Federal Tax Authority highlights success of 2-year VAT implementation journey
Al Bustani: 2020 will see further evolution with the development of the FTA’s electronic systems to ensure higher rates of customer satisfaction
The private sector is a key partner in the FTA’s achievements, which contributed to growing voluntary compliance to 312,000 businesses registered for VAT
The FTA establishes two consultancy entities to enhance communication with business sectors
The FTA conducts periodic reviews of tax procedures to ensure the highest levels of efficiency in performance
A new electronic platform offering tax refunds on home construction by UAE nationals through simple procedures provided in cooperation with the housing finance entities
Tax Refunds for Tourists Scheme processed around 3.2 million electronic applications in H2 of 2019, recording a 110.5% growth
AED28.7million is the value of 105 applications received through the VAT Refund Scheme for Foreign Businesses, which aims to enhance investment attractiveness
Number of tax-related clarifications increased to 445 – an annual growth of 271%
FTA website launches AI virtual assistant to answer tax-related inquiries
35,000 specialists benefited from the 120 seminars and workshops organised by the FTA
Abu Dhabi, United Arab Emirates, 4 January 2020: H.E. Khalid Ali Al Bustani, Director General of the Federal Tax Authority (FTA), announced that 2020 will see further evolution in the development of the FTA’s electronic systems, as part of its efforts to provide clear and simple procedures for managing, collecting and implementing federal taxes, ensuring higher rates of customer satisfaction.
H.E. Al Bustani explained that the continuous development efforts aim at maintaining the highest levels of quality in providing FTA services. During the last period, the FTA collaborated with competent authorities in the UAE to establish the first-of-its-kind integrated electronic tax system in the region, in line with the leadership’s forward-looking vision. Al Bustani said that the number of VAT-registered businesses increased to around 312,000 through individual registration or as tax groups.
The FTA showcased the highlights of its tax system two years since the implementation of VAT, which came into force on 1 January 2018, at a rate of 5% applied on most supplied goods and services.
The FTA Director General said: “The continuous development of the FTA’s systems aims to further enhance our services, and in turn, create a comprehensive legislative environment backed up by the best tax system in the world. These legislations clearly stipulate all mutual obligations between the FTA and tax-payers ensuring higher standards of governance and transparency.”
H.E. Al Bustani said that in two years, the tax system has achieved several of its main objectives, starting with the diversification of national income to providing future generations with top-notch public services, while maintaining a sustainable environment and integrated infrastructure. He also asserted the importance of the private sector’s contribution to the strides made since the system’s launch.
“All indicators underline the UAE’s success in developing its tax system in just two years, which have surpassed those by many developed countries over the course of decades,” Al Bustani added. “The fully electronic VAT system encouraged businesses to seek voluntary compliance by offering seamless and simple procedures that ensure transparency and reliability. This underscores the efforts made to help realise the leadership’s vision of enhancing the quality of life and establishing the UAE among the world’s leading and most advanced countries by 2021.”
Al Bustani asserted that the increase in the number of tax-compliant persons is the result of growing awareness in the business community, as well as the seamless tax procedures available through the FTA’s official website, which was developed in 2019 based on the latest technology. The website offers a wide array of awareness and educational materials and top-quality services that are focused on providing user-specific experiences and integrates the latest solutions to ensure round-the-clock communication between the FTA and all business sectors.
The FTA Director General added that the FTA, through its updated website, launched a virtual assistant feature – an AI assistant that automatically answers website visitors’ queries regarding tax procedures and legislation, offering taxable persons a wider range of educational options. The AI assistant is named ‘TARA,’ the abbreviation of ‘Tax Aware Robot Assistant’.
H.E. Al Bustani said: “Over the past two years, the FTA recorded a growth in the number of voluntary declarations in 2019 compared to 2018, after many taxpayers reported mistakes made on their part relating to tax invoices, evaluations or tax refund applications. This indicates an increase in awareness levels among businesses, and their keenness to correct the errors recorded on their part at the beginning of the application, His Excellency pointed out that these mistakes witnessed a noticeable decline in the past period.
Continuous review to develop procedures
His Excellency said: “The development plans implemented by the Authority are part of our ongoing review of the executive procedures of tax legislations to achieve the best levels of performance efficiency and customer satisfaction among citizens, residents, visitors and tourists. We welcome customers’ feedback and pay great attention to it. We are now finalising the launch of anew electronic platform to ensure citizens are refunded the VAT they paid for building their new houses, which reflects the government’s focus to achieve the highest levels of citizens’ welfare.”
His Excellency explained: “As part of our efforts to enhance the happiness of all citizen, we, in coordination with relevant authorities responsible for house financing in the UAE, have put in place simplified mechanisms to process the refund applications. We have also strengthened cooperation with housing finance agencies to provide necessary guarantees to support tax refund applications, and a new electronic system will be shortly launched based on this mechanism.”
