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Make sure to communicate to your customers that VAT is chargeable or else you will not be able to recover VAT
  • Article, VAT

Apprise your customers of VAT inclusion

Make sure to communicate to your customers that VAT is chargeable or else you will not be able to recover VAT

VAT is coming into effect on January 1, 2018, with VAT registration being on full speed, the VAT is a charge borne by the final customer, the general rule of VAT law is that the supplier has to account for VAT. The closing price of the contract is inclusive of VAT even when the agreement does not specify the inclusion of VAT.

If your firm has entered into contracts which has a completion date after January 1st, 2018 and there is no inclusion of VAT application when the arrangements were finalized, then the firm has to bear the cost of the VAT.

Intermediate provisions:

The executive regulations for VAT registration has intermittent provisions that deal with contracts that overlap the implementation date of the VAT and have no mention of VAT in their contracts. These provisions provide some relief to the suppliers who have not taken VAT into their final calculations.

With the help of this relief, the supplier is entitled to charge VAT in addition to the final price, and if the customer is VAT registered, they can deduct input VAT or will be allowed to a VAT refund.

Importance of these provisions:

These provisions do not apply automatically even when you register for VAT in UAE. The businesses will be able to pass on the VAT liability if and only if there is communication to their customers by the 31st December,2017. If not communicated or lapse of communication will lead to the conclusion that there will be no benefit from these transitional provisions. The businesses will lose their right to charge VAT unless the customer agrees for a change in the price clause of the contract.

The communication of VAT inclusion from the supplier should comply with certain guidelines. VATxperts can assist you to draft their communication and help your business to benefit from these transitional provisions and reclaim the VAT for your services. If you are in need of professional service or assistance in drafting the communication, please contact the VATxperts team for all VAT related needs.

How can we help?

VATxperts deal in VAT Advisory, tax optimization, VAT implementation and training services in the UAE and throughout the GCC. Our team of highly qualified and senior tax advisors, finance experts, and tax accountants will ensure a timely and nominal VAT services for SMEs. Apart from the consultative and execution of VAT services, our teams are available after 1 January 2018 (the launch date) to execute VAT compliance and stay on board to help your growing business to abide by the rules of VAT in UAE before it becomes multifaceted.
Who are we?

VATxperts is part of IMC group, offering comprehensive VAT Advisory, tax optimization, implementation and training services in the U.A.E. Our team comprises of qualified tax advisors, finance experts, and tax accountants who ensure timely and cost-effective VAT services for SME’s and Corporates.

For more information about VAT in UAE or VAT registration in UAE reach our consultant at [email protected]

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  • Newsletter, VAT

Effect of VAT in existing construction contracts of UAE

The construction companies are now faced with the dilemma of VAT registration and VAT impact in these pre-existing construction contracts as they time of implementing the VAT is drawing near. The GCC council have fixed the implementation of VAT as of January 1, 2018.

The VAT law contains standard rules that accommodate this type of scenario, but these procedures address not all circumstances. The executive regulations, which will provide further details on the transitional provisions, are expected to be issued during the fourth and final quarter of this year. 

The VAT registration law decreed that if the supplier supplies goods after the implementation date but has received the payment before the effective date, then those transactions come under the purview of the VAT. Even if the trade happens before the effective date but does not have the clause of tax, then it comes under VAT.

The yet to announce administrative regulations might provide an exception in circumstances where the recipient is also VAT registered and can recover the VAT.The supplier would be entitled to add VAT to the contract price and shift the VAT burden to the recipient, who in turn would be eligible to deduct the input VAT on their VAT return. 

Here all you need to know VAT registration in Dubai?

The ground rule is, however, that the supplier will bear the liability of VAT, unless the contract states otherwise, or the executive guidelines provide exclusions allowing a supplier to charge VAT where the supply is to a VAT registered recipient.

Calculation of VAT:

The original payment of VAT payable to the Government is calculated on the contract price that was set before the inclusion of VAT, even though the contract has no mention of VAT addition in the amount. If the contracting company is in the process of VAT registration, the treatment of this pre-existing agreement is expected to be specified in the pending notification of the Government.

