WHAT YOU MUST KNOW ABOUT VAT IN THE UAE-PART 1-3

Author:  Amaka Joy

WHAT YOU MUST KNOW ABOUT VAT IN THE UAE- PART 1

“Death, taxes and childbirth! There’s never any convenient time for any of them.”[1]

;

Many people do not understand the meaning of the word “TAX” nor the reason behind the concept. In every civilized society, the word “Tax” is such a small, unassuming word – with the power to strike fear into the hearts of everyone who hears it. Tax is almost inevitable in any society.

The UAE and Saudi Arabia is set to implement a 5 per cent VAT from January 1, with the other four Arabian Gulf countries expected to follow suit in 2018. With the roll-out of value added tax (VAT) in the UAE drawing ever nearer, some businesses and residents are growing increasingly concerned about how the levy will affect their incomes and their living standard.

WHAT IS VAT AND HOW DOES VAT WORK?

VAT means Value added Tax. A tax imposed on the import and supply of Goods and Services at each stage of production and distribution, including the Deemed Supply.[2] This is a consumption tax imposed on a product at each stage of production, before the final sale. Take, for instance a Phone manufacturer/farmer: the company/farmer is taxed on all the supplies it purchased to make and produce the phone before it reaches the shelf. Then you, the customer pays the VAT (the tax the company/farmer had been liable for during the production process) as a percentage of the total price. VAT is not usually an extra or add-on to the sale price.

[1] Margaret Mitchell, Gone with the wind
[2] Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT)- Definition section
[3] Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT)- Article 1
[4] Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT)- Article 1

 

 

Normal requirements under the UAE VAT system which companies must comply with:

  • At the time of purchase of goods or availing of services – Ensure that in the case of taxable items whether tax has been properly charged (input tax)by the supplier and details given in the invoices.
  • At the time of sale or provision of services – Apply the rate on the sale value and reduce the amount of input tax to arrive at the amount to be paid.
  • Make the payment of tax computed and due within stipulated date to Govt.
  • Filing the VAT returns to the Government authorities by providing the relevant information requested by the Government, within the stipulated period.
  • Maintain proper stock, invoices, accounts, VAT returns, and other relevant records to justify the tax paid at the time of purchase.

How can our VAT consultancy Department assist you?

Many businesses are under-prepared and I believe many underestimate the amount of work that needs to be done. VAT is a tax that affects all businesses. There are also some strategic decisions that need to be made in accounting, documentation, purchase, sales etc. Dealing with all this, especially the changes to the IT systems, takes time and the clock is ticking.

If businesses do not leave time to prepare, they risk not being able to comply with the law from day one and may find themselves facing problems with suppliers, customers and unnecessary costs.

We  advise Clients on matters regarding VAT and its implication on your business. If you would like to discuss further please do not hesitate to contact us.

 

 

 

 

WHAT YOU MUST KNOW ABOUT VAT IN THE UAE- PART 2

What is the GCC UVAT?

The Unified Agreement for Value Added Tax, known as GCC/UVAT, is an agreement signed by the six GCC members to ensure the arrival of VAT at a flat rate of five per cent by 2018.

What is the difference between a Taxable person and a Tax Payer?

A Taxable Person is any Person registered or obligated to register for Tax purposes under the Federal  Decree-Law.[3]

A Taxpayer is any person obligated to pay Tax whether a Taxable Person or end consumer[4]. From this definition, it therefore can be understood that an end consumer may not be a Taxable Person.

Will my income be taxed?

Not yet, at least there’s been no indication to the contrary. There was no reference made to personal income tax in the Tax Procedures Law, and government officials have previously said there are no plans to tax individuals on their earnings.

 

Which Companies are required to register for VAT?

Mandatory Registration: Companies in the UAE that report annual revenues of over Dh375,000 is obligated to be registered under the GCC VAT system.

Voluntary Registration: Companies whose revenues falls between Dh187,000 and Dh375,000 will have the option to register for VAT during the 1st Phase of the VAT implementation.

What kind of activities come under the purview of VAT?

Any activity conducted regularly for the profit such as industrial, commercial, agriculture, professional, service or excavation activities or anything related to the use of tangible or intangible properties. Generally,  VAT includes whole Goods and Services unless exempted by the authority.

What are Zero Rated Supplies?

A taxable supply at Zero rate- a Zero rated Supply is a supply on which tax are charged at zero percent and for which the related input tax is deductable. Zero Rated Supplies includes the following;

  • Educational Services
  • 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.
  • Exports of goods and services to outside the GCC.

What are Exempt Supplies?

An exempt supply is a supply on which tax is not charged and for which the related input tax is not deductible. They cannot be registered for VAT because they are not providing Taxable Supplies. These are;

  • The supply of some financial services
  • Residential properties
  • Bare Land
  • Local Passengers Transport

 

 

 

 

 

WHAT YOU MUST KNOW ABOUT VAT IN THE UAE- PART 3

What will be considered as the proof of VAT payment?

The process of charging VAT on supplies of goods and services requires businesses to issue VAT invoices.A VAT Invoice is a document that must be produced and issued by VAT registered businesses to provide documentary evidence of the sale of goods and services in compliance with the VAT law. A VAT Invoice is also required by the business as documentary evidence to support VAT credit claims, i.e. VAT incurred on the acquisition of goods and services for the purposes of the business can only be claimed if the business holds a valid VAT Invoice from the vendor.

 

When are registered businesses required to file VAT Returns?

Taxpayers must file VAT returns with the FTA on a regular basis (quarterly or for a shorter period, should the FTA decide so) within 28 days from the end of the tax period in accordance with the procedures specified in the VAT Executive legislation. The Tax returns shall be filed online using eServices.

How many years maintenance of record is required?

  • Taxable Persons are mandated by the law to retain the records relating to Capital Assets for at least five years.
  • All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date.
  • Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT.
  • Businesses that are neither within the Mandatory or the Voluntary Threshold should maintain their financial records in any event, in case they need to establish whether they should be registered.

 

What is the Tax Procedures Law? Here are some key points:

– Take records: anyone conducting any business must keep accounting records and commercial books of their business.

– Learn Arabic (or make friends with someone who does): any material related to tax must be submitted to the FTA in Arabic. It’s not a catch all rule – the FTA can accept material in any language but they can request a translation.

– Be wary of Tax Audits: the Law allows the FTA to perform an audit on anyone to see how well they are complying with the Federal Tax Legislation. You are expected to fully co-operate.

– Penalties can and will be imposed: tax evasion, not paying tax, or an unentitled refund of tax will be taken seriously.

– You can challenge a decision of the FTA (within reason): You can ask for an internal FTA administrative review, and if you’re still unhappy, you can escalate it to a Tax Disputes Resolution Committee. However, you’ll have to pay whatever tax you’re disputing first, because the Committee cannot accept an objection “if the Tax and Penalties subject of the objection have not been settled”. If the sum in dispute is less than Dh100,000 – that’s the end of the road. If it’s more than that, you can then challenge the decision before the federal court within whose jurisdiction the FTA’s head office or relevant branch is located. There are strict time-limits for taking these steps.

 

[1] Margaret Mitchell, Gone with the wind

[2] Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT)- Definition section

[3] Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT)- Article 1

[4] Federal Decree-Law No. (8) of 2017 for Value-Added Tax (VAT)- Article 1