BLOG GUIDES & DOWNLOADS

VAT PULSE

A blog about local and foreign VAT matters, best practices, and tips from practioners.

The Gulf is one of the richest regions in the world. The Companies have long since enjoyed a comfortable existence, with a tax-free environment and a strong welfare system. But with the crashing prices of their highest revenue generator- fuel, there has been a major deficient in budgets. As a counter move the great Gulf oil producers have introduced a value-added tax of 5 % on most goods and services from January 1 combined with a sharp hike of 127% in petrol prices IMF has long since recommended the oil exporting countries to raise their non-oil revenue and the VAT is just one of those. In fact, VAT s not even the first tax to be introduced in recent times, this past summer a 100% tax was introduced on tobacco and energy drinks and a 50% tax on soft drinks. VAT, however, is the widest ranging one.

As a known fact the Gulf countries have been growing their economic base at a faster rate than the global average leading to them being converted into a leading spot for business travel.

Q.Why is the VAT being Implemented in the UAE?

UAE has always had a strong welfare system but with changing times and to take a right step in the direction of growth, it is imperative that the dependency on hydrocarbons be reduced. Vat provides a new source of income to the economy and helps the government achieve that vision.

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

VAT will be introduced across the UAE on 1 January 2018 at a standard rate of 5%.

Q.How will VAT be collected by the government?

Registered businesses and traders will be required to fully document related costs and incomes. VAT will be then charged to their customers at the prevailing rates. The government will then either reimburse or charge the business.

Q.Will all goods and services be covered by VAT and who should register for it?

VAT will cover the majority of goods and services unless mentioned in the official exempt list.Registration of a business depends if they fulfill the following criteria.

  • Taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
  • Taxable supplies and imports less than the mandatory threshold but exceed the voluntary registration threshold of AED 187,500.
  • Expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

Q. 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. Eligible VAT-registered businesses should generally keep in mind that they do the following:

  • 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.

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

Every business that requires to be registered or charge for VAT needs to make sure they are prepared before 1st January 2018, when it comes into effect. To make sure this happens smoothly the registrations were open from the 3rd fiscal quarter on a voluntary basis and 4th quarter on a compulsory basis.

Q.When are registered businesses required to file VAT returns?

Still, under review, taxpayers are required to make regular filings with the FTA within 28 days from the end of the tax period. To make the process easier tax have to be filed online using eServices.

Q.What documentation are businesses required to submit?

The businesses will be required to maintain all relevant information that will enable the Federal Tax Authority to review transactions and identify business activities.The exact documents are still yet to be declared by the legislation.

Q.What sectors will be zero-rated?

VAT will be charged at 0% in the following sectors:

  • Exports of goods and services to outside the GCC;
  • International transportation, and related supplies;
  • Supplies of certain sea, air, and land means of transportation (such as aircrafts and ships);
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction ;
  • Supply of certain education services, and supply of relevant goods and services;
  • Supply of certain Healthcare services, and supply of relevant goods and services.

Q.What sectors will be exempt?

The following categories of supplies will be exempt from VAT:

  • The supply of some financial services (clarified in VAT legislation);
  • Residential properties;
  • Bare land; and
  • Local passenger transport

Q.Will there be VAT grouping?

Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group.

Q.Under which conditions will businesses be allowed to claim VAT incurred on expenses?

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • The business must be a taxable person (the end consumer cannot claim any input tax refund).
  • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
  • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
  • The goods or services acquired are used or intended to be used for making taxable supplies.
  • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

Q.Will visiting businesses be able to reclaim VAT?

It is intended that foreign businesses be able 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).

Q.How quickly will refund be released?

Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

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

To make the transition to VAT a smooth one there are multiple resources one can refer to, some of the top resources are:

! Like what you just read? Get Latest content delivered straight to your inbox.