A Member Firm of Andersen Global

Contact Us
IMC Logo

Blog

  • Newsletter

Recent Amendments in Singapore Companies Act

Introduction

The Government of Singapore continuously strive to maintain the tag of the country as a global hub for investors and businesses. It has introduced its companies act last year and Ministry of Finance (MoF) of Singapore and Accounting and Corporate Regulatory Authority (ACRA) have conducted an in-depth review of the Companies Act, 2016. This revision culminated the formation of Companies (Amendment) Act, 2017 which address the concerns regarding increased administrative for small and medium scale companies. It was passed in the meeting of the Parliament on 10th March, 2017 and the presidential assent was granted on 29th March, 2017.

We shall highlight the major amendments in the following paragraphs. This article shall also cover deadlines prescribed for implementation of new guidelines and the objectives behind introducing the amended law.

Objectives

As per the statement made by the authorities the primary objectives for introduction of the new law are:

  • Enhanced Transparency in the control and ownership of the business;
  • Reduction in compliance and administrative cost for the companies;
  • To give a push to Singapore’s competitiveness as a global business hub.


The Beneficiaries of amendments

Small and medium scale companies registered in the Republic of Singapore shall be finding these amendments most beneficial as reduce a lot of their administrative costs. Further, the foreign entities planning to change their domicile to Singapore shall see a new ray of hope by introduction of new guidelines.

Key Amendments and Deadlines

The following table shall highlight the major amendments and scheduled deadlines.

The companies and LLPs registered in Singapore, including foreign companies, are mandatorily required to maintain registers of registrable controllers as per the places prescribed in the law 31st March, 2017.

Particulars Provision Deadline
Enhancing Transparency The liquidator shall maintain the records of liquidated companies for a period of five years after liquidation.

The requirement was only two years under previous provision.

 31st March, 2017
The option to destroy the company’s records in the event of winding up have been waived off. Earlier, the members

and the creditor of the company had the option to destroy the records earlier than the period provided in the law.

 31st March, 2017
All the companies who are struck off are required to maintain their records for at least five years 31st March, 2017
The nominee directors are now required to disclose their status of nominee director and the details of the

nominators to the companies. A register of nominee director should also be maintained

 31st March, 2017
The issue and transfer of bearer shares and share warrants are not allowed for companies registered in

Singapore

 31st March, 2017
A register of members of the foreign company required to be maintained. 31st March, 2017
The legal requirement of have a common seal have been waived off. 31st March, 2017
Change of Domicile The companies registered in foreign countries can now change their domicile to Singapore. There was no such
provision under previous regulations.		 First half of 2017
Conducting AGM and filing of Returns All the listed and non listed companies shall now align their annual return filing with financial year.

Private companies are exempted from conducting AGM. It will reduce their administrative expenses.

 Early 2018


Bottom Line

The changes bought in by the new law are appreciable and shall attract more investors to the country.

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

Read More

  • Newsletter

Introduction of New Corporate Bankruptcy Law in Singapore

The Singapore Parliament has on March 10, 2017 approved the Companies (Amendment) Bill 2017 with the objective of increasing the debt restructuring framework in the Country and is effective from March 30, 2017.

The act is one of the crucial reforms in Singapore’s Corporate law as it contains provisions as to cross border insolvency, schemes of arrangement and in the initial phase was reforms intended to implement recommendations made by the Insolvency Law Review Committee. Further, it is important to note that the act has adapted many points of the U.S. Bankruptcy Code, like cram-down powers, prepackaged restructuring plan.

Highlights:

  • The scope of moratoriums available extended to holding companies (in appropriate circumstances) of the scheme company in addition to subsidiaries
  • Exclusion of certain types of companies, and arrangements like netting or set-off
  • Flexible new proof of debt procedure for schemes
  • Requirement for the initial creditor support for a company to obtain a moratorium at the time of the new scheme or arrangement
  • Priority status for rescue funding necessary for business to operate as a going concern

 

Before the enactment of the law, a company was able to apply for a judicial management order only in the circumstance of inability to pay its debts. However, under the new amendment a company can apply for judicial management even “is or is likely to become” unable to pay its debts. Also, the Act puts an obligation of the parties to explain as to appointment of judicial administrator would cause prejudice.

