The Federal Tax Authority of UAE released a public clarification on the temporary zero-rating of certain medical equipment. This notification provides clarification to the public regarding the application of 0% VAT on the supply or import of certain specified medical equipment with effect from September 1, 2020, until December 31, 2021.
In this notification, the FTA clarifies the types of medical equipment covered, the situations where zero-rated VAT is applicable, and the remedial measures when 5% VAT is charged on the specified medical equipment instead of 0% rate.
This clarification is related to the Cabinet Decision No. 9/12 of 2020 issued on September 1, 2020, the Ministerial Decision No. 380 of 2020 issued on December 6, 2020, and Cabinet Decision No. 15/3 of 2021. All these decisions together allowed for the temporary application of zero-rated VAT on certain imports and supplies of medical equipment until December 31, 2021.
The type of medical equipment covered under this clarification includes only the personal protective gear for people against Covid-19. Following are the types of medical equipment covered under the Decision:
- Medical face masks, which do not fall under the ambit of the Cabinet Decision No. 56 of 2017 on Medications and Medical Equipment Subject to Tax at Zero Rate
- Half-filtered face masks
- Non-medical community face masks made from textile
- Single-use gloves
- Chemical disinfectants and antiseptics intended for use on the human body that excludes detergents, cosmetics, and personal care products
Following are the situations when the zero-rated VAT is applied to the above-mentioned medical equipment:
- The supply of medical equipment where the date of supply, date of delivery, and date of placement at the recipient’s disposal falls in the period between September 1, 2020, and December 31, 2021.
- The import of medical equipment falls in the period between September 1, 2020, and December 31, 2021.
In the case of supply, delivery, and placement of medical equipment happening before September 1, 2020, or after December 31, 2021, the rate of VAT applicable on the supply is 5%. Similarly, if the import of medical equipment happens before September 1, 2020, or after December 31, 2021, the rate of VAT applicable on the import is 5%. These are the usual rates of VAT applicable on the import and supply of the specified medical equipment in normal times.
The FTA also clarified the situation that arises when a supplier charges VAT at 5% while the applicable rate under the Decision is zero. Two situations arise in this case:
- If the supplier is able to identify the recipient, the supplier will issue a tax credit note in the name of the recipient to refund the overcharged amount of VAT. In addition, the supplier shall lower its output tax by the same amount as the one mentioned in the tax credit note.
- If the supplier is not able to identify the recipient, the supplier will not be able to issue and deliver the tax credit note, and therefore, must account for the collected VAT amount in the tax return for the relevant tax period in which the supply was made.
If you are a business involved in the supply and import of the specified medical equipment that falls under the class of personal protective gear from the Covid-19 pandemic, you must be clear on the applicable VAT rates. If you still have doubts or require any help in this matter, you can take assistance from professional firms such as NR Doshi & Partners.
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