VAT Readiness Programme

VAT in the UAE officially implemented from 1 Jan 2018

DMCC VAT Registration Certificate has been issued.

The VAT Executive Regulations have been released, download now in Arabic and English

Entities having a taxable supply exceeding AED 375,000 are required to register for VAT.

You will need to be registered in order to claim back any VAT you pay as a business.

DMCC VAT Registration Certificate has been issued. Check now.

​Businesses should register now through the e-Services portal on the FTA website.​

Read the registration steps here.

REGISTER NOW

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


Hosted by DMCC and facilitated by KPMG exclusively for DMCC member companies on 10 December 2017.

This is the full recording of the seminar.

VAT Awareness Seminar

Hosted by DMCC and facilitated by KPMG exclusively for the commodities sector on 13 December 2017.

This is the full recording of the seminar.

VAT Seminar - Commodities Sector


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 with over 167 countries having implemented a VAT (or its equivalent). VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while VAT registered 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 its customers after offsetting against the tax collected the tax that it has paid to its suppliers on eligible acquisitions. 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. In most cases, VAT registered businesses may need to file their first VAT return with the Federal Tax Authority by the 28th of April 2018, assuming quarterly filing.

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 along with the associated Regulations to the UAE VAT Law. 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 over lay the VAT footprint to assess impact of the 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;
  • Assess steps to be taken to ensure smooth transition including stakeholder communication and documentation requirements; and
  • 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 consumed in the UAE. 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 (and across the GCC) is expected to be 5% which will be applied to most goods and services. Certain goods and services will be exempt (e.g. financial services involving a margin, such as borrowing and lending, leasing of most residential property, local passenger transport such as metro, taxis and bus services) and zero-rated i.e. subject to VAT at the rate of 0% (e.g. exports of goods and services, certain medicines and medical equipment, certain healthcare and educational services, intra-GCC and international transport).

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

Zero rated supply is a taxable supply which is charged at the rate of 0% VAT while exempt supply is a non-taxable supply (i.e. VAT cannot be charged). The difference between exempt and zero rated goods/ services is that input tax credit (the VAT paid on your business inputs) can be recovered where such business inputs are used in making 0% supplies 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 and putting upward pressure on their pricing.

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 past annual sales of taxable supplies, or future sales in next 30 days, exceeds the 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 taxable expenditure exceeds USD 50,000 .

Subject to certain eligibility criteria a number of individual businesses may be eligible to for a Tax Group. A Tax Group is then treated as a single registration for VAT purposes and can bring some administrative and cash flow savings.

11. When are businesses supposed to start registering for VAT?

The Federal Tax Authority (FTA) has invited business to register for VAT from 1 October 2017 so as to ready for VAT from 1 January 2018.

12. Can the registration be done online or manually?

Businesses will only be able to register online using e-Services. Registration is via the FTA portal http://eservices.tax.gov.ae/en-us/

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

DMCC Authority has partnered with KPMG to assist with conducting free training and education sessions in order to assist its member companies 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. The default period for filing VAT returns will be quarterly for the majority of businesses. Some business may be required to file monthly. Returns will need to be filed by the 28th of the month following the end of a tax period.

15. How will VAT apply to Free Zone entities?

The VAT law has made provision for special treatment for what it calls are ‘Designated Zones’. What will be included as a designated zone will be determined by Cabinet decision, no such decision has yet been publicized.

However, the Executive Regulations appear to make it clear that a designated zone will need to meet a series of criteria amongst which are:

  • The Designated Zone is a specific fenced geographic area and has security measures and Customs control in place to restrict entry and exit of individuals and movement of goods to and from the area.
  • The Designated Zone has internal procedures with respect to the method of keeping, storing and processing of goods.
  • The operator of Designated Zone to comply with such procedures (not yet specified) set by the authority.
It is apparent from the above criteria that this would not include any ‘unfenced’ free zone such as DMCC. In view of the above businesses operating in the DMCC will be subject to the normal VAT rules. The fact that some businesses may have a 50 year tax exemption from DMCC does not override the application of the VAT law. However, in case DMCC has obtained the designated zone status by the Cabinet decision, the VAT treatment for movement of goods would differ accordingly.
16. If a business was in a Designated Zone, how would VAT apply?

Businesses operating within a Designated Zone will, for the most part, be treated as being outside of the UAE. In such cases, supplies of goods between Designated Zones and into Designated Zones from outside of the GCC will be treated as outside the purview of the VAT. Supplies of goods from the UAE mainland into the Designated Zone will be chargeable to VAT at standard rate of 5%. Please note, any supply of services to or from the Designated Zone, would be subject to VAT at standard rate of 5%.

However, some supplies in the Designated Zone will be treated under the normal VAT rules, such as sale/purchase of goods for consumption into Designated Zone.
17. 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. Whilst DMCC and its members are operating in a free zone, the VAT law has not provided for any special treatment for businesses operating in what can be termed an “unfenced” free zone.

However, the VAT law does provide for the Cabinet to prescribe both Government entities and certain supplies by those entities to be free from VAT. At this stage no further details are available if this may cover some of DMCC’s services.
18. What kind of records are businesses required to maintain, and for how long?

A registered business will be required to keep records of the following:

    • The records of all goods and services supplied by the Taxable Person or on his behalf showing the goods and services, and the suppliers and their agents, shall be kept and retained in sufficient detail to enable the goods and services, the suppliers, and the agents to be readily identified by the Authority.

      Records of the transaction to prove the Emirate in which the fixed establishment related to this supply is located.

