The Indian Premier League (IPL) is back in the UAE amidst all the accompanying jubilation. It was in 2014 that the teams played 20 matches in Abu Dhabi, Dubai and Sharjah. Now, the COVID-19 situation in India has brought them back to the UAE to compete for the coveted title.
A lot has changed in the UAE between 2014 and now with landmarks such as the Dubai Opera, Dubai Frame, Louvre Abu Dhabi opening and the country coming up with a national strategy for Artificial Intelligence. Another change has been the introduction of Value Added Tax (VAT) from 2018. This is where IPL teams and their players need to take note.
VAT is a tax on the supply of goods/services for consideration by a person conducting business in the UAE. The IPL model of franchisees and players’ auction indicates that consideration (fee/value) is indeed present between the parties. A detailed review of players’ contracts should confirm if they are employees of the franchisees, or only providing sporting services to them.
As per the VAT laws, the place of supply of any sporting service - or any similar services - shall be where such services are performed. European tax jurisprudence on a similar question supports the conclusion that the ‘place of supply’ of sporting services will be the UAE.
Accordingly, the IPL players are apparently obligated for VAT compliance for the current IPL season. A critical element would be to apportion the total contract fee between the sporting service and other services performed by players for their franchisees during the season.
As the players are non-residents in the UAE, the usual threshold of Dh375,000 ($100,000) for VAT registration would not be available to them. Even a single dirham earned from the sporting services performed in the UAE would trigger VAT compliance.
The players could avoid VAT compliance if the service recipient - the franchisees - are VAT-registered in the UAE and accounted for VAT under reverse charge mechanism (RCM). With most of the franchisees being Indian companies and perhaps not registered for VAT, such an option can be ruled out.
With the recent Public Clarification (VATP019) by the Federal Tax Authority (FTA) on zero-rating of export of services, the zero-rating benefit may also not be available to the players even though the service recipient - the franchisees - are non-resident companies.
The franchisees may also need to independently review their VAT exposure for various sponsorships, endorsements and other services supplied during the IPL season.
Any delay beyond 20 business days in applying for VAT registration attracts a penalty of Dh20,000. Further, a delay in payment of taxes attracts incremental percentage-based penalties.
Now that UAE has a VAT regime, it will be useful for the IPL stakeholders to examine their VAT exposure. The stakeholders should also engage with the FTA to seek more clarity and certainty on their tax liabilities.
It’s not just the sporting services which is covered under VAT now. Supply of any cultural, artistic or any similar services could also be taxable if performed in the UAE Movie actors, singers, performers and artisans should take a note of VAT compliance needs before their next assignment in the UAE.
- Pankaj S. Jain is with AskPankaj Tax Consultants.