VAT Refund in UAE: Who Can Claim and How to Apply?

VAT Refund in UAE: A Simple Guide to Eligibility

The Value Added Tax (VAT) came into existence in the UAE on January 1, 2018, and the standard tax rate is 5%. The Federal Tax Authority introduced Value Added Tax (VAT) in the UAE on January 1, 2018. Businesses and consumers are subject to VAT on taxable goods and services, but certain individuals and businesses can claim a VAT refund. A VAT refund is the remuneration of the VAT paid by individuals or entities on eligible purchases. It allows them to recover VAT they have paid under specific conditions. Eligible tourists, along with other groups, can also claim VAT refunds under specific schemes. In this blog, we will learn who is eligible for a VAT refund in the UAE and how to apply for it efficiently.

How does VAT Refund Work?

1. Purchases Made: VAT is the tax paid on the purchases of goods or services by a person or business.

2. Eligibility Check: IF they are eligible, then they can apply for a VAT refund following the local tax authority’s process. To claim a VAT refund, the input tax must be greater than the output tax. A VAT refund in the UAE allows businesses and individuals to reclaim the tax paid on eligible expenses when their input tax exceeds output tax.

3. Refund Processing: The tax authority reviews the refund claim and if approved, compensates the VAT amount. The total VAT paid is used to determine the refund amount, with a percentage of the total VAT refunded and a deduction fee applied.

In the UAE, the Federal Tax Authority (FTA) has specified certain categories of individuals and businesses that can claim VAT refunds. Let’s explore who can claim VAT refunds-

Who Can Claim a VAT Refund in the UAE?

1. Tourists

Tourists can claim VAT refunds on their purchases of goods or services made within the UAE. There is a scheme, known as the Tourist Tax Refund Scheme or tourists scheme, through which eligible visitors can get a refund on the VAT paid on goods bought from authorised retailers. The Planet system is the exclusive operator used to process tourist VAT refunds in the UAE.

Eligibility Criteria:

• The tourist must not be a UAE resident.

• The purchase must be made from the FTA-registered retailers who participated in the Tourist Tax Refund Scheme.

• The tourist must leave the country with the goods within 90 days from the date of purchase.

• The refund must be claimed through the approved electronic system when departing the country through airports, seaports and land borders.

Tourists can shop tax-free at participating retailers and claim their VAT refund upon departure from the UAE. The VAT is refunded to tourists after export validation.

2. Foreign Businesses (Business Visitors)

Businesses that incur VAT on expenses related to their activities but are not residents of the UAE can claim VAT refunds under the Foreign Business Refund Scheme. This scheme is intended to prevent double taxation and ease international trade. VAT refunds for foreign businesses can help reduce overall business costs and improve cash flow. Companies can claim VAT refunds to recover input VAT paid on eligible business expenses, which can reduce their overall cost of doing business.

Eligibility Criteria:

• There must be a mutual VAT refund scheme from the applicant's country for the UAE businesses.

• Businesses should not have fixed establishments or places of business in UAE for claiming refunds.

• The refund can be claimed on the VAT paid on eligible business expenses, such as accommodations, exhibitions or conferences.

• Documentation is required to support VAT refund claims for foreign businesses.

3. UAE Nationals Building New Residential Properties

VAT refund can be applied by UAE nationals on constructing a new home for personal use under construction-related expenses. To be eligible for VAT reclaim, the applicant must be a UAE national building a new home for personal use and must own the land.

Eligibility Criteria:

• The applicant must be a UAE national.

• The properties must be primarily used for residential purposes.

• VAT refunds can be applied to construction-related expenses such as contractor services, building materials and design fees.

• Required documents for the VAT refund application include the Emirates ID, passport, land title deed, VAT-inclusive invoices for expenses, and the building permit. The VAT refund for UAE nationals is limited to VAT incurred on essential materials and services required for building a new residence.

4. Businesses in Designated Free Zones

Some designated free zones are treated as being outside the UAE for VAT purposes and can qualify for VAT refunds.

Eligibility Criteria:

• The company must be based and operated in an FTA-designated free zone.

• Specific goods and services can apply for refund based on the nature of transactions.

How to Apply for a VAT Refund in the UAE

The VAT refund claiming process differs, and it depends on the category of claimant. To claim a refund, applicants must submit the required documents and forms as part of their application. To claim VAT refund, applicants need to follow the specific steps for their category. Filling out the VAT refund form is a crucial step in the process, especially for online submissions. Here are the steps for different applicants:

1. VAT Refund for Tourists

VAT refund can be claimed by tourists before departing from the UAE using the following steps:

• Shop at stores from a registered retailer participating in the tourist refund scheme (look for "Tax-Free" signs).

• Request a tax-free tag from the store at the time of purchase.

• At departure, validate the purchased goods at the airport, seaport or land border via an electronic system.

• Choose a refund method (cash or credit card refund).

