Value Added Tax (VAT) on Financial Services in the United Arab Emirates

The VAT treatment of the financial services sector in the UAE is a complex process as a variety of transactions are involved in the industry. The complexity increases as the businesses in the industry need to understand how the VAT treatment applies to each type of transaction. The FTA considers the VAT on financial services as standard-rated if the service provider charges an explicit fee, discounts, commission or rebate on the services. The VAT incurred on the costs on the standard rated supply can be recovered in full.

However, to determine whether the supply of financial services is zero or standard-rated, the definition of financial services as per the UAE VAT Law and Executive Regulations needs to be considered. To ensure VAT compliance, the businesses need to have a clear grasp over the services that are standard-rated, zero-rated, and exempt. Hiring the best VAT Consultancy services in Dubai helps the companies deal with the VAT challenges.

How the Federal Tax Authority (FTA) Defines Financial Services for VAT Purpose?

As per the VAT Law and the executive regulations, the financial services are defined as the services related to transactions in money and the provision of credit. The definition also covers specialist types of finances including hire-purchase or instalment credit finance, shares, etc. According to the FTA, financial services have become more identifiable with the advance of technology. In this regard, the FTA is charging VAT where there is a readily identifiable fee is charged for specific financial services.

1. VAT on Banking Services

As per the FTA, the fee charged by the banks on certain services is subject to the standard VAT rate of 5%. The following is a list of services and the VAT rating on the fee charged on them.

2. Bank Account

The banks charge a fee on certain services related to the account operations. The fee on such services is liable to the standard VAT rate. They are,

1. Subscription fee
2. Transaction services fee
3. Account opening or closing fee
4. Withdrawal fee
5. Deposit fee
6. Replacement card fee
7. Cheque book fee
8. Bank statement fee
9. Maintenance fee

3. Money Transfers

In a highly developed banking ecosystem like Dubai, money transfers have become more robust. The development of digital technologies has led to more services for which the banks are levying specific charges. The fee on the following services is subject to 5% VAT rating.

1. Transfer fee
2. Swift Transfer fee

4. VAT on Cash

The banking services related to the dealing of cash are subject to the standard rating on VAT. They are

1. Cash handling fee
2. Cheque cashing fee
3. Fee for the provision of change

5. Card-Related Services

The following provisions related to credit or debit cards are subject to the standard rate of 5%. They are

1. Card fee
2. Authorization fee
3. Cash withdrawal fee
4. ATM transaction fee
5. Cardholder fee
6. Statement fee
7. Fee on Lost card
8. Commission fee
9. Overdraft fee
10. Balance transfer fee

VAT Applicability on Other Financial Services in the UAE

1. Returns on Investment

The return on investment payments made by a financial service provider is deemed as outside the scope of VAT under certain conditions. The payments that qualify as return on investments are outside the scope of VAT if neither service nor transaction provided in return for such a payment. The examples for this can be the interest on deposits, dividends, drawings, etc.

2. Intermediation Services

The financial intermediation services are subject to VAT in the UAE. The VAT is applicable to the fee or commission received by a financial advisor who facilitates the sale of a financial product by acting as an intermediary. The fee or commission received by the intermediary in such cases is considered by the FTA as standard-rated.

3. Leasing

The standard VAT rate is applicable to the leasing of equipment lessee gets the right to use the equipment for a specific period agreed upon through a contract. No transfer of ownership takes place in this transaction as per the contract. If the equipment is sold by the owner eventually to a third party after the end of the lease period, that sale also will be subject to VAT.

4. Investment Grade Precious Metals

The supply of investment-grade precious metals is zero-rated as per the FTA. The VAT incurred on costs attributed to the zero-rated supply can be recovered in full.

Why Choose Jitendra Chartered Accountants as VAT Agents in the UAE?

The UAE’s business landscape has been subject to great regulatory reforms since 2018. The introduction of VAT was one of the major regulatory reforms that have a big impact on the businesses in the UAE irrespective of the sectors. Businesses that have taxable supplies or imports above the threshold of AED 375,000 are mandatorily required to file for VAT registration. Failure to comply with VAT registration leads to hefty penalties. This situation has led to the increased significance of VAT consultancy services in Dubai, UAE. Businesses require the expert assistance of reputed VAT consultants in Dubai to ensure VAT compliance and avoid penalties arising from non-compliance. A reputed VAT Consultancy firm like Jitendra Chartered Accountants (JCA) becomes more valuable to the companies in a stringent regulatory environment like the UAE.

JCA has a strong team of approved tax agents who ensures that the companies are complying with the regulations of the FTA. JCA’s tax agents are the best in Dubai who provides expert assistance in services including VAT registration, VAT return filing, and VAT deregistration, etc. With the assistance of a reputed VAT consultant like JCA, the companies can ensure VAT compliance and avoid the hefty penalties from the FTA.