More than 4,000 retail outlets across the UAE will be connected electronically to the system
The UAE Federal Tax Authority (FTA) has announced that the tax refund scheme for tourists will come into effect from November 18, allowing eligible tourists to request refunds of value added tax (VAT) incurred on their purchases.
The first phase will see the digital system of the Tax Refund for Tourists Scheme implemented at Abu Dhabi, Dubai and Sharjah international airports. As of mid-December, the system will be fully operational to include all airports and land and sea ports in the UAE.
The authority explained that tax invoices issued starting from November 18, 2018 will qualify tourists who are eligible for a tax refund to reclaim taxes incurred on their purchases.
FTA director general Khalid Ali Al Bustani asserted that more than 4,000 retail outlets across the UAE will be connected electronically to the system, clarifying that only the invoices issued by retail outlets registered in the scheme and connected to the system are eligible for a refund. These eligible outlets can be identified with posters displayed on their storefronts and visible to visitors.
“The electronic Tax Refund for Tourists Scheme, which is implemented by the FTA in collaboration with Planet, the global operator of the system, is currently being finalised,” Al Bustani added.
As reported by Khaleej Times earlier, the minimum spend amount for a tax refund is set at Dh250 and tourists can claim the refund within 90 days of their purchase.
The FTA explained that tourists will receive refunds through a special device at the departure point by submitting tax invoices for their purchases from the outlets registered in the scheme, along with copies of their passport and credit card. Tourists can either recover the VAT in cash in UAE dirhams or have it transferred to their credit card.
“Implementing the tax refund scheme for tourists helps attract a larger numbers of tourists and allows them to enjoy the UAE’s unique tourism offering, especially in retail,” said Khalid Ali Al Bustani, director-general, FTA.
Anurag Chaturvedi, managing partner, Chartered House, said if a tourist buys electronic goods worth Dh210 from a store and spends another Dh315 on buying souvenirs from another store, he can claim tax refund of Dh15 on the purchase of Dh315 and not against the electronics purchase of Dh210 as it’s below the minimum spend limit set by the Authority.
He pointed out that tourists will receive 85 per cent of the total VAT amount paid, minus an administration fee of Dh4.8 per tax-free form.
“In the example of purchase of Dh315, the tourist will get a refund of Dh7.95,” Chaturvedi said.
The FTA said that retailers fulfilling the requirements may register in the scheme. If tourists express their desire to these registered retailers to make purchases with tax refunds, the concerned retailers must submit the required documents to claim the tax refund through the Scheme as specified by the FTA, including tax invoices that meet all the legal requirements.
Tourists must then apply for a refund of the tax directly from the operator and provide sufficient and convincing evidence.
It is estimated that tourist spending in the UAE will increase from Dh154 billion in 2017 to Dh205.5 billion in 2022. The UAE levied five per cent VAT on a host of goods and services from January 1, 2018, as part of the GCC framework.
Mayank Sawhney, managing director, MaxGrowth Consulting, said the VAT refund scheme is similar to the scheme adopted by most European countries, wherein the tourist can collect the VAT refund from the departing airport, seaport or land port while leaving the country.
He noted that the scheme is relatively user-friendly for tourists, provided that they fulfil the required conditions. However, there may be some challenges to practically claim the benefit of this scheme for some tourists, such as long queues at VAT refund counters; tourists not carrying their passports or passport copies while going out for shopping as passport details would be uploaded in the FTA system in order to issue VAT refund tag; and identification of the eligible retail outlets which have registered under this scheme.
Sawhney said eligible retailers registered under this scheme would benefit more from increased buying by tourists from their outlets.
Thomas Vanhee, partner, Aurifer Middle East Tax, also believes that the system implemented by the FTA is in line with what is applied internationally and is likely to be easier and more user-friendly than in some European countries.
“Especially the electronic link between retailers and the operator of the system is relatively innovative and ensures the reclaim process will be easier for travellers. Tourists buying luxury goods or expensive electronics will be interested in the system,” Vanhee added.
Vanhee said registered retailers will benefit from more tourists buying at their shops provided the shop is easily identifiable for participating in the scheme.
Nimish Goel, partner, WTS Dhruva Consultants, said the entire refund process would be undertaken electronically and seems simple and user-friendly.
He said the fact that tourists can recover the VAT amount either in cash or have it transferred to their credit card is unique.
“The registered retailers will benefit more in terms of tourist buying once the scheme is implemented. Once registered under the scheme, these retail outlets will market themselves as registered under the tourist refund scheme in order to attract more tourists and gain a competitive edge in the market,” Goel added.