In brief:
On 18 November 2018, the VAT refund scheme for tourists was introduced in the UAE.
This is arguably one of the most significant schemes relating to VAT exemptions and recovery that has been introduced by the Federal Government so far.
In this article we summarise the main provisions of the scheme and discuss its significance in the UAE.
At the start of the year Value Added Tax (VAT) was introduced in the UAE by the Federal Tax Authority (FTA) (under Federal Decree Law No. 8 of 2017, supplemented by the Executive Regulations under Cabinet Resolution No. 52 of 2017). There have been a number of schemes subsequently introduced by the FTA for the purpose of VAT refunds and recovery, such as in respect of the reimbursement of VAT paid on services provided in exhibitions and conferences, VAT refunds for certain charities, and zero rate VAT on medications and medical equipment. However, Federal Cabinet Decision No. 41 of 2018 On Introducing the Tax Refunds for Tourist Scheme (the Scheme) is arguably one of the most significant schemes relating to VAT exemptions and recovery that has been introduced by the UAE Federal Government so far.
Parties involved in the Scheme
The FTA has confirmed that it has partnered with Planet who will be the service provider operating the VAT refund mechanism for tourists in the UAE. Retailers wanting to participate in the Scheme will need to be registered with the FTA, hold a valid Tax Registration Number, sell goods that are not excluded from the Scheme by the FTA, submit a participation application form to Planet, and have a completed mandatory credit check. The Scheme also specifies that the retailer must have a good track record of regularly submitting VAT returns and settling payments to the FTA. In mid-November, the FTA’s Director General revealed that the number of retailers linked to the electronic system had already exceeded 4,500 stores and this number is expected to rise during December.
A UAE tourist to whom the Scheme will apply (the Tourist) is any natural person who is not a resident in the UAE (or of any GCC countries implementing VAT) and we believe that it is intended that crew members of GCC airlines are excluded from benefitting from the definition of a Tourist. Under the rules of the Scheme, UAE nationals and residents are not eligible for VAT refunds but non-resident GCC Nationals (and any other non-resident nationalities) exiting the UAE currently are.
Tax free shopping in the UAE and qualifying purchases
The conditions for a UAE Tourist to utilise the Scheme are that the goods must have been supplied to the Tourist in the UAE, and the region, and the Tourist must leave the region, with the goods, within 90 days of the date of purchase.
According to the FTA website, to make a qualifying purchase the Tourist must make a purchase at a participating retailer of a value of a minimum of AED 250. The Tourist will receive back 85% of the total VAT amount paid (minus an admin fee of AED 4.80). The refund can be provided by either cash or credit card (however cash refunds are subject to a maximum limit of AED 10,000 per Tourist and per 24 hours).
Notably there are some goods that are exempt from the Scheme:
a. goods that have been consumed, fully or partly, in the UAE or any VAT implementing country in the GCC;
b. motor vehicles, boats and aircraft; and
c. goods that are not in the Tourist’s personal possession at the time of leaving the UAE.
The VAT refund process
The VAT refund process in the UAE is completely digital, with the majority of the process taking place at the point of sale.
Point of sale
According to the FTA and Planet’s websites, the process starts when the Tourist makes an eligible purchase from a participating retailer. Once the Tourist has provided the retailer with documentation evidencing non-residence in the UAE, the retailer captures the Tourist’s information using an application provided by Planet which links the retailer to the digital systems of the FTA, as well as airports and land and sea ports. A QR code tag is then printed, which is attached to the back of the sales receipt. A digital VAT refund form is then created, ready for the Tourist to validate the transaction at the point of exit from the UAE.
Point of exit
At the point of exit, the Tourist takes the goods and the tagged receipt to Planet’s ‘validation point’ (in airports these are to be placed before check in). For the process to be completed, the Tourist must produce the sales receipt with the tax refund tag attached to the back, the purchased goods in question, a valid passport with entry stamp and a boarding pass. In some circumstances the purchased goods may undergo additional verification checks by customs officers.
Validation of the tax free tag needs to take place within 90 days of the purchase date otherwise the tax free tag expires, and the VAT cannot be claimed.
When and where will the Scheme be launched
Just recently, an FTA decision (No.2 of 2018) confirmed that from 18 November 2018, a Tourist could reclaim VAT at Abu Dhabi International Airport, Dubai International Airport, and Sharjah International Airport. From 16 December 2018, this will be extended to other UAE international air, land and sea ports.
The significance of VAT refunds for Tourists in the UAE
The UAE has already established itself as a luxury shopping and tourist destination. Dubai welcomed 10.44 million visitors to the Emirate in the first six months of 2018 and it is expected that there will be up to 20 million visitors per year by 2020 (according to Dubai’s Department of Tourism and Commerce Marketing). Abu Dhabi saw a 5% growth in guest numbers in the first six months of 2018 with hotel guest numbers reaching 2.4 million from January to June 2018 (according to Department of Culture and Tourism Abu Dhabi).
In 2017, the travel and tourism sector contributed 5.1 % of the UAE total gross domestic product (GDP), at AED 69.1 billion, and is expected to account for 4.9 % of the GDP by 2028, at an annual growth rate of 4.1 % (according to World Travel and Tourism Council Annual Economic Impact Research). The Scheme will align the UAE with countries throughout Europe, America and Asia, who already offer VAT refunds to tourists. It is anticipated that the Scheme will also play a significant role in increasing international traveler spend in the UAE, which is a fundamental element in asserting the UAE as a prime tourist destination.
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