Applicability of VAT on export of services, VAT on commercial properties, & more.

Host
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Here in the room with us right now, 4001 or via the free app. Send your questions through as soon as possible because it gets busy. We’ve got a number of questions to get to from last week, which we will come to in a couple of minutes’ time. First off though, Ludmila, nice to see you. Good to be back here and great to see you as always. Very good to have you back. Tennis last week, back in the studio this week, not quite as salubrious, but there you go. I want to ask you about tax to start with today. We’re going to come to a topic we didn’t get to last week, the applicability of VAT on export of services. That’s to come. But you came in all bubbling and frothing about tax certificates, so we’ll start there.

لودميلا يامالوفا
Yes, this is a topic I’ve wanted to update the listeners on. It relates to a tax certificate that’s issued by the UAE authorities for the purposes of a person’s home country. Usually, these tax certificates are used to minimize or receive some sort of tax benefit in the person’s home jurisdiction—let’s say if you’re from Russia, England, or the Czech Republic. Historically, if you had UAE residency, you would get a tax certificate from the authority once a year and present it to the authorities at home.

However, about six months ago, there were substantial changes. Now, you must have physical residency in the UAE, not just a visa residency. This means that having a UAE residency visa alone is no longer sufficient. You need to demonstrate actual residency, such as owning or leasing property registered with Ejari.

Additionally, you must spend at least 180 days a year in the UAE. This ensures that the tax certificate is issued only to genuine residents, closing potential loopholes where individuals might have claimed UAE residency for tax benefits without actually living here.

Host
That makes sense. So, this change aligns UAE policies with other governments’ expectations. Moving on, there’s been a lot of chatter about income tax being introduced. Can you shed any light on this?

لودميلا يامالوفا
There have been numerous statements from various authorities, particularly after the introduction of VAT, stating that there are no plans to introduce income tax. While things are always subject to change, as of now, there’s no indication or draft legislation for income tax.

Host
Understood. Let’s switch gears. You mentioned VAT on the export of services earlier. Can you explain how this works?

لودميلا يامالوفا
Under VAT laws, exports of goods or services are generally exempt or zero-rated. For instance, if my law firm provides services to a company based in the US without any business presence in the UAE, those services are considered exports and are exempt from VAT.

However, services related to assets in the UAE, such as real property or bank accounts, are subject to VAT, even if the client is based abroad. Additionally, if a client spends significant time in the UAE, they may be deemed a resident for VAT purposes, making the service non-exempt.

Host
That clarifies it. We also have a caller with a question about property management and VAT. Abdullah, you’re on the line.

Abdullah
Hi, good afternoon. We manage properties on behalf of landlords who are not in the UAE. We collect rent in our name, deduct fees, and remit the balance to the landlords. Should we charge VAT to tenants for commercial properties, or does the landlord do that?

لودميلا يامالوفا
Great question. Commercial rent is subject to VAT, regardless of the rent’s total value. Since you collect rent on behalf of the landlord, you must charge VAT and remit it to the government. Additionally, your service fees to the landlord are also subject to VAT, so you’ll need to itemize both the rent and your service fees on the invoice, charging VAT separately for each.

Host
That’s clear. Unfortunately, we’re out of time. Ludmila, as always, thank you for your insights.

لودميلا يامالوفا
Always a pleasure.

Host
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