The prediction of VAT announcements:

It is expected that the VAT law will provide a detailed solution for contracts that were accepted and finalized before the implementation date and the services supplied after the effective date. The notification is expected in the coming days and is expected to provide clarity on implementation and treatment of VAT issues. If any company is entering into a contract before January 1, 2018, then it is prudential to include the necessary provisions for VAT.

For support on VAT registration in UAE reach our consultant at [email protected]

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  • VAT

UAE MOF updates – VAT FAQ details

The VAT FAQs section was updated on the official website on 9th July by the United Arab Emirates (UAE) Ministry of Finance (MOF. It provides simplified explanation to all your VAT questions.

The update provides useful written confirmation on a number of points discussed at the MOF VAT awareness sessions.

How can one object to the decisions of the Authority?

Any person will be able to object a decision of the Federal Tax Authority.​

As a first step, the person shall request the FTA to reconsider its decision. Such request of re-consideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.​

If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.​

As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision​

VAT for Businesses

Who can or will be able to register for VAT?

A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

How long must a taxable person retain VAT invoices for?

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

How should a business determine the place of supply?

The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.

For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).

For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).

Can businesses offset customs duty against VAT payments?

VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.

How will real estate be treated?

The VAT treatment of real estate will depend on whether it is a commercial or residential property.

Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).

On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.

What sectors will be zero rated?

VAT will be charged at 0% in respect of the following main categories of supplies:

  • Exports of goods and services to outside the GCC;
  • International transportation, and related supplies;
  • Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
  • Supply of certain education services, and supply of relevant goods and services;
  • Supply of certain Healthcare services, and supply of relevant goods and services.

What sectors will be exempt?

The following categories of supplies will be exempt from VAT:

  • The supply of some financial services (clarified in VAT legislation);
  • Residential properties;
  • Bare land; and
  • Local passenger transport

 

Will there be VAT grouping?

Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool that would simplify accounting for VAT.

Will there be bad debt relief?

VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business. The legislation will include the conditions and limitations concerning the use of this relief.

Will there be a margin scheme?

To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. The legislation will include the details of the conditions to be met in order to apply this mechanism.

How will partial exemption work?

Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.

In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.

Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.

What are the cases that would lead to the imposition of penalties?

Penalties will be imposed for non-compliance.

Examples of actions and omissions that may give raise to penalties include:

  • A person failing to register when required to do so;
  • A person failing to submit a tax return or make a payment within the required period;
  • A person failing to keep the records required under the issued tax legislation;
  • Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

 

Will there be any special schemes for SMEs?

No special rules are planned for small or medium sized enterprises. However, the FTA will provide materials and resources available for these entities to assist them in their enquiries.

Will there be transitional rules?

Special rules will be provided to deal with various situations that may arise in respect of supplies that span the introduction of VAT. For example:

  • Where a payment is received in respect of a supply of goods before the introduction of VAT but the goods are actually delivered after the introduction of VAT, this means that VAT will have to be charged on such supplies. Likewise, special rules will apply with regards to supplies of services spanning the introduction of VAT.
  • Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT. There will, however, be special provisions to allow suppliers to charge VAT in situations where their recipient is able to recover their VAT but where there is no VAT clause.

 

How will insurance be treated?

Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.

How will financial services be treated?

It is expected that fee based financial services will be taxed but margin based products are likely to be exempt.

How will Islamic finance be treated?

Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products will be aligned with the treatment of similar standard financial services.

Can UAE nationals claim VAT?

A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family. This will allow the recovery of VAT on such expenses as contractor’s services and building materials.

How quickly will refunds be released?

Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

Will FTA issue rulings or provide tax advice?

In the course of its interaction with taxpayers, the FTA may provide its views on various matters in the law. Taxpayers may choose to challenge these views. It should be noted that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.

Will it be possible to issue cash receipts instead of VAT invoices?

A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.

