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‘Tax Conversations’: the year gone by and the road ahead

The most significant tax development in 2022 was the announcement of corporate tax

Year end is a good time to reminisce about the year gone by. We, you and us, have had over 33 ‘Tax Conversations’ this year on several facets of UAE taxation and the road ahead. We feel a sense of pride and professional satisfaction that ‘Tax Conversations’ has been instrumental in explaining the tax laws, share practical insights, international jurisprudence and assist on tax policy issues. Here are the top 10 themes covered in our ‘Tax Conversations’:

OTT subscriptions, software and international roaming

We started the year by picking up an interesting topic of electronic services. VAT could apply on electronic services to the extent such services are ‘used and enjoyed’ in the UAE. There is a growth of global sharing of OTT subscription passwords, cloud software services, international roaming by mobile phone users. The moot question remains as to how to determine the ‘usage and enjoyment’ of digital/telecommunication services in the UAE to comply with VAT obligations.

Shopping discounts and hotel cancellation charges

Amidst shopping festivals and consumer discounts, we discussed the retailers’ responsibility to identify the funding source of discounts provided to the customers. Where the discounts are not funded by the suppliers, i.e. the suppliers receive subsidies for selling at a reduced price, VAT might still be payable on the pre-discounted prices. Equally interesting was the discussion on VAT impact on hotel cancellation charges, notice pay recovered from employees and other liquidated damages.

Gold making charges – single vs composite supplies

In June 2022, a public clarification unsettled the gold and jewellery industry. The B2B supplies of gold and jewellery are covered under reverse charge mechanism (RCM) since June 2018. It was clarified that the supplier were still obligated to pay VAT on the ‘making charges’, if shown indicated separately on the invoice, for the last four years. We discussed the details of the clarification and the international jurisprudence on the relevant principles. A temporary relief has now been provided to the industry. However, questions remain on the impact of the clarification on other industries.

E-commerce and service exports

With the growth of e-commerce activities, it was pertinent to highlight some of the blackholes that business should avoid on taxation. We also alerted businesses engaged in 100 per cent service exports on the VAT registration requirements. In September, we also highlighted the common errors in understanding the scope of service exports and zero-rating.

Common VAT issues and changes in the VAT laws from 2023

Businesses often receive customers’ request to reissue current dated invoices. They also forego their own input credits on invoices older than 2 tax periods. Businesses have been reluctant to engage with new suppliers which are not VAT-registered. Our conversations cleared such misconceptions of the tax laws. We also covered all-important changes in the VAT laws which will be effective from 01 Jan 2023/01 Mar 2023. Some of the changes will require operational changes in the business processes.

Ignorance in tax compliance

During the year, we noticed some fundamental errors that small businesses have been making in tax compliance. We shared the 4Rs principle for an effective tax strategy and how SMEs should take control of their tax compliances.

Excise on coffee, karak and zafran tea

The tax conversations in 2022 was not just about VAT alone. Excise tax is applicable on sweetened beverages. We raised a pertinent issue whether or not excise tax should also apply on coffee, karak tea, zafran tea, whether made in shops/cafes or sold as concentrates. We discussed the comparative tax positions, international jurisprudence and the need for additional clarity.

Custom valuation

UAE businesses might find themselves having a blind spot when it comes to compliance with the custom rules and valuation. In September, our conversations highlighted the evolution of custom valuation rules and the risk areas for UAE businesses. It is important for free zone companies to ensure custom valuation rules on the supplies to the related parties in the mainland UAE.

Fun with taxation

Taxation is not mundane as otherwise perceived. In November, we shared some interesting fun issues and landmark tax litigation topics on taxation. Some issues might also shape up UAE taxation in the future.

Corporate taxation

The most significant tax development in 2022 was the announcement of corporate tax on your financial years starting on or after June 1, 2023. Our tax conversations across the year discussed the details of corporate tax and the business implications. We highlighted the importance of domestic transfer pricing on transactions with the owners/directors and their relative. Most recently, we discussed the anti-abuse rules which will be instrumental while transitioning into the corporate tax regime.

The road ahead

We thank you for your appreciation and love to the weekly Tax Conversations. Year 2023 will be an equally interesting year with the introduction of corporate tax, transfer pricing and VAT changes. Our endeavour remains to continue with our conversations with sincerity without missing out the fun elements of taxation. Wishing you all a merry Christmas and a prosperous new year.

(Pankaj S. Jain is the managing director of AskPankaj Tax Advisors. For feedback and queries, you may write to info@AskPankaj.com. Views expressed are his own and do not reflect the newspaper’s policy.)