VAT GUIDE ON FINANCIAL SERVICES
With an aim to provide assistance in understanding and applying the VAT legislation, the Federal Tax Authority has issued a Financial Services VAT Guide called VATGFS1.
WHAT DOES THIS DOCUMENT CONTAIN?
This document contains guidance about :
- The characteristics of financial services for the purposes of value added tax
- It guides the financial service industry to classify as to which services and functions are liable to and which should be exempted from VAT
- The possibility of the extent of VAT recovery
- It also gives a detailed explanation of the concept of input tax apportionment and on the special input tax apportionment methods.
WHAT DOES IT DISCUSS?
The VAT Guide further discusses the definition of Financial Services and the FTA’s interpretation of the financial services provisions in the VAT Decree Law. It further gives confirmation on the exemption of financial services from VAT unless it is renumerated by the service provider by way of explicit fee, commission, rebate, commercial discount etc.
It also provides an extensive list of fees categorically on the financial services which are considered taxable for VAT purposes.
IT GIVES A DETAILED DESCRIPTION OF THE FOLLOWING KEY POINTS
It states that the provisions contained in the VAT Decree Law for financial services are not only applicable to the bodies regulated by the UAE’s Central Bank but also on the businesses which provide financial services.
It further exempts the supplies of financial services renumerated by way of implicit margin or spread from the purview of VAT.
It further discusses the treatment of exported financial services by saying that :
- The supply of financial services to a recipient established outside the GCC would be treated as zero rates
- Whereas, the supply of financial services to a recipient either registered or registrable for VAT in a GCC implementing state would be treated outside the scope of UAE VAT making the recipient liable for the reverse charge mechanism in the GCC member state.
- It further explains that the place of supply in case of financial services being provided to a recipient not registered or registrable for VAT in the GCC state would be the UAE
It also discusses that the supply of investment grade precious metals is subject to VAT at zero rate and the costs related to these supplies are to be recovered in full.
In addition to the above-mentioned points, it states that penalty fees are treated to be as standard rated and unless the fees relate to penal interest, it would be VAT exempted. It also states that option premiums are considered to be taxable as they are explicit fees.
It also gives a direction of calculating input tax apportionment method as per the guidance provided by the FTA in the guide.
This guide clears the ambiguity and puts in black and white the treatments which are being applied across the board.