VAT q&a: 'Should I pay tax on the sale of company assets?'
The Dubai firm wants to understand whether VAT should be applied to office furniture
My company is planning to refurbish our offices and sell all of our existing furniture. What is the correct VAT treatment for the sale of the furniture? FS, Dubai
This is an interesting question and I have seen differing views between experts on whether the sale of company assets should attract output VAT. Legislation states that VAT is charged on taxable supplies made in the normal course of your business. Some argue that selling fixed assets, such as furniture, is outside the normal course of business and is not vatable.
I don’t agree with this argument and advise charging the tax on the sale of all company assets. The purchase of assets used to generate taxable sales are part of most businesses' normal activities. When you purchase the new office furniture you will be charged VAT on the purchase, which you can recover in full against your output VAT on taxable sales. It makes sense therefore that if you can recover VAT on a purchase of assets, you should then charge VAT on a subsequent sale of the same item.
My Abu Dhabi VAT-registered company has recently started selling our services to customers in Bahrain and Saudi Arabia. How should I account for VAT on my invoices to Saudi and Bahrain Customers. MA, Abu Dhabi
The GCC member states of the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait have signed a common VAT agreement. Article 9 of this agreement set out how taxation on sales between these member states should be treated. It says that if a taxable person in a member state receives taxable goods or services from a resident in another member state, then he shall be deemed to have supplied these goods or services to himself and the supply is taxable in accordance with the Reverse Charge Mechanism (RCM). What this means in simple terms is that for sales between member states the transaction is taxed in the receiving state, not in the supplying state. Saudi Arabia implemented VAT in January 2018 and Bahrain introduced VAT from January this year.
The RCM is an odd concept; effectively you treat the supply as if you have made it to yourself and account for both the output and input VAT even though you have not been charged UAE VAT by the supplier. On your sales invoices you would not charge VAT but would show that the sale is outside the scope of VAT and make reference to Article 48 of the Decree Law.
However Article 70 of the Executive Regulations clarified in its transitional provisions when this RCM treatment should begin referring to the concept of “implementing States”. So, although the UAE, Saudi Arabia and Bahrain have all introduced VAT, they are not yet considered as implementing states and therefore the RCM treatment set out in the legislation should not be applied. Until then, you should treat sales to these countries in the same way as exports to any other countries outside the GCC and follow the relevant VAT legislation.
Once GCC countries that have introduced VAT consider one another as implementing states, there will be announcements in the financial press so you will know when to change the format of your invoices from exports to RCM.
Should I deregister from VAT? I have been told I must deregister or face a fine from the Federal Tax Authority. Eighty per cent of my company’s sales are exports and taxed at 0 per cent. The total remaining sales on which I have charged VAT in the last 12 months are below Dh187,500. SW, Fujairah
VAT legislation states that a registrant must apply for de-registration if he stops making taxable supplies or if the value of taxable supplies in the last 12 months is less than the voluntary registration threshold of Dh187,500 and you do not expect to reach this threshold in the next 30 days. There are further conditions that if you registered voluntarily, you cannot deregister until 12 months after you registered. Once you have determined that you must deregister, you must apply to do so within 20 business days, effectively one calendar month.
You do not give actual numbers for the value of your exports and domestic sales, however exports charged at zero percent VAT are still considered part of your taxable sales; you cannot disregard these in determining if you have hit the Dh187,500 threshold in the last 12 months. Calculate the total of your standard and zero-rated supplies and if these are below Dh187,500 and you do not expect to exceed that threshold in the next 30 days, you should deregister.
Lisa Martin, a chartered accountant with more than 20 years' commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to email@example.com
Updated: February 18, 2019 03:39 PM