VAT in the UAE: Guidelines for UAE Businesses

The Value Added Taxes (VAT) will be rolled out in the UAE with effect from January 1, 2018 at a standard rate of 5%. Since there is less than four months left for VAT implementation, it is high time you ensure that you are on the right track of getting your business Tax-compliant.

The working of VAT

Brushing up on the basics – VAT is a type of general consumption tax, charged at each step of the ‘supply chain’. VAT registered businesses levy VAT on the sales of goods and services and pay this to the government, thus acting as a ‘tax collector’ on behalf of the government. The VAT registered businesses can reclaim the tax they paid on the inputs into their goods / services from the government, thus the customer is the ultimate tax bearer;  the exceptions to these rule being the Zero rated goods and the VAT exempt goods.

Businesses cannot levy VAT on the sale of zero-rated goods and services. It broadly includes:

  • Healthcare and Educational services,
  • Few medicines/medical equipment
  • Investment gold, silver, and platinum.

 However, businesses can reclaim the VAT they paid on inputs into such goods and services.

Also, VAT can’t be levied or VAT on inputs be reclaimed on Exempt goods and services which includes

  • Supplies of residential property (sales and leases), with the exception of the first sales of new residential property ,
  • Supplies of bare land ,
  • Some financial services ,
  • Life insurance and
  • Supplies of local transport.

VAT Implementation

VAT in UAE is being introduced in coordination with other GCC states. The Unified Agreement for Value Added Tax, known as GCC/UVAT, signed by the six GCC members ensures that VAT is implemented at a flat rate of 2018, starting 2018. The UAE has established a Federal Tax Authority (FTA) to enforce the tax.

 

Registering for VAT

The Federal Tax Authority has recently launched an official Tax Website to help businesses register for VAT. Registration is mandatory if the value of annual supplies exceeds the threshold of AED 375,000. Businesses can also register for VAT voluntarily if their annual supplies are less than the mandatory registration threshold but more than AED 187,500. Businesses not registered for VAT cannot charge VAT on their sales and cannot claim any VAT incurred on their inputs.

As per latest announcements from the Federal Tax Authority, the VAT Registration in UAE will begin from October 2017.

Scoping, Planning and preparing for VAT

If VAT is applicable to your business (refer Mandatory and Voluntary thresholds), you should prepare to register for VAT during Q4, 2017 so that you can smoothly implement it by Q1, 2018. Businesses can avail of the benefits of the VAT awareness campaign launched by the Ministry of Finance, Seminars hosted by authorised private organisations and refer to the Official Tax website.

Ascertaining the scope of the changes required within your business at an early stage is essential to develop a structured and comprehensive implementation plan. In addition to the changes required to your IT / Accounting systems and processes, ensure your relationships with customers, suppliers, intermediaries and any other impacted external parties are compliant upon the introduction of VAT.

Provisions of the law

The law requires businesses to maintain records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions - tax invoices – debit or credit notes – Import / Export records as determined by the Law, for five years. The law also sets penalties for non-compliance, as well as clear processes for appeals which align with international best practices.

The law covers tax procedures, transitional rules, audits, objections, refunds, collection, and obligations, which include tax registration, tax-return preparation, submissions, payment and voluntary disclosure rules – in addition to tax evasion and general provisions.

 

Refer : Official Tax Website

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