Any gels, powders which can be convertible to sweetened drinks. Exclusion from sweetened drink –any drink containing at least 75% of milk. Milk substitute, baby formulas, baby food.

          From 01.12.2019 – minimum excise tax is fixed:

          • 0.40 AED on individual cigarettes.
          • 0.10 AED per gram of water pipe tobacco or similar products.

          On 01.10.2017 – more than 1700 product items were subject to excise tax (60% are soft drinks, 26% tobacco products and 14% energy drinks)

          • Now after the advancement, this number will more than double.

          Step by step guide for businesspersons:

          • Classification of goods.
          • Identify excisable goods.
          • Registration with FTA.
          • Identify tax trigger points and tax liability.
          • Evaluate pricing impact.
          • ERP and process changes to be implemented.

          What HLB Hamt offers:

          • Registration.
          • De-registration.
          • Goods classification, qualifying for excise tax.
          • Inventory counting.
          • Advise on stockpiles.
          • Ongoing return filing and compliance services.
          • Tax agent.
          • Consulting on latest amendments.

          Books of accounts and record maintenance is mandatory for 5 years from the financial year.

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          Recent Updates

          HLB HAMT

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            HLB HAMT Partners with Automation Anywhere

            Vimal Ramachandran, Director

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            HLB HAMT - Accounting Firm in UAE
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              Automation Anywhere, a Robotic Process Automation provider, announced partnership with HLB HAMT, to deliver RPA products as part of their Accounting, Audit Assurance, and Business Consultancy practices. HLB HAMT will start deploying Automation Anywhere’s Intelligent Digital Transformation platform as a part of its service offerings, from the current month.

              “Business across verticals are willing to deploy intelligent digital workforce solutions to automate repetitive and mundane tasks allowing employees to work on insight-driven activities, thus increasing business efficiency,” said Milan Sheth, Executive Vice President, Automation Anywhere, India Middle East, and Africa region.

              Automation Anywhere’s traditional RPA comes bundled with cognitive and machine learning elements such as natural language processing and reading unstructured data, allowing organizations to build world-class Intelligent Digital Workforces. HLB HAMT operating with superior experience in the field of accounting practice, and business consultancy is looking to scale up by providing automation efficiency as one of the critical business offerings to the customers.

              “We’re excited to partner with Automation Anywhere, implementing their unique RPA technology and incorporating it within our services,” said Vimal Rama, Director of IT, HLB HAMT. “To fully stand out in this market, we need to be at the forefront of technological advancements to provide our customers with effective and efficient services within our practice. Automation Anywhere’s state-of-the-art technology will help us do this, and we’re looking forward to working together this year.”

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