Foreign business VAT refund : The foreign business must not have a place of establishment or fixed establishment in the UAE

The Federal Tax Authority (FTA) has outlined four conditions that would allow foreign businesses to recover value-added tax (VAT) incurred in the UAE.

To be eligible for the VAT refund, the first condition is that foreign businesses must not have a place of establishment or fixed establishment in the UAE or in any of the VAT-implementing GCC states.

Secondly, such foreign businesses must not be a taxable person in the UAE. Thirdly, they must also be registered as an establishment with a competent authority in the jurisdiction in which they are established; and finally, they must be from a country that implements VAT and that equally provides VAT refunds to UAE businesses in similar circumstances.

The authority clarified that the period of each refund claim shall be a calendar year, noting that for claims in respect of the 2018 calendar year, refund applications can be made as of April 1, 2019. However, for subsequent calendar years, the opening date for accepting refund applications will be March 1 of the following year; this means that for the period from January 1 to December 31, 2019, applications will be accepted as of March 1, 2020.

The FTA went on to stress that the minimum claim amount of each VAT refund application submitted by business visitors is Dh2,000, which may consist of a single purchase or multiple purchases. The Authority urged potential applicants to hold on to the original tax invoices on the purchases for which they would like to reclaim VAT, as they will be required to be submitted along with the refund applications.

The state may still submit a VAT refund application to reclaim VAT incurred in the UAE under this scheme, the FTA assured, outlining only three situations where VAT cannot be reclaimed.

The first situation is if the foreign business in question makes supplies in the UAE, unless the recipient is obliged to account for VAT under the reverse charge mechanism. Secondly, a VAT refund cannot be processed if the input tax in respect of any goods or services is “blocked” from recovery and, therefore, not recoverable by a taxable person in the UAE. The third situation where a refund is not possible is if the foreign business is a non-resident tour operator.

Khalid Ali Al Bustani, director-general, FTA, noted that this procedure reflects positively on many sectors, including tourism, trade, exhibitions, conferences, etc.

He further explained that reciprocity is a key condition for the procedure, whereby the Authority will refund the VAT to businesses resident in countries that refund VAT for UAE businesses visiting their territories.