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FTA guidelines on automotive sector

Dilip JainDilip Jain    05 July 2021
FTA guidelines on automotive sector

FTA VAT Guidance on automotive sector ( VATGAM1)

The guide is applicable for supplies made by motor vehicle dealers in the UAE:

  1. supply of new cars
  2. the supply of used/ second-hand cars
  3. supplies under warranty
  4. the export and import of cars.

 

VAT treatment in various scenarios:

 

A

Sale of cars

Tax rate

Date of supply/ when to charge tax- earliest of

1

Outright sales

5%

 

  • the date on which the car is transferred to the customer;
  • the date on which the customer took possession of the car;
  • the date of receipt of payment; or
  • the date of issuance of a tax invoice

 

2

Outright sales but periodic payments

or consecutive invoices,

 

5%

 

  • the date of issuance of a tax invoice;
  • the date payment is due as shown on the tax invoice;
  • the date of receipt of payment.

(1.VAT will only be due to the extent of the payment made or stated on the tax invoice

2. it does not exceed one year from the provision of the car )

 

 

Time to issue Tax invoice

 

 

A tax invoice must be issued within 14 days of the date of supply .

  1. tax invoice must also be delivered to the customer.

 

 

Disbursement cases-

No Vat

 

  1. and on behalf of a Designated Government Entity (e.g. Transport Authority / Department) for provision of a Sovereign Activity.

 

  1. amount should be clearly identified on the tax invoice
  •  

 

3

Hire-purchase arrangements

 

 

 

Stages of tax liability

 

  1. motor vehicle trader to the finance company
  2. finance company to the customer

 

 

  1. Vehicle Trader

 

5%

issue a tax invoice to the finance company for sale price

 

 

  1. company

 

5%

  1. the hire instalments which are subject to VAT

 

 

 

exempt

  1. the interest amounts which are exempt for VAT

 

 

 

5%

  1. finance charge is included in the total amount payable as installments

4

Hire-purchase arrangements- consecutive invoices

5%

Article 26 of the Decree-Law:

 

and when it issues invoices

 

 

 

5%

If  payments are received prior to issuance of the invoices

5

Hire-purchase arrangements- Repossession of cars

Out of scope

no supply takes place for VAT purposes on account of repossession of the car and therefore no VAT implications arise at this point

 

 

 

 

finance company may have issued tax invoice(s) to a customer for a certain period but is not able to collect the debt before repossessing the car- adjust the output tax under the Bad Debt Scheme

6.

Trade in an old car for a new car

 

two separate supplies:

 

  1. The sale of the new car to the customer; and
  2. The customer’s sale of the old car to the motor vehicle trader.

 

 

sale of the new car

5%

no net-off the trade-in value of the old car against the sales price of the new car.

7

Price display- inclusive of Vat

5%

must display, advertise, publish or quote VAT-inclusive prices with a stipulation that the price includes VAT.

 

Price display- exclusive of Vat

 

(a) Where the supply of car is for export; and

(b) Where the customer is registered for VAT

8

Sale to govt. diplomats

5% (Vat refund scheme)

foreign governments, international organisations, diplomatic bodies and missions, or an official thereof

can seek a refund of such VAT incurred under the special VAT refund  scheme

9

Used car sale

5%

sale is made by a VAT registered supplier

B

Lease of cars

5%

contract will involve periodic payments or consecutive invoices, tax invoice to be raised on earliest of :

  • the date of issuance of a tax invoice;
  • the date payment is due as shown on the tax invoice;
  • the date of receipt of payment

 

Salik charges

5%

The recharge of such a cost is subject to VAT and should be included in the taxable value of the supply

C

Export of cars

 

 

 

Export by trader

0%

Conditions to satisfy:

  • The cars are physically exported outside UAE .
  • Official and commercial evidence of export or customs suspension is retained by the exporter i.e. the motor vehicle trader.

 

Overseas customer arranges export

0%

  • The cars are physically exported outside UAE .
  • Official and commercial evidence of export or customs suspension is provided  by the overseas trader to  the exporter i.e. the motor vehicle trader.
  • The cars are not used or altered in the time between supply and export

 

documents

 

  • Official evidence-exit certificate or a similar document evidencing the export.
  • Commercial evidence- airway bills, bills of lading, consignment notes, and certificates of shipments

 

Multiple sale transaction of cars

0%

  • only the final supply can be zero-rated

 

  • If Y is acting as an agent to export the car on behalf of X to Mr. A in USA, the export documents must demonstrate this fact clearly, for example, in the remarks section of the customs declaration

 

 

Purchase returns after import

 

  • On import- accounted for import vat and input claimed in Box 10.
  • On return, dealer to make a negative adjustment in box 7 and box 10 of the VAT return of the tax period in which the car is returned and exported out of the UAE

D

Warranty claims

 

 

 

Warranty Included in car sale price

Out of scope

the supplier would not charge any extra fees for the warranty repair services provided during the specified period, no further VAT implications will arise at the time of providing the actual repair services.

input tax incurred on carrying out the warranty repair services will be recoverable since it was incurred in the making of taxable supplies.

 

Warranty separately purchased

5%

The supplier accordingly needs to account for VAT on the supply of the extended warranty. The actual repair services provided during the additional period would, however, not attract VAT

 

Reimbursement of repair costs by distributors from manufacturers

 

 

 

warranty services

Out of scope

distributor’s warranty for no extra charge is treated as a composite supply

 

supply

5%

The supply made by the distributor under a warranty arrangement with the manufacturer is a separate supply for VAT purposes

 

reimbursement of costs

5%

reimbursement of costs by UAE distributors from overseas manufacturers to carry out warranty repairs is subject to VAT at 5%. Reason-The service is being supplied directly in connection goods situated in the UAE.

E

Auctions

 

 

 

Auctioneer- as marketplace - disclosed agency

5%

Sales is by principal agent to customer

 

Commission

5%

auctioneer will charge a commission for auctioning services

F

Free promotional gifts

 

 

 

Input Tax recovered

5%

Where the motor vehicle trader recovers input tax on the purchase of the gift and in turn supplies such a gift free of charge, the free supply will be subject to the deemed supply 12provisions

 

Input Tax not recovered

Out of scope

the deemed supply provisions will not 13apply.

G

Discounts

 

 

 

Discount to customer

Out of scope

Vat charged only on the discounted price.

tax invoice issued by the motor vehicle trader must clearly state the discount offered to the customer in order to account for VAT on the discounted value.

 

volume discount / bulk discount

Out of scope

manufacturer should clearly state the discount on the invoice.

 

discount on achieving a sales target

 

  • Where the discount/payment actually reduces the original value of the car, the manufacturer should issue a credit note to reduce the value
  • if the discount/payment is received because the motor vehicle dealer has performed a specific activity, the motor vehicle dealer should issue a tax invoice and charge VAT at the appropriate rate depending on the nature of the supply.

H

Demo Car

 

 

 

Genuine Reduced price

 

The original manufacturer should issue a credit note to reduce the original sales price- for discount

 

Price reduction for Marketing services

5%

motor vehicle trader will be required to issue a tax invoice

 

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax

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