      In case the taxable person who makes a taxable supply of goods or services does not have a fixed establishment in UAE, the taxable person must keep records of the transaction to prove the Emirate in which the supply is received.

      These records must be kept for at least 5 years. Records related to real estate are required to be kept at least for 15 years after the end of the tax period to which they relate.
    • 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:
      a) Due Tax on taxable supplies.
      b) Due Tax on taxable supplies pursuant to the reverse charge mechanism.c) Due Tax after the error correction or adjustment.d) Recoverable Tax for supplies or Imports.e) Recoverable Tax after the error correction or adjustment.
    • A Capital asset register and record therein the Input Tax incurred on the Capital Asset in Year 1 as well as details of any adjustments made to the Input Tax calculations under the Capital asset scheme of VAT.


19. Is VAT charged on exports?

In order to ensure that UAE exports remain internationally competitive, VAT on exports, while taxable, will be taxed at 0% and the exporter can recover all the input tax incurred in the course of his business.

20. What would be the VAT impact on imported goods and services?

VAT will be imposed on imports of goods and services at the same VAT rate had the supply taken place in the UAE so as to ensure that a level playing field is maintained for domestic providers of those same goods and services. However, in order to ensure no adverse cash flow impact upon the payment of VAT at time of importation both goods and services imported for use in the UAE will be by way of the reverse charge mechanism (or self-accounting for the VAT). However, VAT on imported goods that are to be transshipped through the UAE to another GCC state will have to account for VAT at the time of importation and cannot adopt the reverse charge mechanism.

21. 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.

22. VAT treatment of intra-GCC trade.

There are special place of supply rules for goods being transported from one GCC State to another. The rules varying depending upon whether the other State is an “implementing State” or not, in other words whether it has or is about to implement VAT in that state pursuant to issued legislation.

The place of supply where the customer is located in an implementing State shall be the destination state if the customer is subject to VAT (i.e. registered for VAT) in the destination State. In case the customer is not subject to VAT but the supplier is registered in the destination state, then also the place of supply shall be the destination state. Otherwise the place of supply shall be the location where goods are located at the start of transport or dispatch.

In this case, assuming the customers are registered in the destination States, the place of supply shall be the destination state and no VAT may be charged on the intra-GCC supply of goods. VAT shall be payable by the recipient under reverse charge mechanism in the destination State.

However, if the supplies of goods are to unregistered customers in an implementing State and such supplies exceed or are likely to exceed USD 100,000 in a 12 month period, the UAE supplier will need to register for VAT in that GCC State and account for VAT on such supplies in that State.
23. What is the list of supplies that are exempt and zero rated?

Zero rated supplies:

  • Direct or indirect export of goods outside GCC where they leave the GCC within 3 months;
  • International and intra GCC transport of passenger and goods;
  • Supply of air, sea and land means of transport used for commercial purposes;
  • Supply of goods and services related to supply of zero rated means of transport;
  • 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 through sale or lease/ buildings converted from non-residential to residential;
  • Supply of crude oil and natural gas;
  • Supply of precious metals (gold and silver of investment grade);
  • Exported telecommunications services;
  • Supply of certain pharmaceutical products and medical equipment;
  • Supply of educational services and related goods and services associated with a recognized curriculum and the supplier is also recognized by relevant UAE authorities and, in case of higher educational institution, the institution is either owned by the Federal or local Government or receives more than 50% of its annual funding directly from the Federal or local Government;

  • Supply of preventive and basic healthcare services and related goods and services that is generally accepted in the medical profession as being necessary for the treatment of the recipient and provided by a healthcare body or institution, doctor, nurse, technician, dentist, or pharmacy, licensed by the Ministry of Health or by any other competent authority.
  • Supply of postage stamp issued; Emirates Post Cargo unless redeemable for transport of goods outside UAE.

Exempt supplies:

  • Financial Services where the consideration is by way of a margin (e.g. borrowing and lending transaction, sale/purchase of a security) rather than by way of an explicit fee or charge;
  • 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 (taxi, bus, metro etc.).
24. 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 are outside UAE, the place of supply will be outside UAE. Accordingly, the same would not fall within the purview of UAE VAT. Notwithstanding, to the extent that such supplies would have been taxable had they taken place in the UAE, the business may still be eligible to recover the VAT on its operating costs if registered for VAT.

25. How does partial exemption work?

The need to apply a partial exemption approach arises where a registered business acquires goods or services which are used in their business for making both taxable and exempt supplies. To the extent that your acquisitions can be directly traced to one activity or another then VAT recovery should be assessed on this direct attribution approach. For example, if you purchase two desks and one is used in that part of the business making taxable supplies then the VAT paid on acquiring that desk is fully recoverable, where the other desk is used in that part making only exempt supplies the VAT cannot be recovered. However, were the desk to go to the Finance function which provides services to both your taxable and exempt business functions then direct attribution is not possible and you are required to assess your VAT recovery proportion based on the formula outlined by the VAT law.

Presently you will be required to apportion using an input VAT approach by calculating the percentage of Recoverable Tax calculated to the sum of Recoverable Tax and non-Recoverable Tax for the Tax Period and apply this percentage to the VAT which relates to both the taxable and exempt activities.

26. Are there any special rules for financial services?

Certain financial services will be treated as exempt whilst others will be subject to VAT at 5%.

Where financial supplies, such as provision of any loan, advance or credit, are not conducted in return for an explicit fee, discount, commission, rebate or similar, they will be exempt. Where an explicit fee or commission is charged for a financial supply, such as annual credit card fee, this will be subject to VAT at 5%.

If you earn interest, buy and sell securities or engage in futures trading then you will be making an exempt financial supply.

     

VAT info