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Abu Dhabi, UAESunday 24 June 2018

VAT Q&A: Does our SME have to pay VAT on a business centre contract signed last year?

The small Abu Dhabi firm had the tax added to an invoice issued in February

Tax expert Lisa Martin says the outcome to the issue depends on whether the company is tax registered or not. Getty Images
Tax expert Lisa Martin says the outcome to the issue depends on whether the company is tax registered or not. Getty Images

We are a small Abu Dhabi company and took on the services of a business centre as an office; this was based on an annual contract for 2016 followed by two six-month contracts with the most recent running from November 2017 to February 2018, then February to May 2018 as the payment is made every quarter. We have just received the last invoice (ie February to May 2018) and have noticed that VAT has been added. I clarified to the business centre that I should not be incurring any VAT as there was no mention of payment of taxes whatsoever in the signed contract in 2017. I was informed "that any invoice issued after January 2018 will be subject to 5 per cent VAT even if the contract was signed before that period". The business centre added, "you can check it with the VAT authority as well". Can you point me in the right direction on this? SI, Abu Dhabi

The basic rule in Article 80 of the Decree Law and Article 70 of the Executive Regulations is that if a contract was concluded prior to January 1 2018 for a supply wholly or partly made after that date, and the contract does not contain clauses related to tax amounts, it shall be treated as inclusive of tax. So based on this, if you are not VAT registered then the agreed contract price is treated as inclusive of VAT and you should not be asked to pay any more for the 2018 portion of the lease. If this is the case, take the matter to the attention of the Abu Dhabi Department of Economic Development.

If you are VAT-registered, the rules are different and the Executive Regulations set out the exceptions to Article 70 of the law. The landlord should have written to you before December 31 last year to confirm whether you were registered for VAT and can reclaim the VAT. If you confirmed that to him, then he can legitimately charge you VAT on the 2018 portion of the rent. My experience is that most companies did not send any request to their customers, but are charging VAT regardless. However as long as you can reclaim it, then I would pay the VAT rather than get into an unnecessary dispute with the landlord.

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As a small company, we issue all our invoices to our customers in a PDF format by email containing all the required information, such as TRN numbers, VAT amount etc. However, a few of customers are demanding original hardcopy invoices before they will process them although I can find no reference to this in the VAT instructions. To do this will incur considerable costs via a courier company or employing someone to deliver invoices. Is it necessary for us to issue original hardcopy invoices or can we continue to issue softcopy VAT invoices? AT Dubai

Article 59 section 8 of the Executive Regulations to the Decree Law contains information about issuing tax invoices, including what details need to be included and how they should be issued. It states that tax invoices may be issued by electronic means provided two conditions are met. These are, one, that you must be capable of securely storing a copy of the electronic invoice and, two, the authenticity and integrity of the electronic invoice should be guaranteed. As long as you are producing invoices from an accounting system with unique invoice numbers, and either run your accounting system in the cloud or have a reliable back up process in place, then they should be stored securely. What isn’t acceptable to the Federal Tax Authority is producing invoices on excel outside of an accounting system.

I’ve heard some customers insist on hard copy invoices so I checked with Bianca Gracias, a Lawyer from Suits & Advisors, who confirmed my understanding, which is there is no legislation in place which requires this. Sending your customer an invoice electronically, which they can obviously print if they prefer to use a paper copy internally, is not unreasonable. Going forward I would include a clause in your contracts / quotations which states that invoices will be provided electronically and any request for a hard copy invoice will incur an admin fee, of say, Dh100.

Lisa Martin, a chartered accountant with over 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to pf@thenational.ae