New edition of the ‘Basic Tax Information Bulletin’
Vehicle repairs and maintenance services provided in the UAE are subject to VAT even if consideration is charged to a non-resident entity
Abu Dhabi, UAE, XX April 2021: The Federal Tax Authority, FTA, has announced that motor vehicle repairs and maintenance services provided within the UAE are subject to VAT at the standard rate of 5%, even if the costs are charged to an entity based outside the UAE. The announcement came in the latest Basic Tax Information Bulletin issued by the FTA.
With regard to repair services and parts provided under a warranty, the FTA clarified that VAT is applicable on the sale of vehicles under warranty and warranty packages purchased separately by the customer. Any subsequent supply of repair services and parts to the owner of the vehicle under warranty is not subject to VAT, provided no additional amount is charged in respect of the repair service or parts.
According to the new edition of the Bulletin, businesses in the automotive sector making taxable supplies are eligible for the full recovery of input VAT, with the exception of blocked items such as certain entertainment services and purchased, leased, or rented motor vehicles that are available for personal use.
In a press release issued today, the FTA stated that the new edition of the Basic Tax Information Bulletin is mainly targeting businesses in the automotive sector, including new car dealers, used car dealers, and servicing and parts’ suppliers.
The Bulletin confirmed that supplies made by businesses in the automotive sector are generally subject to VAT, including, but not limited to sales of new and used cars, sales of car parts, service centre services, warranties, and related insurance products. Furthermore, supplies of qualified means of transport, such as buses that are designed or adapted for public transportation of 10 or more passengers which are actually used for public transportation, are zero-ratedو and therefore still taxable, albeit at the zero-rate.
The Bulletin also stated that UAE resident businesses in the automotive sector who make taxable supplies in the UAE are required to register for VAT provided the value of their taxable supplies and imports in the last 12 months exceeded, or is expected to exceed in the next 30 days, the mandatory registration threshold of AED375,000. UAE resident businesses may also voluntarily register for VAT if the value of their taxable supplies and imports or taxable expenses incurred in the last 12 months exceeded, or is anticipated to exceed in the next 30 days, the voluntary registration threshold of AED187,500.
The Bulletin also stressed that tax invoices are required for all standard-rated supplies, and simplified tax invoices may be issued where the supply is made to an unregistered recipient or, in the case the supply is made to a registered recipient, the consideration is AED10,000 or less.
The Bulletin explained that the tax invoice should clearly state that VAT was charged with reference to the profit margin scheme, if applicable, and must include all other information required on a tax invoice, except the amount of VAT.