TOPIC- TIME OF SUPPLY, EXPORTS- IMPORTS AND DESIGNATED ZONES Faculty Name – CA Mayank Sawhney Email: sawhneymayank@yahoo.co.in Date: 31 st October 2018 Indirect Taxes Committee The Institute of Chartered Accountants of India
TIME OF SUPPLY
TIME OF SUPPLY UNDER VAT The following key concepts detail when and how much VAT is due. Output VAT: The amount calculated and charged on a taxable persons ’ sale of goods and services . Time of supply: When the liability arises to account for output VAT. It ensures VAT is declared and paid in the correct tax period. As per the VAT Decree Law, the Time of Supply is considered as earlier of the following three events: Receipt of Date of Receipt of payment invoice goods/services
TIME OF SUPPLY Determines when liability to pay VAT arises : Date of Supply of goods Date of Supply of services Earliest of following: Earliest of following: — Completion of service — Transfer of goods — Receipt of payment - Transfer of goods under supplier’s supervision — Issuance of tax invoice - Possession of goods by recipient - Date of completion of assembly or installation — Import of goods — Acceptance of supply by buyer or 12 months post transfer of goods / possession by buyer – if supplied on returnable basis — Receipt of payment — Issuance of tax invoice Tax invoice must be issued within 14 days from date of supply (DL Article 67)
TIME OF SUPPLY OF GOODS- WHEN IS TAX DUE ? Time of supply of goods for sales within UAE is earliest of the following: a)Date of delivery of goods b)Date of tax invoice c) Date of payment Time of supply for Imports of goods: Time of supply for imports is the date the goods are brought into UAE i.e. the date of the customs declaration in UAE
ILLUSTRATION - SALES OF GOODS Invoice date Payment date Delivery date Time of supply 1 January 2018 1 February 2018 1 March 2018 1 January 2018 1 February 2018 31 January 2018 1 March 2018 31 January 2018 To be raised 31 January 2018 1 October 2018 31 January 2018 1 January 2018 2 February 2018 To be delivered 1 January 2018 1 February 2018 1 February 2018 5 January 2018 5 January 2018
TIME OF SUPPLY OF SERVICES- WHEN IS TAX DUE ? Time of supply of services is, earliest of the following: a)Date on which services are provided b)Date of tax invoice c)Date of payment
SPECIAL CASES- SUPPLIES INVOLVING PERIODIC PAYMENT & INVOICING The date of supply of goods or services for any contract that includes periodic payments or consecutive invoices is the earliest of any of the following dates, provided that it does not exceed one year from the date of the provision of such goods and services: a) The date of issuance of any Tax Invoice. b) The date payment is due as shown on the Tax Invoice. c) The date of receipt of payment.
TIME OF SUPPLY IN WORKS CONTRACTS The date of supply for any works contract involves additional challenge in • determining the date of completion of the works contract or each milestone forming part of that works contract. • The standard industry practice in UAE is that any works contract or each milestone forming part of that works contract is considered as completed only when the same is certified by the Customer or a Project Consultant appointed by the Customer. • The liability to report VAT and issuance of Tax Invoices in such cases arises on the Supplier, upon the certification of the work. • For Advance Payments, the liability to report VAT arises on the date of payment.
EXPORTS UNDER VAT
EXPORTS OF GOODS & SERVICES EXPORT: Goods departing the state or the provision of services to a person whose Place of Establishment or Fixed Establishment is outside the State. GOODS: Physical property that can be supplied including real estate, water and all forms of energy as specified in the Executive Regulation of this Decree – Law. SERVICES: Anything that can be supplied other thanGoods. PLACE OF ESTABLISHMENT: The place where a business is legally established in a country pursuant to the decision of its establishment, or in which significant management decisions are taken and central management functions are conducted. FIXED ESTABLISHMENT: Any fixed place of business, other than the Place of Establishment, in which the person conducts his business regularly or permanently and where sufficient human and technology resources exist to enable the person to supply or acquire Goods or Services, including the Person’s branches. STATE: United ArabEmirates
EXPORTS UNDER VAT In case of Goods: UAE Goods departing Outside UAE from UAE In case of Services: Place of Establishment/ UAE Place of Provision Fixed Establishment Outside UAE
EXPORTS- RELEVANT PROVISIONS OF VAT LAW Rate of Tax on Exports: -As per Article 45 of the VAT DL of UAE, Export of Goods and Services will be Zero Rated Sales. Recovery of Tax on Export: -Any input tax paid by the business in making an export shall be recoverable against output tax. -Excess of input tax over output tax may be either given as Refund or carried forward to subsequent tax periods. Record Keeping: All taxable persons are required to keep proper records of exported goods and services. Export of Goods- Require both Official and Commercial Evidence: • “Official evidence” means Export documents issued by the local Emirate Customs Department in respect of Goods leaving the State. • “Commercial evidence” shall include any the following: 1) Airway bill. 2) Bill of lading. 3) Consignment note. 4) Certificate of shipment.