• Refunds cover up to 85% of the VAT paid, minus a small processing fee of AED 4.80 per tax-free tag. The Federal Tax Authority (FTA) introduced a 100% digital tax-free shopping service for tourists in the last quarter of 2018.

  2. VAT Refund for Foreign Businesses

Foreign business visitors must follow the steps below:

• Submit a VAT refund request through the FTA portal.

• Provide required documents such as proof of VAT payments, tax invoices and business registration certificates.

• The FTA reviews the application, and upon approval, the refund will be processed within a specified time frame. The Federal Tax Authority (FTA) usually processes the VAT refund within 20-25 business days after approval.

3. VAT Refund for UAE Nationals Constructing Homes

UAE nationals can check their eligibility and apply for a refund using the steps below:

• Submit an application through the FTA online portal after completing construction.

• Provide required documents, including proof of ownership, construction invoices and contractor agreements.

• FTA reviews the claim and if approved, issues a refund within 20 business days.

• The claim for VAT refund must be submitted within 12 months of the date of the building completion certificate. The VAT refund can be claimed once per project by UAE nationals building new homes.

4. VAT Refund for Free Zone Businesses

Businesses in designated free zones must follow steps below:

• Submit the refund application via the FTA online portal.

• Provide invoices, transaction details and other supporting documents.

• The FTA processes the refund request and issues the applicable VAT amount.

Required Documents for VAT Refund Application

When submitting a VAT refund request in the UAE, providing the correct and complete set of required documents is essential for a smooth and successful refund process. The Federal Tax Authority (FTA) has outlined specific documentation requirements for each category of applicant under the VAT refund scheme, ensuring that only eligible expenses and purchases are considered for a refund.

For Tourists: Tourists looking to claim a VAT refund on their tax-free purchases must present the following documents:

• A digital tax-free form is generated at the point of sale.

• The tax-free tag is attached to the sales receipt by the shop assistant at participating retailers.

• The original sales receipt or tax invoice showing the VAT paid.

• Proof of export, such as a boarding pass or exit stamp, to confirm that the goods are leaving the UAE. Planet, the exclusive operator of the tax refund system for tourists, manages the digital process at airports, seaports, and land borders. Tourists can choose their preferred refund method, such as a credit or debit card, or a digital wallet, to receive the refund amount.

For UAE Nationals Building New Residences: UAE nationals building new residences can reclaim VAT paid on eligible expenses by submitting:

• A copy of the applicant’s Emirates ID.

• The building completion certificate was issued by the relevant authority.

• A copy of the building permit.

• Tax invoices for building materials, contractor services, and other eligible business expenses related to the construction.

• A bank account statement showing the account holder’s name for the refund transfer. This VAT refund scheme is designed to help UAE nationals building new homes recover VAT incurred on essential building materials and contractor services. The refund claim must be submitted through the FTA e-services portal within the specified time frame.

For Foreign Businesses: Foreign businesses seeking to recover VAT paid on eligible business expenses in the UAE must provide:

• Valid tax invoices and receipts for all expenses related to their business activities in the UAE.

• Proof of payment for the VAT incurred.

• Business registration documents from their home country.

• An active EmaraTax account for submitting the refund application via the FTA e-services portal.

• Supporting documents for eligible expenses, such as contracts or agreements. The refund amount will be credited to the applicant’s chosen refund method, such as a bank account, debit card, or digital wallet, after the FTA reviews and approves the refund request.

General Guidelines: All applicants must ensure that their documents are accurate, complete, and comply with the FTA’s requirements. The FTA may request additional documentation to verify the eligibility of the refund claim. It is important to keep all original tax invoices, sales receipts, and supporting documents until the refund process is complete.

Since the required documents and refund process may vary depending on individual circumstances, applicants are encouraged to consult the FTA website or seek professional advice to ensure compliance. By following the correct procedures and providing all required documents, applicants can efficiently reclaim VAT paid on eligible purchases and reduce their overall tax liability in the UAE.

Important Notes

* Refund Thresholds: A minimum VAT refund amount is required before it can be processed.

* Documentation: Ensure all invoices and receipts comply with FTA VAT invoicing regulations.

* Time Limits: Refund claims must be submitted within the specified time frame set by FTA.

* FTA Audit: The FTA may request additional documentation while reviewing the claims for verification. This ensures compliance and accuracy in the refund process. The Federal Tax Authority may request additional documentation while reviewing VAT refund claims for verification.

Conclusion

The VAT refund process in the UAE is designed to provide tax relief to non-residents and specific categories of individuals, including tourists, foreign businesses, and UAE nationals building new homes. By understanding eligibility criteria and following the correct procedures set by the FTA, VAT refunds can be claimed efficiently. Refund claims must be submitted within the specified time frame set by the Federal Tax Authority. If you need assistance in claiming VAT refunds, we suggest you consult a professional tax advisor who can streamline the process and ensure compliance.

Flying Colour Tax Consultant LLC assists businesses and individuals in navigating the complexities of VAT refunds. Contact us today!  

To learn more about VAT Refund in UAE: Who Can Claim and How to Apply?, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.