The Act provides for different procedure for submission, objection, and adjudication of creditor claims – which includes:

  • filing of proof of creditor debts;
  • permission to creditors who have filed proof of their debts to inspect and object to claims filed by other creditors;
  • an adjudicator’s appointment nominated by the company to adjudicate the validity of every proof of debt;
  • procedure for dispute adjudication relating to claims by an independent assessor agreed to by the parties or appointed by the court following the application of a party to the dispute.

 

The Act has modified the rules and the process to be followed for schemes of arrangement – and for the same many of the features prescribed in U.S. Bankruptcy Code’s has been adapted like the introduction of rescue financing provisions for schemes of arrangement. Also, the Act provides for procedures in reference to prepackaged schemes of arrangement.

The Act has adopted the UNCITRAL Model Law on Cross-Border Insolvency. The same provides for rules and procedures governing cross-border bankruptcy and insolvency cases that has now been enacted in 42 countries. Under the old law only Singapore Companies were allowed to make application for Judicial Management proceeding. A foreign company can apply for judicial management proceedings it has:

  • its main interests in Singapore;
  • substantial assets in Singapore and
  • carries on business in Singapore or has a place of business there

Under the provisions of the Act,the court is authorised to approve a scheme of arrangement even in case of objection of creditors in following cases:

    1. The creditors represent the majority and holds at least 75 percent in value of the claims in a class for which votes are actually cast votes in favor of a proposed scheme;
    2. The creditors represent the majority and holds at least 75 percent in value of the total claims against the debtor for which votes are actually cast votes in favor of a proposed scheme; and
    3. the scheme is “fair and equitable” and does not “discriminate unfairly” between two or more classes of creditors.

In conclusion:

The New Law reform is crucial as it will make Singapore as one of the international debt restructuring hubs. Due to easier procedure, the act will allow foreign companies to file management for judicial management in Singapore. Thus, the stakeholder needs to become familiar with Singapore’ new debt restructuring law to take advantage of the same.

Read More

  • Newsletter

New Rules for Cross Border Mergers of Indian Companies

Introduction

The ministry of corporate affairs of India has notified Section 234 of the Companies Act, 2013 which deals with the provisions for amalgamation or merger of an Indian company with a foreign company through their notification dated 13 April 2017. Further, insertion of Rule 25A to the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016 have opened doors for outbound mergers of Indian companies with foreign companies which was not allowed in previous company law legislation (Companies Act, 1956). This article shall highlight important provisions of newly notified law.

The Conditions

Prior approval from the Reserve Bank of India (RBI) will be required for merger of a foreign company, incorporated in notified jurisdictions with an Indian company and vice versa. In line with the same, the RBI has also released draft regulations for cross border mergers on 26th April 2017 and public comments on the same are invited till 9 May, 2017.

The valuation of the continuing entity should be done by member of a recognized professional body and a report should be prepared as per internationally accepted standards of accounting and valuation and shall be submitted to RBI.

Approvals from shareholders, creditors, national company law tribunal (NCLT), securities and exchange board of India (SEBI), Industry specific regulators and income tax authorities should be obtained as per provisions of Section 230-232.

The scheme drawn for the proposed merger and amalgamation may provide for payment in depository receipts, cash or partly in both to the shareholders of the merging company.

