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Tax Flash: New Public Clarifications on VAT issued

New Public Clarifications on VAT issued

The UAE Federal Tax Authority (FTA) recently released two new Public Clarifications on VAT

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Tax flash

The UAE Federal Tax Authority (FTA) recently released two new Public Clarifications on VAT:

Public Clarification on disbursements and reimbursements

Expenses recovered from another party as part of commercial transactions may qualify as either disbursements or reimbursements. The VAT treatment of the recovery of these expenses, and how they are consequently reported on a VAT return, depends on the expense’s classification.

The Public Clarification provides guidance on distinguishing between disbursements and reimbursements. A reimbursement alludes to the recovery of expenses incurred in a “principal” capacity, while a disbursement refers to the recovery of payments made “on behalf of” another person (e.g. as an agent). Other differences are summarized below:

Criteria Disbursement Reimbursement
Recipient of goods or services The other party  The taxpayer
Payer The other party (who has authorized the taxpayer to make a payment on his/her behalf) The taxpayer, or an agent acting on his/her behalf 
(Tax) invoice recipient The other party The taxpayer
Owner of goods  The other party The taxpayer
Amount to recover Exact amount as per invoice, without a markup  May include a markup as agreed with other party  
VAT treatment Out of the scope of VAT Same as main supply

Public Clarification on the VAT treatment of options and option premiums

The FTA has clarified the contents of VAT Guide GFS1, issued in January 2019. Points of note are as follows:

  • The supply of options with respect to debt securities and equity securities in return for premiums is exempt from VAT.

  • A financial option gives the holder the right to buy or sell the underlying financial instrument at a specified price.

  • An option premium is the fee received for selling an option.

The definition of debt securities and equity securities in Article 42(1) of the Executive Regulations includes options to acquire an underlying interest and rights in these securities. The FTA has clarified that, therefore, options and corresponding option premiums related to debt securities and equity securities are exempt from VAT in accordance with Article 42(3) of the Executive Regulations.

However, a different VAT treatment may apply to non-debt and non-equity financial instruments. The Public Clarification also elaborates on a mechanism to adjust for previous incorrect VAT treatment. 

© 2019 KPMG, a United Arab Emirates partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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