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The country’s decision to refund VAT paid by tourists on their purchases is a sweetener for travel, tourism and retail sectors. Image Credit: File photo

Dubai: The UAE, with its glitzy malls, gold souqs and luxury outlets, is a shoppers’ paradise that offers the best brands from around the world. Tourists clearly want to take advantage of the shopping opportunities while visiting the country.

The country’s decision to refund Value Added Tax (VAT) paid by tourists on their purchases is a sweetener for the travel, tourism and retail sectors.

The UAE introduced VAT on January 1, 2018. Keeping with the global practice of exempting tourist purchases from VAT, the Federal Tax Authority (FTA) implemented the VAT refund scheme for tourists starting November 18, 2018.

Why VAT refund?
The UAE along with its GCC neighbour Saudi Arabia has one of the lowest VAT rates of 5 per cent among the countries that have implemented VAT or any equivalent consumption tax.

Across the world, VAT-implementing countries follow tax refund schemes for goods purchased by tourists from approved tax-exempted stores that are registered with the tax authorities.

Tourist purchase of goods are considered deemed exports that will be consumed outside the country and thus they qualify for VAT exceptions. However, most countries including the UAE do not offer VAT refund on services purchased and consumed within the UAE such as hotel stays, restaurant bills, healthcare services that may be subject to VAT.

Is VAT refund significant?

Tax savings could become very significant in the context of price of goods purchased. Image Credit: Stock photo

At 5 per cent tax rate, the VAT refund might look negligible, especially for those who are fussy about looking around for VAT exempted shops, collecting the bills and applying for refunds.

VAT refunds on small purchases certainly are meagre and may not be worth the trouble. However, the UAE being a major global destination for luxury shopping, the tax savings could become very significant in the context of price of goods purchased.

Consider the case of a tourist who purchased a luxury watch worth Dh100,000. He/she will save Dh5,000 through VAT refund, if purchased from a store registered with FTA for VAT refund scheme.

Tourists can claim the refund through approved channels. Tax savings always need not come from a single large purchase, the tax accumulation of one’s purchase of goods throughout the stay in the UAE can become a big sum and worth a refund.

Who and what are eligible?

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Tourists are seen at the Spice Market in Dubai. Image Credit: File photo

As a thumb rule globally, VAT refunds are available only to tourists and non-residents of the country/jurisdiction. The UAE too applies the same rule and makes it clear that resident expatriates are not eligible to claim VAT refund on their purchases.

In the UAE, VAT refund is available only to goods purchased within the country through approved stores. In keeping with global practice, services purchased and consumed by tourists and visitors do not qualify for VAT refund. Thus visitors need to know that VAT charged on their hotel bills, hospital bills or restaurant bills are not eligible for VAT refund.

Are GCC tourists eligible?

All GCC tourists, both nationals and residents, except those from countries that have a VAT regime can claim VAT refund on goods purchased during their visit to the UAE under the refund scheme.

Conditions for VAT refund

The FTA has clearly defined the conditions for VAT refund for tourists.

As long as tourists buy items through registered stores across the country, they will be able to claim the VAT refund.

A few basic conditions laid out by the FTA
1. The goods purchased by tourists need to be supplied within the UAE’s borders.

2. The tourist must have the explicit intention to leave the country within 90 days from the date of supply, along with the purchased supplies.

3. The goods must be exported out of the UAE by the tourist within three months from the date of supply.

4. The claim for refund must be made within 90 days of purchase.

5. The tourist must purchase the goods from a retailer that is registered in the system.

6. The minimum spend for VAT refund by a tourist is Dh250.

7. The maximum limit for cash refund is Dh7,000.

8. In the refund, tourists will receive 85 per cent of the total VAT amount paid, minus an administration fee of Dh4.8 per tax-free form.

How to spot a tax-exempt shop

Shops who participate in the FTA’s tax refund scheme for tourists usually display a board indicating goods purchased there are eligible for VAT refund. But to be on the safer side, tourists should check if the shops are registered for VAT refund scheme.

Can multiple invoices be aggregated for refund?

Receipt VAT
Each individual invoice will work as standalone proof of purchase and needs to be individually validated for tax refund. Image Credit: Stock photo

No. Each individual invoice will work as standalone proof of purchase and needs to be individually validated for tax refund. For example, if multiple purchases are made from one store and are invoiced separately, the invoices can’t be treated as one purchase for VAT refund claim. However, if multiple goods are purchased from the same store and is invoiced as one purchase, the aggregate amount will be eligible for refunds.

What are the types of goods eligible for refund?

Usually, VAT exemption for tourists is on goods that are not consumed within the country during their stay but carried with them when the exit the country. For example, watches, jewellery and electronic goods get tourists a VAT refund.

Where to claim VAT refund?

Starting from November 18, 2018, tax invoices issued by approved stores qualify tourists to claim VAT refund.

Tax refunds can be claimed at all airports and land and sea ports in the UAE. In addition, the services are now offered at some of the leading malls in self-service kiosks and money exchange houses.

How to claim VAT refund at exit points?
VAT refund claim can be done electronically at all the airport or seaport departures. To claim the refund, the tourist must have the tax invoice from the registered store/s where goods were bought. Submit the documents to the designated VAT claim centre. At the time of claim submission, the tourist must have the relevant tax invoice; passport and credit card will be needed to transfer the money to the tourist.

Tourists can either recover the VAT in cash in UAE dirhams or have it transferred to their credit card.

Self-service kiosks in malls & hotels

Tourists can now claim their VAT refunds from self-service kiosks which will be set up at major shopping malls and hotels across the country.

Recently, the FTA announced expansion of the network of these VAT recovery self-service kiosks to major shopping malls and hotels, in addition to the existing ones at air, land, and maritime entry and exit ports across the UAE.

Planet, the company authorised by the FTA to operate the electronic system for the tax refunds for tourists, launched nine self-service kiosks in stage one of the plan, setting them up at multiple shopping malls and hotels. These kiosks are equipped with state-of-the-art technology allowing them to fully process VAT refund requests for tourists.

Get a refund 24 hours before you exit

The FTA recently said that the self-service kiosks allow tourists to process their VAT refund requests from the convenience of their hotel or at major malls in a matter of minutes. Image Credit: Stock photo

The FTA recently said that the self-service kiosks allow tourists to process their VAT refund requests from the convenience of their hotel or at major malls in a matter of minutes. Applicants can scan their boarding pass to prove they will be leaving the UAE in the next 24 hours, as well as their original passport (or identity card for GCC nationals), and then follow the simple instructions displayed at the self-service kiosks.

55 new kiosks

The FTA revealed that Planet intends to deploy up to 55 new self-service kiosks by the end of 2020. Some 25 of these kiosks will be stationed in malls and 30 in hotels.

Three million refund transactions

The number of digital transactions under the tourist refund scheme grew to 3.2 million in the period between its launch in November 2018 and the end of 2019.

By the end of June 2019, the total stood at 1.52 million transactions. The daily average number of tax refund transactions for tourists grew 2.64 times, from 3,720 in the scheme’s first month to 9,830 in December 2019.

The number of retail outlets linked with the system increased to 12,310 stores across the UAE, while the network of self-service kiosks at exit ports around the country grew to 52, up by 79.3 per cent from 29 deployed as of July 2019.

Maximum limit on refund
Applicants must submit the tax invoices on their purchases, marked with 'Tax-Free’ stickers issued by retail outlets registered in the system, along with their passport and credit card.

No limit is placed on the maximum amount that can be recovered if said amount is transferred to the tourist’s credit card.

The maximum amount is set at Dh7,000 per day for tax refund in case of cash payment.