Permitted Jurisdictions

Rule 25 A states that an Indian company may merge with a foreign company incorporated in specified jurisdiction, after complying with the provisions of Companies Act, 2013 and the rules thereto. The specified jurisdictions are:

  1. A jurisdiction whose securities markets have signed the memorandum of understanding with the International Organization of Securities Commission’s or the SEBI.
  2. A jurisdiction whose central bank is a member of the Bank for International Settlements (BIS).
  3. A jurisdiction which is not identified as a jurisdiction combating with the financing of terrorism activities or having a strategic anti money laundering by the Financial Action Task Force (FATF).
  4. Any such jurisdiction which has not achieved specified sufficient progress or has not committed to the action plan with FATF to address the deficiencies.

Brief Procedure

  • The company must be authorized through its Memorandum and Articles of Association to undergo cross border merger and amalgamation.
  • Draft scheme for the merger should be prepared and approval of board of directors should be obtained.
  • Once, the approval from the board is obtained, the company should seek approval from the RBI.
  • After obtaining RBI approval the company should file an application with NCLT to call a meeting of shareholders and creditors (if any) to approve the scheme of merger and amalgamation. The NCLT have the right to approve or reject the company’s application.
  • If the NCLT approves, company’s application to conduct the meeting the company should give notice to members/ creditors and it should also be published on company’s website, newspapers and the notice of the meeting should also be given to the SEBI and stock exchanges where company’s shares are listed.
  • The notice should also be given to regulatory authorities e.g. income tax authorities, Registrar of Companies (RoC) and other sectoral regulatory authorities.
  • The reports for result of meeting should be filed with NCLT within three days of the meeting. If the scheme is approved by majority stakeholders, the petition for compromise and arrangement shall be made within seven days of filing the report of result of meeting.
  • The tribunal after verifying the compliance shall pass an order and make provision for the merger and amalgamation. The company should file a copy of this order with RoC within 30 days of receipt of order.

The Final Word

These recent developments shall pave the way for the companies seeking outbound merger. On the other hand, detailed approval requirements minimize the risk of frauds and money laundering and ensures the complete protection of stakeholder’s interests. These amendments shall be gladly received by corporate fraternity as it opens the door for spreading the wings internationally.

Read More

  • Newsletter

Recent Major Changes in India Tax Law

Introduction

The High Net Individuals, and Multinational enterprises and corporate are aggressively doing tax planning by engaging in complicated tax structuring to have less payout. Although the structure is legally acceptable, however the object of evading tax via them is not considered moral and is a question for discussion by various countries. In this regard, India has also been taking many steps for enforcement of General Anti Avoidance Rules (‘GAAR’), including amendments to the various bilateral tax treaties with various countries Mauritius, Singapore, Cyprus etc.

General Anti Avoidance Rules (‘GAAR’): Evolution

The General Anti Avoidance Rules (‘GAAR’) were originally proposed along with Direct tax code 2009, with the objective of targeting the transactions made to avoid or evade taxes. And was introduced by the Pranab Mukherjee, in Budget Session on 16 March 2012. GAAR was considered controversial as was containing provisions to seek tax with retrospectively from past overseas deal involving local assets.  Therefore, due to negative publicity, including pressure from the group, its implementation was postponed for implementation over 3 years that is to 2016-17.

In year 2015 the tax proposal, postponed the implementation of GAAR for further two years to 2017-18 financial year, and with clarification that the same will not Apply to the investment made prior to March 31, 2017. With this background, thus, applicability and enforcement of the provisions of GAAR began from 1 April, 2017 in Financial Year 2017-18.

Chapter X – A of Income Tax Act, 1961:

The Chapter X-A of the Income Tax Act, 1961 (‘Act’), contains the provisions in relation to GAAR.

The said provisions follow the doctrine of “substance over form”as primary test that is irrespective of the legal structure to take into consideration following points for determining the taxes:

  • the effect of transactions
  • the intention of the parties, and
  • purpose of arrangement.

The tax authorities are empowered by the act to deny any tax benefit, if the transactions or arrangements are for deriving the tax benefits and not having any commercial substance or consideration.

