The aim of this alert is to provide a brief synopsis of the implementation of VAT (Value Added Tax) in UAE.
What, When and How?
VAT (Value Added Tax)
Value Added Tax (or VAT) is an indirect tax. 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.
VAT law will be released in two stages.
-UAE Procedures law (VAT framework) to be issued in a few weeks.
-VAT Law (detailed guidance) to be issued within 2-3 months
Implementation Date and Rate
VAT is likely to be introduced across the UAE on January 1 2018. The rate is likely to be 5%.
Registration for VAT
Registration for VAT is expected to be made available to businesses that meet the requirements criteria three months (possibly in October) before the launch of VAT.
Businesses will be able to register online using e-services.
Mandatory VAT registration threshold
Businesses with net sale over Dh 375,000 will be required to register for VAT.
Those with net sales “below Dh 375,000 but over Dh 187,500,” will have the option to register starting October this year. Which means that they may if they like, register under VAT. But if they don’t then they do not have to collect VAT from their customers.
Collection of VAT
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.
Filing VAT Return
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 e-services.
-Quarterly returns will be submitted and paid one month after the quarter end via electronic filing only.
-Tax payments and refunds will be electronic (cheques will not be issued or accepted).
VAT Groups and Intercompany transactions
- One VAT return for a group of companies who are eligible to form a VAT Group.
- Intercompany transactions will not be subject to VAT.
- VAT group is only for domestic entities – foreign company can join VAT group if they have an entity in the UAE.
Items to be Zero rated
Companies can claim VAT on following expenses, but cannot charge VAT to customers:
-Health (essential medical, not cosmetic)
-Local Transport (for passengers only)
-Education – full scope to be determined but school fees to be zero rated (education provider must be an educational entity/institution)
-Investment in precious metals (platinum, gold, and silver)
Items to be exempt (Rental Income and Expenses)
Companies cannot claim VAT on Rental income on the residential property.
Companies cannot charge VAT to the customer for residential properties.
Bad Debts relief
Bad debt relief will be available. Companies can claim back VAT charged on invoice related to bad debts.
Utilities and telecommunication
VAT will also be applicable on utility bills including electricity and water, as well as on mobile telephone and Internet bills.
VAT on Luxury items and non-essential goods
Luxury items such as gold and non-essential goods, such as tobacco and beverages will not only be subject to VAT but excise taxes as well.
The GCC tax code includes 50 per cent taxes on soft drinks and 100 per cent taxes on power drinks, tobacco, and its derivatives.
Accounting Records for VAT
Businesses will be required to keep accounting records which will enable the authorities to identify the details of the business activities and review transactions.
A fine of at least AED 50,000 (fifty thousand), but not more than AED 500,000 (five hundred thousand) shall be imposed on the national or foreign company that fails to keep accounting records for the company to state its deals (Article 348 of UAE Commercial Companies Law).
VAT Investigations and Audit
VAT Audit will be conducted at the place of the business. Notice of 5 business days will be given and may come within 72 hours.
Not less than 500 dirhams and not more than 3 times the amount of tax for which the penalty was levied.
How can H A Y Management Consultants help?
H A Y Management Consultants provide a complete range of services to address all elements of VAT implementation and ongoing compliance.
- Planning and advice
- Implementation and monitoring
- Reporting and compliance
CONTACT US FOR FREE CONSULTATION
Submit Your Query
Asghar Ismail Muhammad
Phone: +971 50 56 98 195
Office S09, Building L14
Greece Cluster, International City