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Archives for October 2020

ULTIMATE BENEFICIAL OWNER

Ultimate Beneficial Owner (UBO)

Cabinet Resolution No. (58) of 2020

This blog explains few major points in the Cabinet Resolution of Ultimate Beneficial Owner in the UAE.

Who is this law applicable to?

The new regulation passed by the cabinet is applicable to all the companies in Mainland and Free Zones, however this provision shall not apply to companies-

  1. which are wholly owned by the Local or Federal Government, or
  2. any-other companies wholly – owned by such companies, and
  3. the Financial Free Zones.

Registration of Legal Persons

All companies must submit the Real Beneficiary Register and the Partners & Shareholders Register to the company’s respective regulatory authorities before 27th October,2020.

How do we identify a beneficial owner? –

  1. Owns or has ultimate control, whether directly through a chain of ownership or control or by other means of control such as the right to appoint or dismiss the majority of its Directors, 25% or more of the shares or 25% or more of the voting rights in the Legal Person.
  2. The Beneficial Owner may be traced through any number of Legal Persons or arrangements of whatsoever kind.
  3. If two or more natural persons jointly own or control a ratio of capital in the Legal Person, all of them shall be deemed as jointly owners or controllers of such ratio.
  4. If no natural person is identified as an ultimate Beneficial Owner, or there is reasonable doubt that any natural person identified as an ultimate Beneficial Owner is the true Beneficial Owner in the Legal Person; then the natural person who controls the Legal Person by other means of control shall be deemed as the Beneficial Owner.
  5. Where no natural person is identified in accordance with point – 4 then the natural person who holds the position of a higher management official shall be deemed as the Beneficial Owner.

The Registrar should include the following information of the Real Beneficiary:

  1. Full name, nationality, date, and place of birth.
  2. Residential address or the address which the notices shall be sent on it, by virtue of this Decision.
  3. Number of passport or identity card, the country of issuance, date of issuance and expiry.
  4. Basis and date on which the person became a Beneficial Owner of the Legal Person.
  5. Date on which the person ceased to be a Beneficial Owner of the Legal Person.

The Register of Partners and Shareholders shall include:  

1) Number of shares held by each of them along with their categories and associated voting rights.

2) Date on which such partner or shareholder acquire that capacity in the Legal Person.

3) In case of natural partners or shareholders: the full name as it appears on the identity card or the passport, nationality, address, place of birth, name and address of employer and a true copy of the valid passport or ID.

4) In case of corporate partners or shareholders: the data stated in Clause (1) of Article hereof.

  • The Legal Person must update and record any change to the Register within (15) fifteen days of becoming aware of such change.
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APPORTIONMENT OF INPUT TAX

Apportionment of Input Tax – UAE VAT

This blog provides information on Input Tax Apportionment relevant to any taxable person who makes taxable supplies. In conducting business activities, a taxable person may incur expenses that are subject to VAT (Input VAT credit).  This can be recovered by them, subject to certain conditions. This is to ensure that VAT will not be a cost to such a taxable person. Under Article 54(1) of the VAT Decree-Law, a business can recover input tax incurred on goods and services that are used or are intended to be used, for making taxable supplies. Accordingly, where purchases are for exempt supplies or non-business activities, then the input tax is not recoverable. 

Input tax which is incurred in respect of purchases which are used partly for making supplies that allow for VAT recovery and partly for making supplies for which VAT is not recoverable is known as “Residual Input Tax”, and it must be apportioned between those supplies.  Recovery will be restricted to the proportion relating to supplies that allow for VAT recovery. The percentage of VAT paid on purchases attributing to supplies for which VAT cannot be recovered needs to be calculated. Applying this percentage on the total VAT paid will help us find out the Input VAT credit we cannot claim from the FTA. 

The FTA accepts, however, that the standard method of apportionment may not be appropriate in every situation.  Each business is different, and the standard method of apportionment may give rise to outcomes that might not be reflective of the actual use of goods or services by the business.  As a consequence, the FTA is introducing a number of alternative methods of input tax apportionment to be used where the standard method does not provide an outcome that is reflective of the actual use of the acquired goods or services.  

The special input tax apportionment methods which are available to taxable persons are:

  1. Outputs based method;
  2.  Transaction count method;
  3.  Floorspace method; and
  4. Sectoral method.

To be eligible to apply for the special method of input tax apportionment, all of the following conditions must be met:

  • The applicant has been registered for VAT for at least 6 months;
  • The applicant makes both taxable supplies and exempt supplies; and
  •  The standard method of input tax apportionment does not give a fair and reasonable result to input tax recovery. 

Submissions will be accepted where they are submitted by the applicant himself or on behalf of the applicant by either the appointed tax agent or the appointed legal representative.

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OUT OF SCOPE SUPPLIES

Understanding Out of Scope Supplies – UAE VAT

Out of Scope Supplies are supplies that do not come under the VAT provisions of UAE. Although Out of Scope, exempt and zero-rated supplies does not increase the VAT liability of a supplier, exempt and zero-rated supplies of goods and services come within the bracket of VAT provisions of UAE.

More about Out of Scope supplies….

             If an overseas supplier or a non-registered entity supplies goods to an overseas person, these supplies will be considered out-of-scope for VAT in the UAE.
For example, a local trader A sells goods to local company B. The goods are shipped directly from Company A’s factory in Singapore to Company B’s branch in London through 3rd port shipment. The goods do not pass through the UAE, so the sale of these goods is an out-of-scope supply.

There are two basic kinds of out-of-scope supply:

(i) When goods are purchased from an overseas supplier and sold to an overseas customer, without being brought into the UAE, it is considered Out-of-scope of VAT.

(ii) import to free zone and export from freezone,

(iii) purchase and sale within the free zones of goods, when place of supply is not in UAE

The following are the examples of Out of Scope supplies:

  • Supplies from a non-registered entity,
  • Certain government activities,
  • Goods or services provided to a different department within the same business,
  • Supplies not made in the course or furtherance of a business,
  • Transfer of business as a going concern etc.

Note : A supplier whose business is involved only in goods that are qualified as Out of Scope, are not required to register with the FTA. In such a case, Input Tax Credit on the purchases made or expenses incurred to supply these goods has to be added to the cost of the purchase/expense as he cannot claim that amount.

 

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