Also, the Section 96 of the Act provides for Secondary Tests:

  • Creating rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;
  • the misuse, or abuse, of the provisions of this Act – directly or indirectly;
  • lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or
  • is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bonafide purposes.

The Section 97 further defines the condition of lack of commercial substances – the substance or effect of the arrangement as a whole, is inconsistent and include the location of an asset or of a transaction and have no significant effect upon the business risks or net cash flows without any substantial commercial purpose.

The Rule 10UB of the Income Tax Rules, 1962 lay down the process for invoking the provisions of the GAAR in relation to any arrangement or transaction. The assessing officer provides an opportunity to the assesse for providing objection as to the applicability of the provisions of the GAAR. Thereafter, the tax officer is required to make a reference to the Commissioner of Income Tax in all the cases. And thereafter if the Commissioner considers on the facts and circumstance of the case, that the provisions of GAAR is applicable, a reference shall be made to the Approving Panel regarding the applicability of the provisions of GAAR. In other case if GAAR provisions are not warranted and the Commissioner shall issue direction to the Assessing Officer accordingly.

Thus, the section puts burden on the tax payer to the transaction or arrangement or part thereof was not entered into with the intention of tax benefit or avoidance.

Impermissible Transactions:

In case the tax authority considers a transaction or arrangement, to be impermissible – the consequence would be a denial of the tax benefit or treaty to the assesse.

  • disregarding, combining or re-characterising
  • Treating the arrangement as if never entered into
  • Disregarding and Treating the accommodating party as one and the same
  • deeming persons who are connected persons as same persons
  • reallocating amongst the parties to arrangement
  • treat the place of residence of any party to the arrangement
  • the sit us of an asset or of a transaction

In other words, the Assessing officer lifts the veil to look through any arrangement by disregarding any corporate structure; or treat equity as debt, capital expenditure as revenue expenditure or vice versa.

Thus, in order to safeguard against the consequence – the assesse may follow Section 245N, Chapter XIX-B of the Act, which provides for an advance ruling for the arrangement being an impermissible avoidance arrangement or not, further such ruling can be sought either by a resident or a non-resident. It is pertinent to note that it must be taken prior to entering into any such arrangement as Advance Ruling is binding on both the assesse and the revenue.

In  Conclusion:

The act provides that even if part of an arrangement or transaction if results in a tax benefit, the whole arrangement to be treated as ‘impermissible avoidance agreement’ resulting into, transactions to bealways prone and susceptible by the tax department. The act allows the tax official to deny the tax benefit, in case the deal is with purpose to evade taxes. Thus, the rules aim to improve transparency in tax matters and help curb tax evasion.

Read More

  • Newsletter

Highlights of IBBI’s New Corporate Voluntary Liquidation Process Regulations, 2017

Introduction

The insolvency and Bankruptcy Board of India (IBBI) via its notification dated 31st March 2017 have issued regulations for voluntary liquidation of corporate persons. These regulations came into force with effect from 1st April 2017. The Corporate persons shall include limited liability partnerships, companies, and other incorporated entities for these regulations.

Chapter V of the Insolvency and Bankruptcy Code, 2016 consolidates the bankruptcy, insolvency and liquidation laws for the companies. The Bankruptcy code attempt to shift the process of voluntary liquidation from the scope of the Companies Act, 2013. The newly effected regulations are a result of the same and are made by the board in the exercise of the powers conferred upon it through Section 59, 196, 208 read with 240 of the Insolvency and Bankruptcy Code, 2016. This article shall provide the major highlights of the newly effected regulations for voluntary liquidation of corporate persons.