Will there be any VAT that businesses are not allowed to claim?

VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.

Under which conditions will businesses be allowed to claim VAT incurred on expenses?

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • The business must be a taxable person (the end consumer cannot claim any input tax refund).
  • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
  • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
  • The goods or services acquired are used or intended to be used for making taxable supplies.
  • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

 

Will non-residents be required to register for VAT?

Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.

Will VAT be paid on imports?

VAT is due on the goods and services purchased from abroad.

In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.

How will Government Entities be treated for VAT purposes?

Supplies made by government entities will typically be subject to VAT. This will ensure that government entities are not unfairly advantaged as compared to private businesses.

Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely certain government entities will be entitled to VAT refunds – this is designed to avoid budgeting issues and provide a level playing field between outsourced and insourced activities.

For the supplies provided for government entities, the treatment of such supplies shall depend on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment would remain the same even if it is provided to a government entity.

Will Businesses have to report on their business in each of the Emirates?

It is expected that businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate. Guidance will be provided to businesses with regards to this.

It is expected that the rules will be relatively straightforward for most businesses and will be based, for example, for B2C transactions, on the location of the transaction (e.g. in a retail environment, the location of the shop).

Will the goods exempt from customs duties also be exempt from VAT?

Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.

Reach us at [email protected] for guidance on impact analysis and assistance in VAT implementation.

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  • VAT

VAT Law (Draft) Published in KSA

Introduction

The GCC nations have announced the introduction of VAT from the next year and preparation for the same is in full swing. Kingdom of Saudi Arabia (KSA) already published the draft VAT law on the website of General Authority of Zakat and Tax (GAZT). It is considered to one of the major steps towards implementation of VAT in the country from 1st January 2018.

The GAZT have invited stakeholders and the public to give their feedback on the draft law by 29th June 2017. The draft regulation does not disclose much of details regarding specific VAT requirements as the same are to be issued through separate implanting regulation which is expected to be issued post Ramadan. This article shall highlight major details about the draft VAT law.

Where and How?

All the GCC nations are bound to introduce the VAT by 2018 for the treaty signed by them. KSA is introducing VAT from 1st January 2018.

VAT is an indirect tax and accordingly the burden of payment will be on the end consumer. The business registered in the KSA will be required to register themselves with the authorities for collection of VAT if their turnover exceeds the specified limit which is SAR 375,000. The registered business can also avail the VAT credit on the VAT paid by them and get the benefit of input credit on the VAT invoices issued by them.

The draft law gives extensive powers to the GAZT including obtaining taxpayers’ information, seek details and description of transaction if it suspects any form of tax avoidance and holding two or more persons jointly liable for obligations and payments for VAT law.

Broad Coverage of the Draft Law

The law leaves many provisions to be issued later through implementing regulations and silent on the time frame for issuing the same. The registration requirements for VAT are dealt with in Article 4, 5 and 6 which shall be applicable from the date of its publication in the official gazette of the kingdom.

The law is divided into 12 chapters where chapter 1 deals with important definitions while chapter 2 focus on imposition of tax. Chapter 3 provides the provisions related to taxable persons and rules for registration and deregistration for VAT leaving most details to the implementing regulations. Chapter 4, 5 and 6 is dedicated to supplies and place of supply. Chapter 7 deals with the calculation of taxable value of supplies while chapter 9 provide for calculation of tax liabilities. Chapter 8 deals with provisions related to imports Chapter 10 highlights the administration and procedural part and chapter 11 deals with penalties and fines. It is important to note here that penalty of up to 50% of the tax due can be imposed on default in filing the returns and claims. Chapter 12 is general provisions including the transition and implementing regulations.

What you need to do?

If you are a business registered in the region, ensure you have proper books of accounts and financial records in place. Also, check if your turnover exceeds the specified limit and register for VAT with the regulatory authorities. The authorities are expected to open the registration in a couple of months. Also, ensure that your staff is competent enough to address the new challenges bought in by the introduction of this new law.

