Temporary VAT Rate of 0% For Medical Equipment in UAE
The current pandemic situation has impacted us all in a big way and the efforts made by the government of UAE to support the business enterprises here in various genres is noticeable. One of such attempts in the tax arena, which was the temporary zero rating on supplies and imports of certain medical equipment, introduced through cabinet decision during September 2020 has helped many suppliers of the country. It is important to understand more regarding VAT on healthcare and know about the different features of this decision to correctly apply the VAT rules in this regard and to obtain applicable benefits.
Medical equipment which comes under the purview of temporary zero rating
The medical equipment which qualify for temporary zero rating are basically protective equipment which are intended to be used for protection from Covid-19. Given below is the list of items included under this category:
- Medical face masks
- Half filtered face masks
- Non-medical community face masks from textile
- Single use gloves and
- Disinfectants and antiseptics for use on human body
It is to be noted that the public clarification from FTA specifically mentions that in order to qualify for the temporary zero rating, these supplies shall have the features and meet the standards as specified by the Ministerial Decision.
What is the timeframe for this temporary zero rating of medical equipment and how does it matter?
Temporary zero rating is applicable only for the supplies made in the time period between 1 September 2020 and 31 December 2021. This means the date of supply as determined based on the VAT regulation shall be any day between this timeframe. For imports of these medical equipment to qualify for temporary zero rating, the import shall happen within 1 September 2020 and 31 December 2021. Any supply or import of these goods outside this timeframe, i.e., either before 1 September 2020 or after 31 December 2021 will be taxable at standard rate of 5%.
Implications of this temporary zero rating on applicable supplies already accounted for with VAT
In scenarios where a supplier has already made the sale of eligible goods but charged VAT at 5%, FTA clarifies that there is an option to issue a tax credit note to reverse the VAT charge, if and only if the supplier is aware about the identity of the recipient of those goods. In such cases, suppliers can issue the tax credit note to the recipient and refund the overcharged VAT amount, reflecting all these in the next VAT return.
However, if the supplier is not aware of the identity of the recipient of the goods, the collected VAT shall be accounted for and reported in the tax return of that period in which supply was made. This can happen for example in a supermarket, where the identity of customers is unknown.
Is it possible to reclaim input tax incurred on the temporarily zero rated medical equipment?
Reclaiming input tax expenses incurred for the sake of making zero rated supplies are allowed in any normal circumstances and the case is not different for the specific medical equipment supplies which qualify for zero rating. Input tax credit can be reported in the respective VAT return and the same can be obtained either by way of refund or as a credit against outstanding output tax due as the case may be. With respect to the input tax incurred relating to common expenses incurred, reclaim might be possible based on the apportionment formula as determined based on the nature of all the supplies made.
To know more about the temporary zero rating on medical equipment or any other VAT treatments relating to your business, contact CDA
One of the key activities for a VAT function in an organization is to be informed of the recent developments in the VAT provisions to ensure that correct tax treatments are applied on the supplies made. As the significance of following the right VAT rates has many aspects, some of the major factors to be considered include being able to claim eligible input VAT credits on time, ensuring compliance and preventing penalties for any wrong treatments. CDA has certified VAT experts who can provide the best VAT services in UAE and assist you in establishing proper VAT governance in your organization, along with providing you value-adding insights about the amendments in the VAT rules of UAE and changes in the tax practices of the region.