Highlights

The regulation prescribes the entire process of liquidation right from the initiation to the dissolution of the corporate persons. The regulations provide that:

  • A corporate person may opt to initiate a proceeding for its voluntary liquidation if it has not committed any default in payment of its debts.
  • A declaration of solvency is need to be given by majority of directors/ designated partners of corporate person.
  • A special resolution for voluntary liquidation will be required to be passed to obtain the approval of shareholders/ contributors of the corporate person within four weeks of declaration of solvency by the directors as mentioned in the above point. The process of voluntary liquidation shall be deemed to be initiated from the date of passing the special resolution.
  • The corporate person is required to appoint an insolvency professional to act as a liquidator. The corporate person should not carry any business activity after the appointment. The regulations also provide the procedure for appointment and the eligibility criteria for the person to be appointed as an insolvency professional.
  • The regulations also prescribe the manner for submitting the claims of operational and creditors, employees and other stakeholders
  • The liquidator shall prepare a list of claims within 30 days of receipt of claims and prepare a list of stakeholders within 45 days of receipt of claims. After completing this, the liquidators shall realize the assets of the company, recover outstanding debtors and unpaid capital/ contribution. This money should be deposited in a separate bank account and shall be distributed to stakeholders within six months of its receipt.
  • If the proceeds of receipts in the above point are not sufficient to pay off the debts of the corporate person, the liquidator shall make an application to the National Company Law Tribunal (NCLT) to pass the order the tribunal may deem fit.
  • The liquidator shall complete the liquidation process within twelve months of commencement. If for any reason, the liquidation is not completed within the specified period, he should call for a meeting of contributories to present annual status report at the end of each year.
  • Liquidator must submit his final report to the Registrar of Companies (RoC) and the IBBI and shall make an application to NCLT to dissolve the corporate person.
  • The liquidator is also mandatorily required to preserve and maintain copy of reports, registers and books of accounts of the corporate person for minimum eight years after the dissolution.

Conclusion

The regulations are an innovative toward having separate code for voluntary liquidation of companies not having much operations. Closing a company in India is a lengthy and cumbersome process. The introduction Insolvency professionals is again a welcome move as they shall the experts in intricate issues involved in the process of dissolution of the company.

Read More

  • Newsletter

RBI Liberalizes the norms for FDI in LLP

Introduction

Limited liability partnership (LLP) was introduced by Ministry of corporate affairs of India in 2008 as a tool for small businesses who want to have a corporate status and need flexibility in compliance requirements in comparison to companies registered under the Companies Act. However, initially the Foreign Direct Investment (FDI) in LLP’s was permitted only under the approval route and there were restrictions in obtaining external commercial borrowings (ECBs).

Later, in 2015 the Reserve Bank of India (RBI) allowed FDI under automatic route for LLP’s in some sectors where are no FDI linked performance conditions. However, there are still concerns about the restrictions on external commercial borrowings and conversion of existing company into an LLP through FDI was allowed only under the approval route.

Highlights

RBI via its FEMA notification dated 3rd March 2017 have amended Schedule 9 to FEMA notification no. FEMA 20/2000 – RB to make appreciable changes in existing scenario. We shall discuss the highlights of this newly issued notification in the coming paragraphs:

  • An existing company can now be converted into LLP through FDI under automatic route in sectors where 100% FDI is permitted under the automatic route and subject to the condition that are zero FDI linked performance conditions.
  • The foreign companies can now be appointed as Designated Partners (DPs) in LLPs after removal of mandatory condition which only allowed body corporate registered under Indian Companies Act to appoint a DP in LLP.
  • The new amendments also waive the residency requirements to be fulfilled by individual DP’s of LLP that has received FDI. Now, the individual DP’s will only require to fulfill the residency requirements mentioned under the LLP Act.
  • The LLP’s which have received FDI are mandatorily required to submit reports to the RBI in their annual return on foreign assets and liabilities by 15th Day of July every year.

Conclusion

The new notification will help Indian businesses to procure desired funds through FDI and boost the economic growth. Foreign entities looking for expansion may also find this a welcome step to have their presence in India in the form of LLP’s with relaxed provisions for FDI and ECB. It also bridges the existing gap between the RBI regulations and Indian Government’s policy on FDI.

