July 14, 2024 5:01 pm in Dubai

UAE Federal Supreme Court Ruling Clarifies Tax Obligations for GCC Nationals

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In a recent landmark judgment on September 20th, 2023, the UAE Federal Supreme Court, delivered a significant ruling in a VAT-related case. The case dealt with the question of whether a taxable person from a Gulf Cooperation Council (GCC) country that does not apply value-added tax (VAT) should be exempt from VAT obligations in the UAE. The court’s decision shed light on the legal framework governing tax obligations and the criteria for VAT exemption, impacting individuals and businesses from GCC countries.

  1. Tax Obligations: A Legal Perspective

The court began by emphasizing that tax obligations are not contractual obligations arising from mutual consent but are rooted in the law, with the aim of safeguarding the interests of society. The taxable person, in this context, is the individual or entity who is found to have a connection with the money that is subject to the tax burden.

  1. Value-Added Tax (VAT) Criteria

To provide clarity on the matter, the court referred to Federal Decree Law No. 8 of 2017, which defines VAT as a tax imposed on the import and supply of goods and services at various stages of production and distribution. The decisive factor in determining VAT liability is the event of importing and supplying goods and services in exchange for financial consideration.

  1. Legal Basis of VAT Obligation

The court reiterated that the legal basis for a taxable person’s obligation to pay VAT is derived from the law. According to Article 2 of Federal Decree Law No. 8 of 2017, every supply of goods in exchange for financial consideration is subject to VAT. In the case at hand, the appellant admitted to importing equipment into the UAE for repair purposes and incurring VAT on repair services and the purchase of some goods from local suppliers.

  1. GCC Countries and VAT Implementation

The crux of the matter revolved around whether the Kingdom of Saudi Arabia (KSA) applied the VAT law, as the UAE had an agreement with GCC countries regarding VAT. The appellant claimed exemption based on the belief that KSA did not implement the VAT law. However, the court refuted this argument with evidence from Saudi Royal Decrees and Orders indicating that KSA indeed implemented VAT. Additionally, the provisions of Article 67 of the Executive Regulations of UAE’s VAT law did not apply to the appellant’s case, further solidifying their VAT obligation.

  1. Interest in Dispute (Standing) as a Legal Concept

The court also addressed the concept of interest (standing) in the context of the lawsuit. It established that the lawsuit’s foundation, as per Article Two of the Civil Procedure Law, must be based on real interest, either current or potential. Real interest refers to cases where the contested judgment or procedure negatively impacts the appellant by dismissing their requests, maintaining obligations from which they seek release, or depriving them of claimed rights.

  1. Inadmissible Challenge

The appellant claimed an interest in the lawsuit, arguing that they had fulfilled all legal requirements, and the Respondent should exempt them from VAT. However, the court found that the dispute had been settled, with the Respondent refunding the disputed amount to the appellant. Consequently, the appellant no longer possessed a real interest in the case, and their challenge was deemed inadmissible.

To this end, the UAE Federal Supreme Court’s judgment in this case provides clarity on the legal framework governing tax obligations, VAT criteria, and the importance of real interest/standing in tax litigation. This ruling reaffirms the principle that tax obligations are founded on the law, and the determination of VAT liability hinges on the specific circumstances of each case, regardless of a GCC country’s VAT implementation status. The case serves as a crucial precedent for individuals and businesses from GCC countries operating in the UAE, reinforcing the importance of complying with VAT regulations and understanding the legal implications.

This Article is prepared by Mohamed El Baghdady, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, at Habib Al Mulla & Partners Law Firm.

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Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs. Additionally, our experience and knowledge in handling tax disputes enable us to represent clients in discussions with tax authorities, as well as in court proceedings. 

Our track record of successfully resolving tax disputes and helping clients minimize their tax liabilities has likely earned us a reputation as a trusted and reliable tax advisor. Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.

For further information, please contact, Mohamed El Baghdady, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.

The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.

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