Tax conversion: Importance of context in tax policies, guidance

VATP012 is a trade facilitating measure and addresses a different business situation

Image used for illustrative purpose.

Image used for illustrative purpose.

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Certain words in tax guidance/clarifications are often taken out of context. I started the fireside chat with UAE manufacturers and trading companies.

“Do you mean that the clarifications are ambiguous?” an audience member asked.

“Not really, but people occasionally miss out the context behind the clarification. An interesting case in point is FTA’s Public Clarification VATP012.” I replied.

What is VATP012?

VATP012 clarifies the VAT implications where a VAT-registered owner of the goods may request another VAT-registered person (“importing agent”) to import goods on behalf of the former. It clarifies the disclosures that the importing agent and the owner needs to make in their respective VAT returns.


The clarification mentions that ‘as the importing agent is not the owner of the goods at the time of importation, it is unable to recover VAT incurred on the importation’.

If read without context, the above statement could result in huge costs. In international trade, it is common to purchase goods on DDP terms and the ownership is transferred to the buyer only upon delivery in the buyer’s country. If ownership at the time of importation becomes a mandatory criteria to recover input credit, UAE importer-buyers will be at a loss. They will not be able to recover import VAT paid by them on the goods purchased from overseas suppliers as they are not the owners at the time of importation.

Interestingly, the VAT law does not correlate import VAT, input credit and ownership at the time of importation. The activity of import of goods itself is a ‘taxable event’. The tax obligation on the said taxable event of import is on the person listed as the ‘importer’ of the goods for customs clearance purposes irrespective of the ownership thereof. Further, ‘input tax’ includes tax paid by a person when conducting an import. Therefore, VATP012 should not be interpreted to mean that import VAT can be recovered only by the person who is the owner of the goods at the time of import.

VATP012 is a trade facilitating measure and addresses a different business situation. A supplement clarification by the authorities would help UAE companies to correctly recover import VAT credit on their overseas purchases.

VATP012 and Designated Zones

“What about supplies from Designated Zone to mainland? They are also treated as import.” another audience member remarked.

“Interesting point! Incidentally, VATP012 mentions in its summary section that, in some cases, the importing agent could be the customer of the owner of the goods. And businesses have misconstrued it to cover mainland customers of the Designated Zone suppliers”, I replied.

Mainland customers and/or Designated Zone suppliers have often contemplated VATP012 implications on the supplies from Designated Zones. VATP012 does not directly refers to the supplies from Designated Zones or contain a detailed discussion on the customer acting as an importing agent.

A Principal-Agency relationship is very different from a Seller-Buyer relationship. The mere absence of ownership at the time of importation should not convert a mainland buyer into an importing agent. VATP012 implications on Designated Zones should be understood in the right context.

As VAT is fairly new in the UAE, the authorities must be commended for periodic guidance on various issues. It is now on the businesses need to understand and implement the tax correctly.

As I concluded the session, the organiser suggested “Should we discuss VAT valuation in our nextvconversation”.

“Absolutely” I smiled.

Pankaj S. Jain is the managing director of AskPankaj Tax Consultants. Views expressed are personal and do not reflect the newspaper’s policy.


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