Tax Flash

As a part of the implementation of customs-related incentives under the economic stimulus package announced by the Dubai Government, Dubai Customs has recently explained the eligibility and process for the customs duty refund. Key takeaways from the clarification issued by Dubai Customs have been summarized below.

1.      Eligibility for customs duty refund

Dubai Customs will allow a 1% customs duty refund on goods which fulfill all the following conditions:

• liable to 5% customs duty
• imported into the UAE through Dubai Customs
• upon payment of full customs duty
• import declarations processed between 15 March to 30 June 2020
• for resale locally within the UAE

2.      Minimum refund threshold

Only refunds of AED 100 or more will be processed and disbursed.

3.      Import declaration types

Eligible imports cleared under the following import declaration types will qualify for the refund:

• Import to local from Rest of the World
• Import to local from Free Zone
• Import to local from Customs Warehouse

4.      Imports entitled to customs duty drawback ineligible for refund

Duty drawback usually implies re-export of goods imported into the UAE, i.e. not local resale in the UAE.  

Where customs duty refund under the economic stimulus package is credited to the importer by Dubai Customs and a duty drawback is claimed subsequently, the refund amount will be deducted from the total duty drawback amount.

Where a duty drawback has been claimed against the import declaration, i.e. at the time of import clearance, the customs duty refund under the economic stimulus package will not be processed.   

5.      Imports intended for Automated Transfer of Customs Duty (ATCD)/Makasa process ineligible for refund

The ATCD/Makasa process implies re-export of goods imported into the UAE to the rest of the Gulf Cooperation Council, i.e. not local resale in the UAE.  

Where customs duty refund under the economic stimulus package is credited to the importer by Dubai Customs, the full refund amount will be recovered by Dubai Customs at the time of issuance of Makasa stamps as customs duty, irrespective of whether full or partial quantities are being re-exported.

The customs duty can be re-paid through the payment mode mentioned in the customs declaration, i.e. customs duty credit/debit account, cash or cheque.

Customs duty, once recovered, will not be refunded even if the Makasa is cancelled.

6.      Refund mechanism

Where customs duty at the time of import has been paid through –

• A customs duty credit/debit account, the refund will be credited to the same customs duty credit/debit account
• E-payment or cash, the refund will be credited to the importer’s default bank account registered with the customs code.

 Importers who do not have bank accounts registered with Dubai Customs are advised to register a bank account with the customs code.

7.      Refund timelines

The refund will be processed automatically on the 30^th day from the import declaration clearance date.

Where customs duty at the time of import has been paid through:

• Customs duty credit/debit account, refunds are expected to start reflecting in the importer’s customs duty credit/debit account by 17 April 2020
• Other payment modes, refunds are expected to be initiated through bank transfers from 30 April 2020 onwards

8.      Amendment/cancellation of import declarations on which refund has been processed

The refund will be adjusted to reflect any custom duty difference due to amendment/cancellation of the import declarations on which the refund has been processed.

Dubai Customs has been responsive in implementing the customs related incentives announced by the Dubai Government a few weeks ago. Clarifications on the practicalities of implementation continue to be issued to help educate businesses. Several questions regarding the incentive, however, still remain unaddressed. For instance:

• Is the refund limited to import of traded goods or are goods imported for processing/assembly (raw material, inputs, packing material, etc.) and subsequent resale in the UAE also eligible for the refund?
• Is the importer required to retain any documentary evidence of resale to substantiate the refund in case of a future customs audit?
• Is the importer required to repay any refund if the goods are distributed as samples/gifts, destroyed, lost, damaged, written off, rendered incapable for resale/consumption, etc. and not technically resold?
• How does a business claim a refund on goods imported through customs brokers and third-party logistic service providers?
• How can a custom broker/third-party logistics service provider pass on the customs refund received on behalf of customers, without knowing if the goods are imported for resale locally?

Considering the refund is intended as a short-term measure and an outflow that was probably not foreseen while drawing up the state budgets, Dubai Government and/or Dubai Customs may not have surplus resources to invest in the initial implementation/governance of the special incentive scheme. Therefore, the refund may be processed “automatically” for administrative convenience, but the onus of establishing the eligibility for the refund will still rest with the recipient.

If a recipient is found ineligible, the possibility of the customs authorities recovering any refunds processed along with penalties cannot be ruled out. With customs audits in the UAE steadily increasing, in the absence of a governance framework that regulates the disbursal of refunds upfront, recipients of refunds may be prone to customs audits that eventually question not just the recipient’s eligibility for refunds, but the general compliance of the recipient’s import–export functions.  

At the same time, the incentive warrants an analysis, even if only a quick one, of the supply chain, to identify potential opportunities to optimize refunds and improve profitability without business disruptions.

KPMG Lower Gulf has developed a spot assessment tool to assist your organization in assessing its eligibility for claiming this customs duty refund. We recommend businesses assess their eligibility for a refund and seek consultation to ensure compliance with the incentive scheme and discuss potential opportunities to optimally utilize the incentive.