Importance of VAT for Businesses in the UAE

The GCC states (Gulf Cooperation Council) agreed “in principle” to impose the GCC agreement on value added tax (VAT) in the region. This will help the region reduce its dependence on oil and other hydrocarbon products as a source of revenue. All GCC countries agree that the VAT 2019, however, will be introduced before January 1 in all countries, the UAE has decided to probably apply VAT on January 1, 2018.

We believe that the decision to introduce value added tax would bring about a paradigm shift in the economic dynamism of the country and the region. Like most of the world, companies in the Gulf region also have to comply with strict regulations and regulatory requirements on a regular basis on VAT and report. The challenge for the Gulf’s business community will be to understand the new VAT law and implement the same before the expiration date.

VAT is one of the most common types of indirect taxes in the world. More than 150 countries have introduced VAT. These include the European Union (EU), the United Kingdom, Canada, New Zealand, Australia, Singapore, Malaysia, India, etc. USA UU., The GCC countries and some other countries, notably African continents, have not introduced VAT.

VAT is an indirect tax. It is a kind of general excise tax that is levied incrementally, depending on the value added at each stage of production or sales / sales. In general, it is implemented as a target-based control. In some countries, it is also known as the Goods and Services Tax (GST). VAT, the general excise duty, is applied to most transactions in goods and services. In the UAE, only a few items are exempt from VAT. Some items have a zero classification and the rest of the items have a complete classification or standard notation. The VAT registration criteria is calculated based on the turnover of the company The applicable VAT rate in the UAE is 5%.

14 Cases Where Supplies are Not Taxable

The exceptions are also strictly enforced because they are an exception to the rule that VAT is levied.

Zero Rates and exceptions

The supply and importation of goods and services specified in a taxpayer’s tax decree constitute a taxable delivery subject to zero duty. The zero rate applies to the following goods and services:

  1. A direct or indirect export to outside the implementing States, as provided for in the Implementing Regulation to the Federal Decree-Law.
  2. International carriage of passengers and goods entering or leaving the State or through its territory, including services related to this transport.
  3. Air transport of passengers in the state when an “international transport” is considered in accordance with article (1) of the Warsaw Convention for the Unification of Certain Provisions concerning International Carriage in 1929.
  4. Provision of air, sea and land transport for the carriage of passengers and goods in accordance with the provisions of this Decree.
  5. Supply of goods and services in connection with the provision of means of transport within the meaning of paragraph 4 of this article intended for the operation, repair, maintenance or modification of such means of transport.
  6. Provision of aircraft or ships for rescue and assistance by air or sea.
  7. Delivery of goods and services in connection with the carriage of goods or passengers by land, air or sea, in accordance with paragraphs 2 and 3 of this Article, intended for consumption on board; or anything consumed by means of transport, installation or addition, or other use during transportation.
  8. The delivery or import of equipment or precious metals. The implementing regulation of the Federal Decree Law specifies the precious metals and the rules according to which they are classified as investments.
  9. The first delivery of residential buildings within three (3) years of completion either by sale or by rental in whole or in part in accordance with the conditions specified in the executive regulation of this decree.
  10. The first delivery of buildings specifically designed for use by charities by sale or rental in accordance with the conditions specified in the Implementing Regulation of this decree.
  11. The first delivery of reconstructed buildings from non-residential buildings to residential buildings by sale or lease in accordance with the conditions set out in the Implementing Regulation of this Legislative Decree.
  12. The supply of oil and natural gas.
  13. Provision of educational services and related products and services for childcare, pre-school education, primary education and higher education institutions owned or financed by the federal or local government, as defined in the executive decree of this decree.
  14. Provision of preventive and basic health services and related goods and services in accordance with the provisions of this Decree.

Goods and Services on Which Zero VAT is Implied

The president, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, issued federal tax no. 8 of 2017 on VAT on Sunday, with one of the lowest rates in the world.

A preliminary step in the introduction of VAT in the United Arab Emirates from January 2018 is the 5 percent tax on the import and delivery of goods and services at every stage of production and distribution, including what is considered delivery. However, there are certain conditions under which VAT is not charged.

