Since the introduction of VAT in the UAE on January 1, 2018, charities have relied on Private Tax Clarifications in the UAE to understand VAT implications. The “Charities VAT Guide (VATGCH1)” serves as a critical resource, offering essential insights into VAT application for charitable activities and clarifying the extent of VAT recovery on expenses. This guide is invaluable for managing tax-related matters within charitable organizations.
Introduction to Private Clarifications
Private Clarifications are formal documents issued by the FTA addressing specific tax questions submitted by taxpayers. These clarifications apply only to the applicant and are based on the information provided during the application process. They ensure compliance and address uncertainties not covered in existing guides or public clarifications.
Applicable Taxes:
- Excise Tax (since October 1, 2017)
- VAT (since January 1, 2018)
- Corporate Tax (since June 1, 2023)
The Private Clarifications process is accessible via the FTA’s EmaraTax portal.
Donated Goods and Services
Charities often receive donated goods or services to support their operations. While these donations are typically free of charge, activities involving their use may constitute business activities if a charge is imposed.
Eligibility Criteria
Eligible Applicants
- Taxpayers: Individuals or businesses seeking guidance on their tax matters.
- Tax Groups: Only the representative member or parent company of group for specific tax type may apply.
- Tax Agents/Legal Representatives: Authorized representatives registered for the specific tax type can submit requests.
Eligible Matters
Applications are accepted only for specific uncertainties related to federal taxes or penalties. The requests must:
- Clearly specify the tax type involved.
- Provide all necessary details and relevant supporting documents.
- Outline the applicant’s analysis of the tax law and any alternative interpretations.
- The request must apply to the taxpayer’s specific circumstances and is not valid for third parties.
Rejection Grounds
Applications may be rejected if they:
- Fail to meet eligibility criteria.
- No Tax Matter of Uncertainty.
- A tax assessment on the same matter has been issued.
- The applicant is undergoing a tax audit or inspection related to the request’s subject matter.
- Relate to matters outside the FTA’s scope.
- Involve hypothetical scenarios or tax evasion concerns.
- Contain incomplete or contradictory information.
The Clarification Process
Application Submission
- Applications are submitted via EmaraTax.
- Mandatory fields and a detailed cover letter are required, alongside relevant documents like contracts, invoices, or tax advice.
Fee Structure
- AED 1,500 for single-tax applications.
- AED 2,250 for multiple-tax applications.
Review and Issuance
- Indirect tax clarifications (Excise Tax and VAT) are issued within 50 business days.
- Corporate Tax clarifications are issued within 60 business days.
- Complex matters may require additional time.
Withdrawal
- Requests can be withdrawn, but fees are only refunded if withdrawn within two business days.
Common Errors
Frequent issues leading to rejections include:
- Requests submitted by unauthorized individuals or entities, like non-representative members of tax groups.
- Missing or incomplete mandatory fields and supporting documents.
- Contradictory information in forms, cover letters, or supporting documents.
- Insufficient background details about the tax matter of uncertainty.
- Failure to provide a clear technical analysis or alternative tax treatments.
- Requests for issues already clarified in FTA guides or public clarifications.
- Submissions for hypothetical scenarios.
- Tax evasion or avoidance concerns in the request.
- Requests addressing matters outside the FTA’s scope.
- Applications submitted in the name of a natural person for a legal entity’s tax matter.
- Requests made during an ongoing tax audit or inspection on the same subject.
- Failure to align the information in uploaded documents with the request form.
The FTA emphasizes structuring cover letters effectively, ensuring clarity and providing detailed background, technical assessments, and references to relevant laws.
Additional Notes
Clarification Validity
- Clarifications are only valid for the specific applicant and circumstances outlined.
- They become void if based on incorrect facts, misrepresentation, or if relevant laws change.
Refunds
Fees may be refunded in limited cases, such as:
- Duplicate requests
- Applications made during tax audits.
- Requests for Corporate Tax matters from unregistered applicants on non-registration matters.
- Requests tied to procedural applications resulting from FTA Decisions.
- Requests concerning legislative changes being coordinated with the Ministry of Finance.
The refund amount depends on the number of taxes covered in the Clarification request:
- For a single-tax request, the full service fee of AED 1,500 will be refunded.
- For a multi-tax request, if no Clarification is issued, the full service fee of AED 2,250 will be refunded.
- If a Clarification is issued for only one tax in a multi-tax request, AED 750 will be refunded.
Disagreements
Clarifications are not subject to dispute resolution. Consequently, Applicants cannot apply for a reconsideration or review of a Clarification. Applicants can submit new requests if significant new information arises.
Conclusion
The FTA’s Private Clarifications system is an essential tool for ensuring compliance and addressing uncertainties in the UAE’s tax framework. By understanding the process, eligibility requirements, and common errors, taxpayers can submit well-prepared applications, that can effectively resolve their tax-related queries.