IMPORTS UNDER VAT
IMPORT OF GOODS & SERVICES IMPORT: The arrival of Goods from abroad into the State or receipt of Services from outside the State. CONCERNED GOODS: Goods that have been imported, and would not be exempt if supplied in the State. CONCERNED SERVICES: Services that have been imported , where the place of supply is in the State, and would not be exempt if supplied in the State IMPORTER ON RECORD FOR GOODS: The importer of concerned goods who clears the goods from the Customs Authorities in UAE, under its Import Code issued by the Customs Authorities in UAE and the Tax Registration Number (TRN) issued by the Federal Tax Authority (FTA) in UAE. DATE OF IMPORT OF GOODS : The date on which concerned goods are imported under the Customs Legislation in UAE. IMPORTER OF SERVICES: The recipient in the State who is receiving services being used for its business in the State, from an Overseas Supplier. STATE: United ArabEmirates
WHAT IS REVERSE CHARGE MECHANISM (RCM)? Reverse Charge Mechanism (RCM) is a mechanism under which the recipient of goods or services is required to pay VAT instead of the supplier, when the supplier is not a taxable person in the State where the supply has been made. When goods are imported to UAE from UK, the importer of goods will pay VAT under reverse charge mechanism, if the Let’s Understand same goods were taxable in UAE and importer would account for Input VAT and at the same time for output VAT as if he was making the supply, under UAE VAT Law, tohimself.
HOW REVERSE CHARGE MECHANISM WORKS ? ▪ Reverse Charge Mechanism (RCM) rules will apply to International Supplies of Concerned Goods and Concerned Services from Business to Business ▪ RCM applies when a VAT registered person in UAE imports into the UAE Goods or Services from suppliers established outside the State and those Goods or Services would be subject to VAT,if purchased in theUAE ▪ The recipient accounts for the VAT due on the supply on his VAT return (self account) • The output VAT accounted for by the recipient is deductible as input VAT on the same VAT return where it is incurred as a cost of making taxable supplies
ILLUSTRATION OF REVERSE CHARGE MECHANISM
PROVISIONS OF ARTICLE48 OF DL – FOR REVERSE CHARGE Article 48 of DL- Provides Specific Obligations to Account for Tax under Reverse Charge: If the Taxable Person imports Concerned Goods or Concerned Services for the purposes of his Business, then he shall be treated as making a Taxable Supply to himself, and shall be responsible for all applicable Tax obligations and accounting for Due Tax in respect of these supplies.
ACCOUNTING ENTRIES UNDER REVERSE CHARGE Business imports goods under Article 48 (Reverse Charge): Cost of Goods imported AED 3,000. Purchase Account Debit 3,000 Input Tax (Under RCM) Debit 150 To Output Tax (Under RCM) Credit 150 To Payable Account Credit 3,000
FAQ’s FOR EXPORTS & IMPORTS UNDER VAT ▪ Is only raising of an invoice to a Company or Person outside UAE enough to qualify a transaction as Exports? ▪ Is Physical Inspection Report of Goods from UAE Customs Authorities a Mandatory Document for Export of Goods ? ▪ What are the various factors to be analyzed to assess whether the Services provided qualify as Export of Services ? ▪ If goods are handed over to a Customer who came from outside UAE, physically in UAE, does it qualify as Exports ? ▪ What does the term ‘Importer on Record’ mean ? ▪ Is VAT applicable in case the transfer of ownership of goods takes place on High Sea Sales basis or outside UAE ? ▪ Box 6 of VAT Returns is not showing correct RCM figures ?
DESIGNATED ZONES
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