Please feel free to contact us at [email protected] for making your company 100% compliant with the VAT regulations in the region.

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  • VAT

Highlights of GCC Unified VAT Treaty

Introduction

The treaty for Value Added Tax signed by GCC nations is finally out in the public domain. The much talked about treaty is being published in the official gazette of the Kingdom of Saudi Arabia (KSA). It is one of the crucial steps in implementation of VAT in the region. The KSA had already announced that VAT shall be implemented in the country from 1 January 2018. This treaty is the base document for the all the member nations to prepare and implement the legislation in their respective jurisdiction. We shall highlight the major point in the treaty in coming paragraphs.

Highlights

  • The standard rate of VAT will be 5%.
  • The taxable persons can avail input credit for the VAT paid/ incurred for procuring/ manufacturing taxable supplies of goods and services.
  • All businesses have annual turnover of Saudi Riyals (SAR) 375,000 or its equivalent in other currency are mandatorily require registering themselves for collection of VAT. The option of voluntary registration is available for business having minimum 50% of above mentioned turnover.
  • Treatment of VAT is some specific sectors, namely, education, real estate, health care and local transport shall be decided by each member nation. It is the discretion of the nation to keep it exempt, or charge VAT at any rate between zero to five percent. It is important to note that specified medical equipment and medicines are chargeable at zero rate.
  • Each member nation may decide for VAT treatment of financial services sector. The treaty stipulates these services to be exempt with a right to reclaim input tax credit.
  • The treaty mentions that the food products shall be chargeable at standard rate of VAT. However, it is left up to the discretion of member nations to define the rate of VAT on food products in their jurisdiction.
  • Rate of VAT on Oil and Gas products are left to the discretion of member nations. The member nations shall decide the define the same best suitable for them.
  • Export of goods and services outside GCC will be subject to VAT at zero rate.
  • The supplier of services outside GCC shall pay VAT based on reverse charge mechanism.
  • The transport of goods and passengers shall be chargeable at zero rate.

Final Word

The base of law is already out and the more rules for implementation are expected post Ramadan. Prepare yourself for VAT with experts. Please feel free to write us at [email protected]

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  • VAT

Introduction of VAT in UAE

Introduction

The GCC nations have announced introduction of VAT from the next year and preparation for the same is in full swing. Kingdom of Saudi Arabia already published the treaty in their official gazette earlier this month and is all set to introduce it with effect from 1 January, 2018. The view of rulers of the United Arab Emirates (UAE) is not any different and the UAE is also introducing VAT from next year. This article shall answer some major questions about the recent development for introduction of VAT in the UAE.

Where?

All the GCC nations are bound to introduce the VAT by 2018 for the treaty signed by them. UAE is introducing VAT in all of its seven emirates from 1 January, 2018. The ministry of finance in the UAE is expected to reveal the VAT rules for companies incorporated in free zone in a couple of weeks. Offshore transactions will also be subject to VAT on a reverse charge basis.

How?

VAT is an indirect tax and accordingly the burden of payment will be on end consumer. The business registered in the UAE will be required to register themselves with the authorities for collection of VAT if their turnover exceeds the specified limit which is AED 375,000. The businesses that have a turnover of AED 187,500 have the option to voluntarily register them for VAT.

The registered business can also avail the VAT credit on the VAT paid by them and get the benefit of input credit on the VAT invoices issued by them.

What you need to do?

If you are a business registered in UAE, ensure you have proper books of accounts and financial records in place. Also, check if your turnover exceeds the specified limit and register for VAT with the regulatory authorities. The authorities are expected to open the registration in a couple of months. Also, ensure that your staff is competent enough to address the new challenges bought in by introduction of this new law.

Please feel free to contact us at [email protected] for making your company 100% compliant with the VAT regulation.