Read More

  • Newsletter

GST Updates – Road to Implementation of GST in India

Introduction

The Goods and Services Tax (GST) is soon going to be a reality in India and the government is taking effective steps to achieve its target implementation dated which is 1st July 2017 waiving the existing dual system of taxation of goods and services in the form of VAT, sales and service tax. It will subsume all existing indirect taxes in India. GST has been recognized as one of the most decisive tax reform in the history of tax reforms in India. The GST bill passed in Lok Sabha on 29th March 2017 ratifying the earlier one passed on 8th August 2016 and received nods of the upper house of parliament on 6th April 2017. We shall discuss the latest updates on GST in the coming paragraphs.

Recent Developments

  • Four Supplementary bills viz. GST (compensation to States) Bill, 2017, Central GST (CGST) Bill, 2017, Integrated GST (IGST) Bill, 2017 and the union territory GST bill was approved by the GST council during its various meetings held in February and March 2017. These bills were later approved by the union cabinet chaired by the Prime minister of India on 22nd March 2017 before they are presented in the budget session of parliament.
  • To involve taxpayers and provide regular updates about the developments, the ministry of finance launched a mobile app for tax payers and stakeholders on 24th February 2017.
  • The Central Board of Excise and Customs (CBEC) will soon be renamed as Central Board of Indirect Taxes and Customs (CBIC) and the minister of finance has also approved reorganization of field formations. It shall be operational from 1st June 2017
  • The union cabinet also given its nod to the amend the relevant existing legislation for smooth implementation of GST and to annul the Acts which will become irrelevant post implementation of GST.
  • GST council has decided a four-tier tax rate viz. 5%, 12%, 18% and 28%, with lower tax rate for essential items and the highest for luxury goods and demerit goods like tobacco and aerated drinks. Council also approved a maximum cess of 15% for highest rate.
  • A GST working group have been set up via CBEC order dated 24th March 2017 to examine sector specific issues to identify and address the peculiar issue relevant to sectors.
  • The prime minister of India has announced a major public outreach program to enlighten the stakeholders about the provisions and benefits of GST.

Bottom Line

Implementation of GST is in the final stages of completion and it is visible from proactive efforts of governmental authorities. The GST council is already discussing the draft rules for Registration, valuation, input tax credit and transition towards GST. It is now high time for the industry as well as professionals to tighten their belts to ensure they are well prepared before the GST go live on papers.

Read More

  • Newsletter

India jumps to 8th place on Global FDI Confidence Index

India has jumped one spot to rank 8th in the 2017 AT Kearney Foreign Direct Investment (FDI) Confidence Index with 31 percent of the surveyed respondents being more optimistic on economic outlook over the next three years.

“Investors see India as a vast and diverse up-and-coming market with plans to increase investments there over the near to medium term,” said Vikas Kaushal, Partner and Head of India at AT Kearney.

Investor confidence in India has been growing steadily over the last two years, making it one of the top two emerging market performers on the FDI Index, said the UK-based AT Kearney in the index.

“Reform efforts by the current government have improved the country’s investment environment. This includes the national goods and service tax (GST) reform, the largest non- direct tax reform in India in recent years,” Vikas said.

“India’s vast domestic market is an added attraction for foreign companies. Investors are looking at India’s phenomenal economic performance as a key selling point.

“It is forecast to be the fastest-growing major economy in the world in the coming years, which should provide a variety of investment opportunities to global firms,” he said.

Among the investors surveyed, over half said a successful GST implementation would cause them to significantly or moderately increase their investment in India.

More broadly, 70 percent of the respondents plan to maintain or increase their FDI in India in the coming years, according to Kearney.

India’s government is considering further policy reforms to further boost FDI inflows. A proposal to loosen FDI regulations on the retail sector is being evaluated, in part to support the country’s ‘Make in India’ initiative and bolster the manufacturing industry, said the consultancy.

The government is eliminating the need for FDI approvals in sectors where licenses are also required, such as defence, telecommunications and broadcasting.