The FTA statistics revealed that the total number of applications it received through tax refund mechanism was 2,366 until December 2019. Of these, 1,474 applications were approved for citizens who were refunded the tax they paid for building their homes with a total value of AED 84.07 million, while legal procedures are being taken for other requests submitted to the Authority. This is compared to 539 applications valued at about AED 23.74 million which were approved until the end of June 2019 with a record half-yearly growth of 254.18% in the value of refunded tax and 173.5% in the number of approved applications.
During the past six months (the second half of 2019), 935 new applications valued at about AED 60.33 million were approved. The monthly average number of approved applications is about 154, while the average value of refunded tax paid to citizens for building their new homes was about AED 10.1 million.
His Excellency stressed that the Authority seeks to reach the highest levels of transparency, and to facilitate transactions including tax refund applications for categories that are legally eligible for VAT refund. He pointed out that the electronic tax refund system for tourists – which is the latest of its kind in the world – has witnessed significant growth since its launch in November 2018. The satisfaction rates of tourists using the system has risen due to its speed in completing refund requests, in addition to the ease and clarity of procedures.
His Excellency indicated that the tourists qualified to claim refund for the VAT they paid can receive it within a year from the date of leaving UAE if they are not able to receive an immediate refund before departure, provided they have completed the refund procedures before departure.
His Excellency added: “All indicators confirm that the electronic VAT refund system for tourists is achieving steady success due to its ease of use and speed of delivery. The system has become an important tool for promoting the UAE’s tourism sector under the wise vision of our leadership to expand economic diversification, and empower the various sectors of the UAE economy, including tourism. This advanced system reflects the sophisticated face of the UAE as a destination for tourists and visitors from all over the world.”
The FTA’s statistics also showed that the total number of electronic tax refund applications for tourists increased to 3.2 million since the implementation of the system until the end of 2019, compared to about 1.52 million applications by the end of last June – a rise of 1.68 million application with a growth of 110.53% in the second half of 2019. The daily average number of tax refund applications for tourists increased 2.64 times, from 372,000 applications in the first month of application to 983,000 per day in December 2019.
The number of retail outlets connected electronically to the system has also risen to 12,310 all around the UAE, while the number of self-service kiosks to recover VAT by tourists before leaving the country grew by 79.3% from 29 last July to 52 kiosks today.
Planet, the company authorised by the FTA to operate the system operates these kiosks that are equipped with the necessary technology whereby tax refund requests undergo a fully automated process. Planet employees are also present at the self-service kiosks to assist tourists if necessary.
“The FTA started implementing the VAT refund mechanism for foreign visiting businesses as of last April. The mechanism has witnessed remarkable activity and steady growth in its operations. The number of VAT refund requests dealt with through this mechanism reached 105, with a total monetary value exceeding AED 28.7 million, enhancing the attractive environment for investments to support economic activities,” said H.E. Khaled Al-Bustani.
The VAT refund scheme for foreign businesses stipulates refunding taxes paid for any product or imports carried out by any untaxable persons operating overseas, are not based in the UAE or countries with VAT or is based in countries that refund VAT for UAE businesses (to which the UAE provides the same courtesy).
Private Sector Partners
H.E. Al-Bustani said that the FTA is keen to develop effective strategic partnerships with its partners in the private sector, because these partnerships have a pivotal role in the successful application of the tax system. He asserted that the FTA is keen to raise tax awareness among business and consumer sectors, and it assists taxpayers to comply with tax regulations and procedures.
H.E. Al-Bustani said that 2019 witnessed the launch of the Business Consultancy Group that includes representatives of the private sector in the country. The Group holds its meetings on an ongoing basis to support the FTA’s efforts in implementing plans for continuous updating and development of its operating systems as part of its strategic plan aimed at providing the best services to business sectors in tax administration, collection, and implementation.
H.E. Al-Bustani added that the FTA regularly exchanges communication with business sectors. In addition, the Advisory Committee for Excise Goods Price Listing was established too. The Committee meets on a regular basis to set and approve the prices of excise goods, considering goods classification, setting a policy for periodically reviewing prices as per market conditions, ensuring the validity of the price list and updating it where necessary, and examining the retail sector developments regarding selective goods.
He said the tax agents play a role to ensure the success of the tax system. He reiterated FTA’s keenness to set precise standards for tax agents to exercise their profession, ensuring the highest levels of efficiency. H.E. Al-Bustani noted that that the number of tax agents accredited by the FTA has been growing steadily, in line with the continuous expansion of the customer tax base, providing a greater opportunity of selection for taxpayers who wish to deal with the FTA through tax agents.