  • Zero rating applies when goods and services are exported from a GCC state to a Non GCC State. International transport of passengers or goods, including a transfer that begins or ends its territory in the United Arab Emirates or by the United Arab Emirates.
  • The transfer of passengers to the United Arab Emirates also has zero rates of “international traffic” in accordance with Article 1 of the International Convention for the Unification of Certain Rules for International Carriage 1929.
  • The Zero Rating also applies to the delivery of air, sea and land transportation for the carriage of passengers and goods and the provision of goods and services related to the provision of transport services necessary for the operation, repair, maintenance or transformation of them; the delivery of aircraft or ships intended to help or rescue them by air or sea; the supply of goods and services in connection with the carriage of goods or passengers by land, air or sea transport for consumption on board; or anything consumed during transportation, installation or addition or other use during transportation.

• The delivery or importation of precious metals investments and the first delivery of residential buildings within period of (3) years after completion, whether by sale or lease, in whole or in part, are also subject to a zero rate. The first offering of buildings specially designed for charitable purposes and for the conversion of non-residential buildings into apartments is also taxed at zero rates.

How Companies Can Get Ready for VAT

The VAT regime in the region will have a significant impact on business and profitability. Companies dealing with taxable goods and services need to understand and prepare for the consequences. Similarly, companies that import zero-rate goods should also needs understanding, taking into account the effects of VAT or being charged.

There is a single VAT agreement on the GCC, each Member State has the right to adopt its own laws within the general framework. These different treatments need to be understood.

VAT affects companies in the following areas:

  • Price and profitability of the product
  • Cash flow financing for payment and repayment differences
  • Transaction and reporting systems
  • contracts related to sales and acquisitions
  • Training in organization

A very preliminary matter is to mention the clause – taxes, where applicable – in all tenders and contract negotiations. In fact, companies should review long-term contracts and negotiate with customers to change conditions and include taxes.

Get ready:

  • Invoices with taxes
  • Return the presentation
  • keep records

Invoicing with Tax

So far, most companies did not consider separately, for the tax and therefore the billing was pretty easy. The introduction of VAT requires the post-accounting process as well as the tax accounting modules in the existing software. Companies also need to register the supplier’s invoices and their VAT registration number.

An accounting system consists of

  • Masters
  • Transactions
  • Regulations
  • Configuration

The impact of VAT on each of these modules must be determined by the IT team and discussion with suppliers to make changes.

Returns Filing

The accounting system must automate the calculation and reporting of taxable transactions. Most likely, each country has a portal to submit reports electronically using predefined formats. Computer systems need to be modified to prepare digital files for download on government portals.

Maintaining Records

The law sets the retention period for records and these records must be retained for all transactions, including changes to master data. The computer system will also take into account the case of refunds and claims that occurred in the future in the audit.

VAT Compliance for Your Business in the UAE

Compliance requirements under the VAT

  • If the company’s annual turnover is higher than AED 375,000 during the last 12 months, the company must register for value added tax in the United Arab Emirates.
  • If the annual turnover is between AED 187,500 and AED 375,000, it is optional that the company is registered under the UAE VAT law. If it is less than AED 187 500 /, the company does not have to register under this law.

Therefore if the turnover is higher than AED 375,000 (US $ 100,000), these companies must be registered under the UAE VAT law.