Read More

  • Newsletter

IMF envisages faster growth for Indian economy with GST in place

Demonetisation impact was noticeable on the informal sector which was dependent on cash, in the later part of the FY17, said IMF’s Deputy Director for research Gian M Milesi-Ferretti.

International Monetary Fund (IMF) maintained India’s growth forecast at 7.2% in FY18, saying the growth path is on-track with medium-term prospect favourable. However, in an exclusive conversation with Network18’s Marya Shakeel, IMF’s Deputy Director for research Gian M Milesi-Ferretti cited temporary negative consumption shock induced by cash shortages as a speed bump.

He said the demonetisation impact was noticeable on the informal sector which was dependent on cash, in the later part of the FY17 but is likely to felt even in early part of FY18.

“India is still a fast growing large economy in the world and we actually have forecast for India which envisages somewhat faster growth going forward, thanks to the implementation of GST,” he said.

Read More

  • Newsletter, VAT

VAT FAQ -Released by Ministry of Finance

In the quickly shifting legal environment of the GCC, the introduction of Value Added Tax (VAT) is the most trending topic this month. In this article, we discuss the general FAQs and what VAT means for your business in GCC.

1. General Questions

1.1 What is tax?

Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for things such public hospitals, schools and universities, defence and other important aspects of daily life.

There are many different types of taxes:

  • A direct tax is collected by government from the person on whom it is imposed (e.g., income tax, corporate tax).
  • An indirect tax is collected for government by an intermediary (e.g. a retail store) from the person that ultimately pays the tax (e.g., VAT, Sales Tax).

1.2 What is VAT?

Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.

VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.

VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain. To explain how VAT works we have provided a simple, illustrative example below (based on a VAT rate of 5%):

1.3 What is the difference between VAT and Sales Tax?

A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.

Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.

1.4 Why is the UAE implementing VAT?

The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide our country with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

1.5 Why does the UAE need to coordinate VAT implementation with other GCC countries?

The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognize that such a collaborative approach is best for the region.

1.6 When will the VAT go into effect and what will be the rates?

VAT is likely to be introduced across the UAE on January 1 2018. The rate will be low and is likely to be 5%.

1.7 How will the government collect VAT?

Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

1.8 Will VAT cover all products and services?

VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of reliefs may be granted.

1.9 Will the cost of living increase?

The cost of living is likely to increase slightly, but this will vary depending on the individual’s lifestyle and spending behaviour. If your spending is mainly on those things which are relieved from VAT, you are unlikely to see any significant increase.

1.10 What measures will the government take to ensure that businesses don’t use the VAT implementation as an excuse to increase prices?

VAT is intended to help improve the economic base of the country. Therefore, we will include rules that require businesses to be clear about how much VAT you are paying for each transaction. You will have the required information to decide whether to buy something or not.

1.11 When will more details on VAT be available?

We anticipate that more detailed information will be available in the near future.​


2. VAT for Businesses

2.1 Will all businesses need to register with the government for VAT?

No, not all businesses will need to register for VAT. In simple terms, only businesses that meet a certain minimum annual turnover requirement will have to register for VAT. That is, many small businesses will not need to register for VAT. We have made this decision to safeguard small businesses from the extensive documentation and reporting that a system like VAT requires. Also, businesses may not need to register with the government if they only provide goods and services which are not subject to VAT.

Please note that we have not yet finalized the specific conditions (such as minimum annual turnover) that will help identify businesses that do not need to register for VAT. Once that information is finalized, it will be shared with the public.

2.2 What are the VAT-related responsibilities of businesses?

All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.

VAT-registered businesses generally:

  • must charge VAT on taxable goods or services they supply;
  • may reclaim any VAT they’ve paid on business-related goods or services;
  • keep a range of business records which will allow the government to check that they have got things right

If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.

If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.