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  • VAT

Finance Ministers of GCC Explore VAT and Economic Issues

The GCC countries have already signed the treaty for implementation of VAT by 2018 and the preparation for successful implementation is already going on a war footing basis. The UAE and KSA are expected to introduce VAT with effect from 1 January 2018 and the rest shall follow within a couple of months. The lawmakers in all the GCC countries have already tightened their belts and the business in the region are also doing the same. In line with the same, the top delegation from finance ministries of the GCC nations met on 4 May, 2017 at the Bahrain to explore VAT and other related taxation issues.

The ministers of finance discussed the recommendations of the specialized technical committee about the unified agreements on VAT and selective taxation entered into by GCC nations. Payment of taxes will be a critical issue for implementation and the ministers have deliberated on the recommendations submitted by the Central Banks of member nations and officials of monetary agencies regarding linking the payment system in GCC. The recommendations made by the technical committees of the Financial and Economic Cooperation regarding the proposals made by member nations for promoting cross border trade and economic cooperation were also discussed in the meeting.

They have also discussed the recommendations made by the Customs Union Authority and the GCC capital market committee. Both bodies play a vital role in trade around the GCC and promoting economic integration is one of the key agenda of this meeting. The members explored the key issues for economic and developmental work in GCC nations.

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  • VAT

VAT updates in KSA

The General authority for Zakat and taxes (GAZT), the regulatory body for taxation in Kingdom of Saudi Arabia (KSA) have recently updated some notable points on their website about Value Added Tax (VAT). It illuminates the stakeholders about various key facts about implementation of VAT.

Key Facts

  • Website clearly states that the legislation for VAT in KSA is developed and shall be implemented with effect from 1st January 2018 as planned.
  • The standard rate of VAT is 5% on most of the goods but certain essential items will be charged at zero rate or exempted from VAT.
  • The authorities shall allow businesses to register for VAT in the second half of the year 2017. The businesses having annual turnover of SAR 375,000 will mandatorily be required to register for VAT. The businesses having annual turnover of SAR 187,500 shall have the option to register voluntarily for VAT.
  • It clarifies that businesses will have to file regular VAT returns for VAT charged, VAT collected and the differences between the two. However, the frequency for filing returns have not yet been clarified.
  • Book keeping requirements are mentioned but clarifications and technicalities are awaited regarding details of documents and financial statements to be maintained.

 

Bottom-line
The recently published FAQ’s signifies the strong intentions of KSA to achieve its target date of implementation of VAT in KSA from 1st January 2018. The GAZT is already working on the finalization of VAT policies, and practical issues related to governmental coordination and dealing with increased work load post implementation of VAT. The GAZT is also working on developing its own capabilities and conducting VAT awareness programs for stakeholders.

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  • Article, VAT

VAT Briefing Highlights

VAT Introduction

Value Added Tax (VAT) is an indirect tax levied on supplies. GCC have entered a treaty to introduce and implement VAT and Excise across the GCC to create a wider scope of revenues for the Government. All the countries in the region shall prepare and implement their legislation for VAT based on the basic principles set out under the treaty. The Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE) will be introducing VAT with effect from 1st January 2018. It is advisable for the organizations entering long term agreements with their clients, shall have clear clauses about restructuring in cost and prices and terms payment of VAT, post implementation of VAT.

Chargeability

All the supplies of goods and services will be categorized into three categories:

  1. Supplies chargeable at a Standard Rate of 5%: The standard rate for VAT is kept at 5% across GCC. All the supplies shall be subject to VAT at the rate of 5% if they do not fall under the below two categories. Renting and Buying of commercial property is an example of supplies chargeable at 5%.
  2. Supplies chargeable at Zero percent: The lawmakers understand that certain necessary items should be charges at lowest possible rate to ensure that it will not burn a hole in the pockets of residents. Necessary goods and services e.g. healthcare and education are kept under this category. The countries can have their own list of items to be charged at zero percent rate.
  3. Exempt Supplies: The goods and services that will not be subject to VAT are exempt supplies. Local passenger transport, renting and buying of residential property are kept under this category. It is important to note here that the companies providing exempt supplies shall not be required to register for VAT and cannot claim any input credit for the VAT paid on purchases.


