The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published new VAT Public Clarifications on public transportation and farm houses/farm land.The new Public Clarifications are important for businesses in the transportation, real estate development, construction and infrastructure industries, and any other sectors where large scale transportation of employees occurs.The Public Clarification on farm houses and farm land is also important for businesses in the agricultural industry, and provides greater clarity on the VAT treatment of some of the supplies they make.
In this alert:
VAT Public Clarification on public transportation
VAT Public Clarification VATP007 discusses the definition of ‘public transportation’, and the FTA’s interpretation of which buses and trains qualify to be supplied at the zero rate for VAT under Article 45(4) of Federal Decree-Law No. 8 of 2017 on Value Added Tax (UAE VAT Law).
Article 34(3) of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree Law No. (8) of 2017 on Value Added Tax (Executive Regulations) states that the supply of a bus or train that is designed or adapted to be used for public transportation of 10 or more passengers as a qualifying means of transport shall be zero-rated under Article 45(4) of the UAE VAT Law.
It is important to note that VATP007 addresses only the VAT liability of the supply of the buses and trains themselves, and does not impact the VAT liability of transportation services supplied under Article 45(2) of the UAE VAT Law (which are zero-rated) or under Article 46(4) of the UAE VAT Law (which are exempt).
The Public Clarification includes the following key points:
o Private transportation: all means of transportation used to transport a specific group of people under contracts.
o Public transportation: all means of transportation used to transport all individuals without specifying any category.
The net effect is that entities that supply transport of a type similar to what the FTA has indicated is now classed as ‘public transport’ will need to review whether they comply with the various requirements set out in the Clarification. If not, and specifically if the transport is not generally available to be used as public transportation, it will not be entitled to zero-rating on supply.
This is likely to be of particular concern to operators of school buses, as well as buses used primarily for transport of employees.
VAT Public Clarification VATP008 on farm houses and farm land
VAT Public Clarification VATP008 addresses the VAT status of farm houses and farm land.
Article 44 of the Executive Regulations defines bare land for the purposes of exemption from VAT, and Article 37 of the Executive Regulations defines residential buildings for the purposes of zero-rating (for the first supply) and exemption (for subsequent supplies) from VAT.
The new Public Clarification contains the following key points:
What should you do next?
Businesses should consider the implications of these clarifications on their transactions to ensure the correct VAT treatment on supply of public transport and farm lands or buildings.
How we can help?
Alya Almarzooqi Auditing can assist you to assess the impact of these clarifications, and advise you on the VAT treatment of your affected transactions as well as the recoverability of input VAT.
Please do not hesitate to contact Alya Almarzooqi Auditing Tax Team if you require any assistance