2.3 What does a business need to do to prepare for VAT?

Concerned businesses will have time to prepare before VAT will come into effect. During that time, businesses will need to meet requirements to fulfil their tax obligations. Businesses could start now so that they will be ready later. To fully comply with VAT, We believe that businesses may need to make some changes to their core operations, their financial management and book-keeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT now and once the legislation is issued make every effort to align their business model to government reporting and compliance requirements. We will provide businesses with guidance on how to fully comply with VAT once the legislation is issued. The final responsibility and accountability to comply with law is on the business.​​

2.4 When are businesses supposed to start registering for VAT?

Registration for VAT is expected to be made available to businesses that meet the requirements criteria three months before the launch of VAT. Businesses will be able to register online using eServices.

2.5 How often are registered businesses required to file VAT returns?

Registered businesses will be expected to submit VAT returns on a regular basis. It is expected that the default period for filing VAT returns will be three months for the majority of businesses.

Registered businesses will be able to file their returns online using eServices.

2.6 What kind of records are businesses required to maintain, and for how long?

Businesses will be required to keep records which will enable the authorities to identify the details of the business activities and review transactions. The specifics regarding the documents which will be required and the time period for keeping them will be communicated in due course.

3. VAT for Tourists and Visitors

3.1 Will tourists also pay VAT?

Yes, tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale. Nevertheless, we have set the VAT rate deliberately low so that VAT is a limited burden on all consumers.

3.2 Will visiting businesses be able to reclaim VAT?

It is intended that we will allow foreign businesses to recover the VAT they incur when visiting the UAE. This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries (where the rates are a lot higher).

4. UAE VAT Frequently Asked Questions (FAQs)

4.1 How can someone access UAE Tax Law?

UAE VAT law is currently being finalized, and will be published once approved. Announcements regarding the Tax Law will be made to the press and details will be published on the Ministry of Finance website. The primary source of information regarding the UAE VAT Law is the Ministry of Finance website. We recommend that you bookmark the page and visit it frequently to stay up to date on VAT related information.

5.Other Questions

5.1 What other taxes is the UAE considering?

As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes, however.

5.2 Will this impact economic growth of the UAE?

Our analysis suggests that it will help the country strengthen its economy by diversifying revenues away from oil and will allow us to fund many public services. This is a sign of a maturing economy.

5.3 Where can I learn more about the UAE’s plan to implement VAT?

Over the course of 2016, the government will launch awareness and education campaigns to educate UAE residents, businesses, and other impacted groups. Our aim is to help everyone understand what VAT is, how it works, and what businesses will need to do to comply with the law.

We will also set up a website in 2016 where you can find information to understand the new tax in detail. A telephone hotline will also be established so that you can call and speak to one of our employees directly about VAT.

5.4 Are there any groups (individuals or organizations) that will be exempted from paying VAT?

VAT is a broad based tax and it is not intended that there will be special exceptions for individuals. However, there may be some special rules on VAT for organizations such as government entities as well as refunds available in some circumstances, especially where international obligations require us to make those refunds.

5.5 Changing my business systems for VAT reporting will cost money. Can the government help?

When VAT is introduced, the government will provide information and education to businesses to help them make the transition. The government will not pay for businesses to buy new technologies or hire tax specialists and accountants. That is the responsibility of each business. We will, however, provide guidance and information to assist you and we are giving businesses time to prepare.

5.6 What are the penalties for not complying with a business’s VAT responsibilities?

Everyone is urged to fully comply with their VAT responsibilities. The government is currently in the process of defining the exact fees and penalties for non-compliance.

Read More

Follow Us

Recent Posts

Get updated by Signup
to our Newsletter!

IMC Logo

Get Started

About

Locations

© 2025 IMC Group. All Rights Reserved.

IMC Logo

About

Get Started

Locations

© 2024 IMC Group. All Rights Reserved.

IMC Logo

Get Started

About

Locations

© 2024 IMC Group. All Rights Reserved.