Operational Highlights

VAT system in UAE shall be a federal law. Important terms e.g. taxable person, economic activity, input and output tax, reverse charge, tax group, place of supply etc. shall have the same definition for all GCC nations as defined in GCC VAT treaty. UAE shall also use the same. The GCC treaty makes use of reverse charge mechanism extensively, which is justifiable also as they are making a law for multiple countries same in line with European Union.

The detailed rules for supply of goods and services are under the drafting stage and shall be majorly divided into following categories:

  • Basic Rules for Goods – Depends upon the location of goods when supply took place
  • Special Rules for Goods – Shall be applicable to cross border supplies and for the goods where location of goods cannot be ascertained e.g. Electricity, Water.
  • Basic Rules for Services – Shall be applicable on starting point of Service
  • Special Rules for Services –  Shall be applicable for cross border supplies and electronic supply of services.


Registration for VAT

All the entities have total annual turnover of AED 375,000 are mandatorily required to be registered for VAT. The entities whose total annual turnover of AED 187,500 have the option to voluntarily register themselves for VAT.

Calculation of threshold limits

  • Total values of supplies made in current month and eleven preceding months
  • Expected value of supplies in subsequent thirty days
  • Exempt supplies shall be excluded when calculating value of supplies
  • Non-Established taxable persons are also required to be registered for VAT.


Treatment of Imports and Exports

Import of goods for transshipment to GCC shall be chargeable to VAT. The taxpayer should get himself registered in the country where goods and services are supplied to avail the credit. However, if the purchaser is registered, the supplier will not be required to register himself and can take the benefit and the supplies can be charged on a reverse charge basis. Reverse charge is allowed for all intra GCC transactions. It is important to note here that if a GCC country have not introduced VAT, then it will be considered as a non GCC country for VAT purposes.

With an aim to promote exports, the UAE lawmaker have made export outside GCC a zero-rate supply.

Mandatory maintenance of Books and Records

The authority mandatorily requires all VAT registered entities to maintain their financial statements and cash flows. They shall have proper evidence of all the transaction, copy of invoices for purchase, records of payments received and payment made. Further, the entities should maintain a proper record of invoices issued and the invoices shall specifically have mentioned the following information:

  • Unique Invoice No.
  • Date of Issue
  • Time of Supply
  • Name, Address and TRN of Supplier
  • Quantity of goods and terms of services supplied
  • The amount should be in AED for if in foreign currency the rate of exchange and its source.

Reverse Charge

As mentioned above the GCC VAT treaty uses reverse charge extensively and it is allowed for all intra GCC transactions. Also, the payment of VAT to be done by suppliers for the supplies made to offshore person under reverse charge. Also place of supply of goods and services plays a key role in determining the tax liability and whether the liability lies with the supplier or with the purchaser.

VAT Grouping

The branches of a company operating in multiple locations shall come under same group and shall have a single VAT Registration number. This is going to be an intricate issue and more clarification is awaited from the authority.

Treatment of Certain Supplies in UAE

Supplies chargeable at Standard Rate are:

  • Oil and Gas
  • Buying and Renting of Commercial Property

Supplies chargeable at Zero Rate are:

  • Education and Healthcare
  • International transport of goods and passenger and supply of related goods and services
  • Charity Buildings
  • Export of goods and services
  • Investment precious metals

Exempt Supplies:

  • Local Passenger Transport
  • Residential Buildings
  • Bare Land
  • Some specific financial services

Filing of Returns and Refunds

The GCC treaty allow member nations to have their own time framework for filing of returns from a monthly to yearly basis. In the UAE, VAT returns will be required to filed in every three months. The returns shall be filed in 28 days after end of quarter. All the filing and payment of VAT will be through electronic mode. No cash or cheque payments will be accepted by the authorities. Refunds will also be credited through electronic modes only.

Refunds will not be allowed to tourists. However, international organizations and diplomatic bodies can get refund according to the agreements and arrangements between UAE Government and their home countries.

