Tax Flash - 18/11/2020

VAT Public Clarification VATP022 “Dubai Owners’ Associations and Management Entities”

The Federal Tax Authority (FTA) has released Public Clarification VATP022 “Dubai Owners’ Associations and Management Entities” to inform Owners’ Associations (OAs) and Management Entities (MEs) in Dubai of their obligations under the UAE VAT legislation as a result of significant changes in Dubai real estate legislation. VATP022 can be accessed here (PDF 450 KB).

Law No. 6 of 2019 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai (Law No. 6) was published on 4 September 2019 with an effective date of 3 November 2019. The pertinent section of Law No. 6 (Article 49) states that all rights and obligations of OAs which arose before the effective date of that Law had to be transferred to the MEs. Please note that VATP022 is only applicable to OAs and MEs in the Emirate of Dubai.

VATP022 confirms that the FTA no longer considers the OAs to be legal persons with an entitlement to register for VAT because they cannot be making taxable supplies as a result of enacting Law No. 6. OAs had an obligation to deregister for VAT, where they were registered for VAT at that time, within 20 business days of Law No. 6 coming into effect, that is, by 4 December 2019.

MEs are defined in Law No. 6 as developers, management companies, or hotel project management companies, which are in charge of managing common facilities and areas for property owners. The shift in the rights and obligations from the OAs to the MEs under Law No. 6 now places the responsibility for charging and accounting for VAT due on management fees to the owners of the properties onto the MEs as principles in the supply.

Where the MEs are registered for VAT, the FTA expects that VAT previously charged by the OAs to the property owners on any management fees to have been accounted for and paid by the MEs, and tax invoices for these taxable supplies issued and delivered to the recipients of the supply from 3 November 2019, the effective date of Law No. 6. The MEs can recover any VAT incurred in relation to making taxable supplies on receipt of valid tax invoices in their own name, subject to the normal rules for input VAT recovery.

The FTA has been quite clear in this clarification that a range of administrative and late payment penalties can be applied for violations by the OAs and MEs as a consequence of not taking timely effective action following the release of Law No. 6. These can include:

• Failure by the impacted OAs to deregister by 4 December 2019;
• Failure for the ME to issue valid tax invoices (and tax credit notes, if relevant) on making a taxable supply;
• Submission of incorrect VAT returns by the MEs; and
• Under declaration of VAT by the MEs.

It is assumed that the clarification is to be treated as having retrospective effect to the effective date of Law No. 6, 3 November 2019, in the absence of any statement to the contrary.

OAs and MEs that operate under Law No. 6 in the Emirate of Dubai are now required to take immediate action with respect to their historic UAE VAT obligations following publication of VATP022.

Should Dubai-based or any other OAs or MEs have any queries with regard to VATP022 please get in touch with your usual KPMG contact.