VAT Readiness Programme

The introduction of VAT in the UAE: What we know so far

In line with the GCC VAT Framework Agreement, the UAE is anticipated to introduce VAT starting 1 Jan 2018

What will be the impact for consumers, businesses and trade when UAE implements VAT at 5% on 1 January 2018? The introduction of a goods and services tax (GST) in India on 1 July 2017 prompted similar questions. Will these taxes mean that consumption will take a big hit?

The VAT Executive Regulations have not been released in public domain and the complete clarity on the treatment of Free Zones is still awaited.

However, based on the available information, we understand that all entities having a taxable supply exceeding AED 375,000 would be required to register for VAT and those with taxable supply between AED 187,500 and AED 375,000 may opt to register for VAT.

Further, the Ministry of Finance has issued the following deadlines for registration:

  • Before 31 October 2017 - Businesses with a turnover exceeding AED 150m should apply for registration
  • Before 30 November 2017 - Businesses with a turnover exceeding AED 10m should apply for registration
  • Before 04 December 2017 - All other business entities should submit their application to minimize the risk of not being registered in time for VAT go-live

We will share further information as soon as it is announced by the Federal Tax Authority (FTA). Nevertheless, you will need to be registered in order to claim back any VAT you pay as a business.

Our advice is to start the registration as soon as possible. Businesses can register here through the e-Services portal on the FTA website.

Please note that this is intended as a helpful guide and you may wish to seek advice on your specific circumstances from your tax advisor.

To view the full article click here Read the registration steps here

You can find additional information on VAT below. For any VAT-related queries, kindly contact vat@dmcc.ae.


     

VAT info

          


VAT FAQs and Guides

1. What is Value Added Tax (VAT)?

VAT is an indirect tax. It is one of the most common types of consumption tax found around the world. 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 the 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.

2. Why is VAT being introduced by the UAE Government?

The UAE Government provides various facilities and services to its residents. Such services include public schools, parks, hospitals, etc. and these are paid for from the government budgets. VAT will provide UAE with a new source of income. This will enable the continued provision of high-quality public services in future. It will also help the UAE government in reducing dependence on oil and other hydrocarbons as a source of revenue.

3. When will VAT Law be effective in the UAE?

VAT is likely to be effective across the UAE from 1 January 2018.

4. How can someone access UAE VAT Law?

The UAE VAT Law, namely Federal Decree Law No. (8) of 2017 on Value Added Tax is accessible through the Ministry of Finance website. The link to access the VAT Law is https://www.mof.gov.ae/en/lawsandpolitics/govlaws/pages/vat-law.aspx

5. What are the steps required to be taken by businesses to get VAT ready?

There are several steps that businesses may consider for VAT readiness and these include:

− Map the current business transactions and overlay the VAT footprint to assess impact of new law;

− Take impact mitigation measures by restructuring transaction flows and/or supply chain;

− Redesign the processes in line with the above;

− Assess IT readiness requirements and take necessary steps to bring in functional modifications;

− Assess and implement registration and compliance requirements; and

− Assess steps to be taken to ensure smooth transition including stakeholder communication and documentation requirements

− Ensure VAT registration, if applicable is done before the date of implementation.

6. What will be covered within the ambit of VAT?

VAT, as a general consumption tax, is expected to apply to a majority of transactions in goods and services. However, a limited number of exemptions may be granted by the UAE government. This could take the form of applying a zero rate of tax or treating the supply as ‘exempt’. See below for further explanation.

7. What will be the VAT rate?

The standard rate of VAT in the UAE is expected to be 5% which will be applied to most goods and services. It is also expected that certain goods and services may be exempt (e.g. certain financial services, leasing of residential property) and zero-rated i.e. subject to VAT at the rate of 0% (exports of goods and services, certain medicines and medical equipment).

8. What is the difference between exempt and zero rated goods/services?

Zero-rated supply is a taxable supply which is charged at 0% VAT while exempt supply is a non-taxable supply. The difference between exempt and zero-rated goods/ services is that input tax credit (the VAT paid on your business inputs) can be recovered whereas no such recovery is allowed if you use your business acquisitions to make an exempt supply. Businesses making exempt supplies will incur a real VAT cost, impacting on their existing cost structure.

9. What is the average rate of VAT adopted in other countries?

The average rate is 16.9%, the lowest rate is 5% (UAE and other GCC states) and the highest rate is 27% (Hungary).