Conditions for availing VAT Credit

As discussed earlier, the returns shall be filed on a quarterly basis and all the payments of VAT should be made to authority on a quarterly basis. The entities can avail input credit of the tax paid on purchases of raw material and capital goods in determining their tax liability. However, it is important to fulfil the below mentioned conditions for availing input credit:

  • The recipient of supplies shall be a taxable person
  • The VAT should be correctly charged in the invoices
  • The supplies are supplied for eligible economic purpose only
  • Proper evidence of the transaction is available in the records.

Appeals

If a person is aggrieved regarding his VAT liabilities, he shall file an appeal within 20 working days. The authority shall response within 20 working days of receipt of appeal. If he is not satisfied with the decision of the authority, he can appeal to the appeal committee within 20 working days. The appeal committee shall consist of one judge and two tax experts.

If he is not satisfied with the decision of appeal committee, he can approach court within 20 working days and the decision of courts shall be binding on the parties.

Violations and Punitive Provisions

The authority has majorly classified violations under two categories viz. administrative and tax evasion violations. Administrative violations will include non-maintenance of proper books and records and tax evasion violations shall be where the assess willingly attempt to evade his tax liabilities. The punitive provisions are in drafting stage and expected to be very stringent and includes prosecution of violators. The Federal Tax Authorities (FTA)’s can visit business for inspection of their records and books.

De- Registration for VAT

The entities shall de-register themselves from VAT in the following conditions:

  • Cessation of Economic Activity
  • Cessation of taxable transactions

The value of taxable transaction falls below the voluntary registration threshold.

Detailed regulations for De- registration are still awaited.

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  • Article, VAT

VAT is UAE: Reason of MNC’s Joy

Introduction

The UAE is all set to launch VAT which will be applicable to most of the business in the country with effect from 1st January, 2018. Preparations are in full form and authorities are leaving no stone unturned for successful implementation of the law in the country. Though business in the country are apprehensive that they will now have to share a part of their earning with state, but VAT in UAE is not discouraging for multinational corporations operating here. We shall discuss how it is beneficial for MNC’s and giving them a reason for earning higher Profits after tax (PAT).

Why and How?

The UAE Government is diversifying its sources of revenue generation and introduction of VAT is a major reform, as this word “TAX” was an alien to many residents in the country till now. The government is taking an implementing suggestions for diversifying sources of revenues from international institutions. As per a statement made by a senior Government official, UAE is applying best international practices for increasing revenues and coordinating financial policies with sustainable growth. This approach shall inject confidence into the UAE’s economy and investment environment.

UAE is introducing VAT at a rate of five percent and the average rate of VAT around the world is around fifteen percent. Hungary has the highest VAT rate of 27 percent amongst OECD nations. Accordingly, UAE is offering a significantly lower rate of VAT and multinational corporations can still save heavy amount in comparison to VAT rate in their home country. As per the reports published in a leading daily newspaper of the UAE, many top-level executives are happy with the UAE government’s decision to introduce VAT. Therefore, it is now important for businesses to learn the requirements and adjustments that will be required to me made for preparation and filing of VAT returns.

It is important to note here that as VAT is a tax on consumption, so the ultimate burden of tax is generally borne by the end consumer. Businesses only collect VAT on behalf of the Government and submit the same at regular intervals. But, what is more important is that international players find middle east market as growth leader and see a larger scope of penetration to generate higher figures.

What should be your Strategy?

The UAE Government has signed more than 100 treaties for the avoidance of double taxation with different countries and more than 60 agreements for protecting and promoting investments. So, the lower tax rates may benefit if the double tax avoidance agreement is already signed between UAE and your home country as rate of five percent is the lowest around the world.

Conclusion

Introduction of VAT may burden with businesses with additional compliances but that will also bring more transparency, which shall be beneficial in the long run. Secondly, UAE still retains its position of low tax jurisdiction and lesser tax legislations. So, VAT is not unfavorable for multinationals as they can still save high amounts that they otherwise be paying to the government in their home country.

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