A “taxable person” refers to a person who is VAT registered or required to be.

VAT registered buyers in the UAE often come across business situations where a proposed supplier is not yet VAT registered. Some of the buyers choose not to deal with these suppliers. The VAT law is very clear on these transactions.

VAT is levied on taxable supplies and deemed supplies made by a “taxable person”. A “taxable person” refers to a person who is VAT registered or required to be. Therefore, the VAT itself is not applicable to deliveries made by a supplier who is neither subject to VAT nor likely to be.

The liability for the tax lies with the supplier, ie the taxable person who makes the supply of goods or services. One of the limited scenarios where a consignee/purchaser is liable for VAT, under the reverse charge mechanism, covers the importation of goods or services by a VAT-registered entity.

Supplies made by an unregistered supplier based in the UAE are not treated as an import of goods/services. Even supplies from a mainland-based supplier to a designated area would not be considered an import of goods/services.

Therefore, the recipient/buyer is generally not responsible for paying tax on purchases from unregistered vendors based in the UAE.

However, if it is apparent from the value/volume of the transaction that a supplier should be VAT registered, it is prudent to keep a communication record from the supplier regarding their registration status.

Verification of NRT

Since the VAT is a multi-stage taxation system, people may try to take undue advantage of the system to commit tax evasion.

A supplier may attempt to collect VAT by mentioning an arbitrary tax registration number (TRN) on the tax invoice. Alternatively, a TRN belonging to another supplier could be mentioned on the tax invoice.

The Federal Tax Authority (FCA) provides an effective online mechanism to verify a supplier’s TRN. The TRN can be verified on the FTA website at https://eservices.tax.gov.ae/en-us/trn-verify. It would be useful to periodically check the TRN of suppliers, especially in the case of new suppliers.

Raqeeb: whistleblower program

As of April 2022, FTA announced the launch of “Raqeeb”, which is a whistleblower program for tax offenses and evasion.

Under this program, a person could report to the FTA cases of tax evasion, tax evasion and violation of tax laws. The AFC will verify reports and award monetary rewards to informants when certain conditions are met.

In addition to increasing tax compliance, the whistleblower program aims to improve business transparency and competitiveness.

VAT is a multipoint transaction tax that covers the entire business ecosystem. It is important that all stakeholders in the ecosystem are VAT compliant and aware of VAT laws.

The author is the Managing Director of AskPankaj Tax Consultants. For comments and questions, you can write to [email protected] The opinions expressed are his own and do not reflect the policy of the newspaper.