10. Do all businesses need to register under VAT?

No, all businesses need not register for VAT. Only those businesses with annual sales of taxable supplies exceeding the expected prescribed threshold of USD 100,000 (AED 375,000) are mandatorily required to be registered for VAT. However, those below the prescribed threshold may apply to be voluntarily registered if their turnover ranges between USD 50,000 and USD 100,000 or their annual expenditure exceeds USD50,000. Registration as a tax group may be applied if certain conditions are met.

11. 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 and will open during the third quarter of 2017 on a voluntary basis and fourth quarter of 2017 on a compulsory basis.

12. Can the registration be done online or manually?

Businesses will only be able to register online using e-Services.

13. What will DMCC do for its customers to get ready for VAT?

DMCC Authority will be conducting free training and education sessions in order to assist its member companies to prepare for VAT.

14. How often would registered businesses be 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 quarterly for the majority of businesses. Some business may be required to file monthly.

15. Will the services provided by DMCC be subject to VAT?

It is expected that most of the services other than specifically exempted or zero-rated would be subject to VAT. However, since DMCC is operating in a free zone, we would need to wait for clarifications from the Ministry of Finance on how VAT will be applied to free zone entities.

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

The taxable person shall keep the following records of:

  • All supplies and Imports of Goods and Services.
  • Tax Invoices and alternative documents related to receiving Goods or Services.
  • Tax Credit Notes and alternative documents received.
  • Tax Invoices and alternative documents issued.
  • Tax Credit Notes and alternative documents issued.
  • Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for the same.
  • Goods and Services purchased and for which the Input Tax was not deducted.
  • Exported Goods and Services.
  • Adjustments or corrections made to accounts or Tax Invoices.
  • Records relating to capital assets for at least 10 years
  • Tax Record that includes the following information:
    1. Due Tax on Taxable Supplies.
    2. Due Tax on Taxable Supplies pursuant to the reverse charge mechanism.
    3. Due Tax after the error correction or adjustment.
    4. Recoverable Tax for supplies or imports.
    5. Recoverable Tax after the error correction or adjustment.

Taxable persons for VAT must retain the above-mentioned records for at least 5 years. The Executive Regulation of the Decree-Law on VAT shall specify further details on restrictions and conditions with respect to maintaining the records listed above.

17. Is VAT charged on exports?

No VAT will be charged on the export of goods and services. In order to make exports competitive, VAT on exports will be zero-rated and the exporter can recover all the input tax incurred in the course of his business.

18. What would be the VAT impact on imported goods?

VAT will be 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. However, it is expected that if goods imported remain in UAE then reverse charge mechanism (or self-accounting for the VAT) would apply which will have a favourable cash flow impact.

19. What about supplies made outside the UAE?

VAT is essentially a tax on consumption taking place in the UAE. If you acquire goods or services from an entity located outside the GCC and those goods and services are provided to a customer outside the GCC then that supply takes place wholly outside the UAE and VAT will not be applicable.

20. What is the list of supplies that are exempt and zero rated?

Zero-rated supplies:

  • Direct or indirect export outside GCC;
  • International and intra GCC transport;
  • Air passenger transport;
  • Supply of air, sea and land means of transport as would be specified in the executive regulations;
  • Supply of aircraft or vessels for specific purposes;
  • Supply of goods and services related to transfer of goods or passengers;
  • Supply or import of investment precious metals;
  • First supply of residential buildings within 3 years of its completion, either through sale or lease subject to prescribed conditions;
  • First supply of buildings to be used specifically for charities for sale or lease/buildings converted from non-residential to residential;
  • Supply of crude oil and natural gas;
  • Supply of educational services and related goods and services for specific institutions as would be specified in the executive regulations;
  • Supply of preventive and basic healthcare services and related goods and services as would be specified in the executive regulations.

Exempt supplies:

  • Financial Services performed by authorized banks and financial institutions as would be specified in the executive regulations;
  • Supply of residential buildings through sale or lease, other than that which falls under the zero-rated category;
  • Supply of bare land;
  • Supply of local passenger transport.

The executive regulations would specify the conditions and controls for exempting/zero rates of supplies.

21. VAT applicability on paper trading companies which do not physically import or export goods.

With regards to paper trading companies, since the supplies of paper trading companies do not involve physical movement of goods from/to the UAE and the movement of goods is outside UAE, the place of supply will be outside UAE. Accordingly, the same would not fall within the purview of UAE VAT.