UAE Federal Tax authority (FTA) has recently published public clarifications on Disbursements and reimbursements (VAT Public clarification – VATP013) and on Options Premiums (VAT Public clarification – VATP014).

VATP013 – Disbursements and Reimbursements

Below highlights of the FTA clarification:

• 1)
• This clarification covers the cases where one person incurs the expense and subsequently recovers such expenses from another party. The VAT treatment of the subsequent recovery of expenses depends on whether the recovery is tantamount to a “Disbursement” or “Reimbursement”.

• 2)
• In determining the recovery as “Disbursement or Reimbursement, it is necessary to establish whether you have acted as principle or an agent in incurring the expenses. Where you have acted as an agent, the recovery generally amounts to a “disbursement”.Disbursement does not constitute a supply and is, therefore, not subject to VAT.

  On the other hand, where you have acted as a principle, the recovery would generally amount to reimbursement and is considered to be a part of consideration for the supply and follows the same VAT treatment as the main supply.

• 3)
• Principles to determine “Disbursement” vs “Reimbursement”

Disbursements (outside scope of VAT)	Reimbursements (Vatable)
The other party (from whom the expenses are being recovered) should be the recipient of the goods or services	There should have been contract for the supply of goods and services in your own name and capacity
The other party should be responsible for making the payment to supplier	You should have received the goods or services from the supplier
The other party should have received an invoice or tax invoice in their own name from the supplier	The supplier should have issued the invoice in your name
The other party should have authorized you to make the payment on his behalf	You have the legal obligation to make payment to the supplier
The goods or services paid for, should clearly be additional to the supplies to the other party	In case of goods, you should own the goods prior to making the onward supply to the other party
The payment should separately be shown on the invoice and the exact amount paid to the supplier should be recovered without a mark-up.

VATP014 – Options and Option Premiums

Below highlights of the FTA clarification:

• 1)
• This clarification covers the VAT treatment of financial options and option premiums.

• 2)
• Meaning of an “Option” and “Option premium”

  A financial option gives the holder the right to buy or sell the underlying financial instrument at a specified price, and an option premium is the fee received for selling an option.

• 3)
• The clarification states that supplies of options in respect of debt securities and equity securities in return for premiums are exempt from VAT.

  The above treatment does not apply to options in respect of underlying commodities or other non-debt and non-equity instruments, where such options are supplied in return for explicit premiums, they will be taxable.

• 4)
• Adjustments for incorrect treatment:

  – Where a supplier has incorrectly treated the supply of exempt options, as subject to VAT at 5% before 31 July 2019, they should issue a tax credit note to the recipient correcting the VAT treatment.

  – Output tax on such options, which has been accounted for on a prior VAT return, can be adjusted by the supplier in the VAT return for the period in which the tax credit note was issued.

  – Output tax on such options, which has been accounted for on a prior VAT return, can be adjusted by the supplier in the VAT return for the period in which the tax credit note was issued.

Article prepared by: Bhawna Chopra – Tax Manager, Premier Brains with inputs from Naim Abbas Virani – Assistant Manager, Premier Brains

This document is only for information purposes and should not be construed as an advice. It does not necessarily cover each aspect of the topic with which it deals. You should not act upon the contents of this document without receiving formal advice on your particular circumstances.

If you would like to discuss any VAT matters andVAT services in Dubai, please drop us an email at info@premier-brains.com or call us at + 971 4 3542959.