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.