VAT Refund in UAE: A Simple Guide to Eligibility
The Value Added Tax (VAT) came into existence in the UAE on January 1, 2018, and the standard tax rate is 5%. Businesses and consumers are subject to VAT on taxable goods and services, but certain individuals and businesses can claim a VAT refund. A VAT refund is the remuneration of the VAT paid by individuals or entities on eligible purchases. It allows them to recover VAT they have paid under specific conditions.
In this blog, we will learn who is eligible for a VAT refund in the UAE and how to apply for it efficiently.
How does VAT Refund Work?
1. Purchases Made: VAT paid on the purchases of goods or services by a person or businesses.
2. Eligibility Check: IF they are eligible then they can apply for a VAT refund following the local tax authority's process.
3. Refund Processing: The tax authority reviews the refund claim and if approved, compensates the VAT amount.
Who Can Claim a VAT Refund in UAE?
In the UAE, the Federal Tax Authority (FTA) has specified certain categories of individuals and businesses who can claim VAT refunds. Let's explore who can claim VAT refunds-
1. Tourists
Tourists can claim VAT refunds on their purchases of goods or services made within the UAE. There is a scheme Tourist Tax Refund Scheme in the UAE, through which eligible visitors can get a refund on the VAT paid on goods bought from authorized retailers.
Eligibility Criteria:
- The tourist must not be a UAE resident.
- The purchase must be made from the FTA-registered retailers who participated in the Tourist Tax Refund Scheme.
- The tourist must leave the country with the goods within 90 days from the date of purchase.
- The refund must be claimed through the approved electronic system when departing the country through airports, seaports and land borders.
2. Foreign Businesses (Business Visitors)
Businesses that incur VAT on expenses related to their activities but are not residents of the UAE can claim a VAT refunds under the Foreign Business Refund Scheme.
Eligibility Criteria:
- There must be a mutual VAT refund scheme from the applicant's country for the UAE businesses.
- Businesses should not have fixed establishments or places of business in UAE for claiming refunds.
- The refund can be claimed on the VAT paid on eligible business expenses, such as accommodations, exhibitions or conferences.
3. UAE Nationals Building New Residential Properties
VAT refund can be applied by UAE nationals on constructing a new home for personal use under construction-related expenses.
Eligibility Criteria:
- The applicant must be a UAE national.
- The properties must be primarily used for residential purposes.
- VAT refunds can be applied on construction related expenses such as contractor services, building materials and design fees.
4. Businesses in Designated Free Zones
Some designated free zones are treated as being outside the UAE for VAT purposes and can qualify for VAT refunds.
Eligibility Criteria:
- The company must be based and operated in an FTA-designated free zone.
- Specific goods and services can apply for refund based on the nature of transactions.
How to Apply for a VAT Refund in UAE
The VAT refund claiming process differs and it depends on the category of claimant. Here are the steps for different applicants:
1. VAT Refund for Tourists
VAT refund can be claimed by tourists before departing from UAE using the following steps:
- Shop at stores from a registered retailer participating in the tourist refund scheme (look for "Tax-Free" signs).
- Request a tax-free tag from the store at the time of purchase.
- At departure, validate the purchased goods at the airport, seaport or land border via an electronic system.
- Choose a refund method (cash or credit card refund).
2. VAT Refund for Foreign Businesses
Foreign business visitors must follow below steps:
- Submit a VAT refund request through the FTA portal.
- Provide required documents such as proof of VAT payments, tax invoices and business registration certificates.
- The FTA reviews the application and upon approval, the refund will be processed within a specified time frame.
3. VAT Refund for UAE Nationals Constructing Homes
UAE nationals check their eligibility and can apply for a refund using the below steps:
- Submitting an application through the FTA online portal after completing construction.
- Provide required documents including proof of ownership, construction invoices and contractor agreements.
- FTA reviews the claim and if approved, issues a refund within 20 business days.
4. VAT Refund for Free Zone Businesses
Businesses in designated free zones must follow below steps:
- Submit the refund application via the FTA online portal.
- Provide invoices, transaction details and other supporting documents.
- The FTA processes the refund request and issues the applicable VAT amount.
Important Notes
* Refund Thresholds: A minimum VAT refund amount is required before they can be processed.
* Documentation: Ensure all invoices and receipts comply with FTA VAT invoicing regulations.
* Time Limits: Refund claims must be submitted within the specified time frame set by FTA.
* FTA Audit: The FTA may request additional documentation while reviewing the claims for verification.
Conclusion
The VAT refund process in the UAE is designed to provide tax relief to non-residents and specific categories of individuals, including tourists, foreign businesses, and UAE nationals building new homes. By understanding eligibility criteria and following the correct procedures set by the FTA, VAT refunds can be claimed efficiently. If you need assistance in claiming VTA refunds, we suggest you consult a professional tax advisor who can streamline the process and ensure compliance.
Flying Colour Tax Consultant LLC assists businesses and individuals in navigating the complexities of VAT refunds. Contact us today!
To learn more about VAT Refund in UAE: Who Can Claim and How to Apply?, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.