H.E. Al-Bustani clarified that the number of tax agents reached 454, whom the FTA registered after they met the technical standards, conditions and qualifications required, and who passed the exams set by the FTA to verify their competencies to help the business sectors comply with their tax obligations.
H.E. Al-Bustani called on taxable persons to be careful during registration and filing tax recognition, to deal with the FTA approved registered tax agents exclusively, and not to assign this task to people not approved by the FTA who do not have sufficient expertise in this field, to avoid making mistakes.
The Federal Tax Authority (FTA) organised several meetings with tax agents, where they discussed ways to increase cooperation and coordination, improve compliance, raise awareness around the principles of the tax system, the FTA’s executive and control regulations, and introduce the services and facilities the FTA offers to help taxpayers comply with the regulations.
During 2019, the FTA launched on its official website a new guide on ‘Professional Standards for Tax Agents’, offering a detailed explanation of the standards and conditions required for practising the profession of tax agents in the UAE. The FTA also issued a guide on the mechanism for returning value-added tax for exhibition and conference suppliers and recipients, including an explanation of the criteria and procedures for VAT recovery.
Efforts to Raise Awareness
The FTA Director General affirmed that the FTA is continuing its efforts to raise awareness. In the last period, the FTA organised around 120 orientation seminars and workshops, which helped educate around 35,000 specialists across different business sectors. These awareness events are part of the ‘Tax Invoices’ awareness campaign, which was launched in Q1 of 2019 to ensure the use of tax invoices for all business operations, and ran in parallel with the Tax Clinic campaign.
Rolled out in August 2018, the Tax Clinic campaign was launched to enhance direct communication with all businesses in the UAE, raise awareness among them, and identify and immediately address with any relevant obstacles that they face.
Guidelines to Promote Compliance
The FTA called on persons registered for VAT to follow a number of key guidelines to achieve the highest levels of tax compliance. These guidelines include avoiding mistakes in tax invoices, such as listing prices that fail to include VAT; failure to support items listed in receipts, in accordance with Article (59) of Cabinet Resolution No. (52) of 2017 concerning the executive regulation of Federal Law No. 8 of 2017 on Value Added Tax; or requesting VAT refunds that exceed 5% due to mistakes made by the receipt’s supplier.
Other common mistakes include ‘mistakes and gaps in records’, such as missing documents that evidence direct and indirect export and import details; and missing details in applications, including products and services descriptions and tax registration numbers. Finally, the FTA cautioned against mistakes made in tax invoices. These include incorrectly deducting the input tax; including personal entertainment, transport and telecommunications expenses; failure to declare zero-rated and exempt supplies as per the adopted tax invoice form.
Led by the FTA’s tireless efforts in raising awareness, the number of tax clarifications provided by the FTA increased to around 464 in 2019, recording an annual growth of 271%, compared to 120 special explanations at the end of 2018, with 445 clarifications provided for specific cases and 19 public clarifications that aim to boost awareness and voluntary tax compliance rates. The FTA also issued 53 guides, 13 e-learning programmes, and several short awareness films and infographic newsletters aimed at clarifying and simplifying tax procedures.
Enhancing Cooperation between Parties involved in the VAT System
H.E. Al Bustani noted that the FTA worked to further enhance its strategic partnerships by hosting educational and consultative meetings with the parties involved in the tax system. This covered around 45 joint meetings with business groups including the UAE Banking Federation, the insurance sector, financial markets and financial intermediaries, importers, exporters, travel and tourism agencies, members of diplomatic missions, free zones, humanitarian organisations and charities, and companies across shipping, accounting and auditing, maritime services, real estate, health, and education, as well as hotels, jewelry and automotive sales outlets, vegetables and fruits vendors, fishermen, farmers’ and livestock farmers’ associations, retailers, and others.
H.E. Al Bustani highlighted the FTA’s strong strategic partnerships with federal and local government entities, which play a key role in ensuring the tax system’s success. The FTA collaborated with the Ministry of Finance (MoF) and the Central Bank of the UAE and established an interconnected joint network to facilitate VAT payment and refunds. The UAE Funds Transfer System (UAEFTS) has attracted a growing user base of taxpayers, especially as provides seamless, simple electronic money transfer procedures, enabling them to pay taxes through the branches of around 77 UAE-based banks, ATMs and finance companies. Through its online services portal, the FTA also allows user to pay their taxes through its e-Dirham system.
The Director General stressed the importance of the continued cooperation with the Ministry of Economy, economic departments and municipalities to implement inspection campaigns to alert noncompliant business of their breaches and allow them to take relevant corrective measures. He added that it is important to coordinate with the Federal Customs Authority and local customs departments regarding the successful connection of their systems to the FTA’s electronic systems, which helped maintain the seamless flow of foreign trade into the UAE and the elimination of any export and import hurdles.