Insights
Tax and Legal Services
PwC Middle East
UAE: VAT Guide - VATGFS1 -
Financial Services
March 2019
In brief
The recently released Financial Services VAT Guide - VATGFS1 ("Guide") sets out to provide taxable
persons insights into how the Federal Tax Authority interprets the current VAT legislation with regards
to the VAT treatment of financial services. This VAT Alert highlights some of the most relevant insights
their businesses should consider in light of their business activities.
In detail
Late payment fees
The Guide mentions various instances where late payment fees may be charged and suggests treating
these fees as standard-rated supplies. Although the suggested treatment in the Guide is consistent
across the various imposed late payment fees, the Public Clarification VATP001 that discusses a
scenario where compensation is received for late performance and argues that the purpose of such a
payment is not to provide consideration for a provision of any goods or services. As such, these
payments would be outside the scope of VAT.
Therefore, taxable persons should take into consideration the factual circumstances when considering
the guidance provided and derive the VAT treatment based on the contractual arrangement for each
specific agreement. This is also highlighted by the FTA in Appendix A of the Guide which states that
"the VAT liabilities stated below are general and that there may be transactions which fall outside of
these general treatments which should be analyzed on a case-by-case basis”.
Interest income generated from bank deposits
The Guide discusses earnings from returns on investments such as interest on deposits, specifically
stating that where there is no service nor transaction provided in return for such a payment then the
said returns will be outside the scope of VAT. The Public Clarification "Bank Interest and Dividends"
("VATP010") echoes this position by stating that passively earned interest income generated from bank
deposits does not amount to consideration for a supply and their position outside the scope of VAT.
We highlight the use of the phrase "passively earned" and recommend careful consideration is given to
the transaction giving rise to the interest on any deposit account before applying a blanket treatment to
all taxpayers.
In the event that a taxable person is in the financial services business, any interest earned would need to
be assessed to determine if it could be construed as consideration received for the making of a financial
services supply and thereby changing the VAT treatment to that of an exempt supply.
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FX Realized profit and loss
The guide provides the VAT treatment for FX realized profit and loss for spot / translation (spread
income), trading gains, and trading income earned on underlying securities as exempt in nature, it does
not provide any further clarification on the reportable value for these types of transactions and further
invites additional questions, such as:
● Why does the guide only refer to a FX realized loss and not a trading loss as well?
● Should a taxable person include a realized loss in box 5 "Exempt supplies" of its VAT return?
And if so, the revenue of exempt supply would decrease.
● Would this not then benefit a taxable person applying an output based method of
apportionment by virtue of the fact that it decreases total exempt supplies?
We recommend taxpayers to consider the aforementioned in the context of their business activities and
contact PwC if any assistance is required.
PwC Middle East Indirect Tax contacts
Jeanine Daou Nadine Bassil Antoni Turczynowicz
Middle East Indirect Tax Leader Indirect Tax Partner, UAE Indirect Tax Partner, UAE
T: +971 (0) 4 304 3744 T: +971 (0) 4 304 3688 T: +971 (0) 4 515 7372
E:
[email protected] E:
[email protected] E:
[email protected]Deepak Agarwal Julie Bronzi Maher ElAawar
Indirect Tax Director, UAE Indirect Tax Director, UAE Indirect Tax Director, UAE
T: +971 (0) 56 417 6596 T: +971 (0) 54 791 5254 T: +971 (0) 56 216 1109
E:
[email protected] E:
[email protected] E:
[email protected]Tina Hsieh Mariel Yard
Indirect Tax Director (FS), UAE Indirect Tax Director, UAE
T: +971 (0) 50 900 7674 T: +971 (0) 52 745 0861
E:
[email protected] E:
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Please see www.pwc.com/structure for further details. This publication has been prepared for general guidance on matters of interest only, and does
not constitute professional advice.
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