  • Under the VAT agreement, the person who is considered to be a taxpayer or taxpayer is the person who carries on an economic activity for the purpose of generating income. This person is registered or must register for VAT in accordance with the registration threshold in a Member State. A taxpayer may also include companies located outside the territory of the GCC that are performing economic activities in UAE.
  • A taxpayer under the UAE VAT law must register as soon as the turnover of the company exceeds the prescribed threshold in the VAT Law.
  • It is obligatory for all taxpayers to keep accounting books in accordance with UAE VAT Law. In addition, the authority may request additional documentation, such as Financial statements, general ledger, sales ledger, invoices issued, invoices received, credits, direct debits, sales tax registers, etc. Under the United Arab Emirates VAT Law, books and records must be kept for five years.
  • The Federal Tax Authority (FTA) may allow two or more person resident in the United Arab Emirates to register as VAT tax group. This group will be treated as a single taxpayer to comply with United Arab Emirates’ VAT legislation. Entities can register as VAT group if;
  • Each person has a registered office or permanent establishment in the UAE.
  • People are “connected parties”
  • Or are controlled by another party, or two or more people jointly control others
  • Entities belonging to a VAT group are treated as one entity for VAT purposes of the UAE. Deliveries made between members of a VAT group are not considered VAT transactions of the UAE. In addition, a company cannot be part of more than one VAT group.

Note: The above threshold for registration as Tax Group is calculated as follows:

  • The total value of deliveries made by a taxpayer during the month in which he applies for VAT registration and the last 11 months.
  • The total value of deliveries for the next 30 days in which you apply for VAT registration.

If turnover is greater than AED 375 000 in one of the two previous options, the company must register for VAT. In order to calculate the threshold for VAT Registration, the value of the tax-exempt offer is not taken into account.

Importance of VAT in the UAE

Presently, UAE has entered into the league of countries that pays taxes. On Oct 1st, 2017, Excise Tax was made applicable upon residents in year 2018 while VAT (Value Added Tax) has just been exercised on Jan, 1st, 2018. The excise rate taxes are applicable 100% on energy drinks and tobacco items while the carbonates drinks have an applicability of 50% Excise tax. Meanwhile, VAT is applied at a minimal rate of 5% that is apparently the lowest percentage as compared to other countries in the world.

The businesses operating in the UAE have been facing a lot more challenges where VAT is applicable to the business stream in order to make sure that these companies are VAT payers or VAT compliant. As VAT is a new concept, it requires experience and qualified tax professionals who can provide expert advice for supporting business activities, especially in a scenario when a company is trying to go for VAT compliance or during the initial phase of such transition.

It is important to hire services of an expert in order to help you strive in the relevant industry and keeping you tax compliant to save you from further business challenges and meet international standards.

The advisory services will be provided to customers with respect to the VAT Execution Regulation (Cabinet Decision No. 52 of 2017) and the provisions of Federal Decree Law No. (8) of 2017

There are many benefits if you hire professional help from tax experts in regard of paying VAT.

  1. You will have all the cost-effective, precise and timely support by hiring VAT advisory services from VAT professionals. They can help you in your problems and facilitate your queries in regard of your business operations.
  2. Your VAT expert will help you with VAT impact analysis
  3. You will be able to formulate business solutions and prepare for recommendations that are specifically designed by Tax experts on account of taxation for business clients.
  4. You can avail VAT advise from VAT professionals through discussions and meetings
  5. You will be able to have on-call advisory service
  6. You can ask for clarifications on queries through email or telephone that will be shortly advised or answered through the same medium.
  7. You can also seek for a professional VAT advice by personally visiting client office.
  8. You can have Advisory Services that is linked with Customs clearance and designated zone related problems.
  9. You can handle industry-related problems with precise guidance to comply with respect to the UAE VAT law.
Scope of VAT TAx

Scope of VAT Law in UAE

United Arab Emirates Federal Tax Authority Issued Federal Decree-Law N0. (8) of 2017 on Value Added Tax. The federal decree law states lots of provisions relating to Value Added Tax in United Arab Emirates how ever the first and most important provision of Value Added Tax is Scope of Value Added Tax.

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VAT Rate in UAE

VAT Rate in UAE

Article 03 of Federal Decree-Law of 2017 has specified the rate for Value Added Tax in United Arab Emirates. The rate is standard and applicable on supply of any goods and services in United Arab Emirates.

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Responsibility of VAT Tax

Responsibility of VAT Tax

Article 04 of Federal Decree-Law of 2017 specifies the person responsible for submission of VAT Tax to Federal Tax Authority. We believe this is the most important section for the businesses to understand their responsibility.

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