The UAE Minister of State for Financial Affairs has announced that the UAE will implement VAT at the rate of 5% on 1 January 2018.
Why is the UAE implementing VAT?
The UAE Federal and Emirate Government provides public services - hospitals, roads, public schools, parks, waste control, police services etc. - paid out of Government budgets. The Government is hoping VAT will provide the country with a new source of income which will contribute to the cost of public services and reduce dependence on oil and other hydrocarbons as sources of revenue. The UAE is the latest country from the Gulf Cooperation Council (GCC) to introduce VAT for this reason.
Do I need to register my business? By when?
Businesses who are required to be registered for VAT must do so prior to 1 January 2018 and can register from 1 October 2017.
Below are the types of registrations and thresholds applicable:
- The mandatory registration threshold is AED 375,000 of sales per annum.
- Voluntary registration may apply if sales exceed AED 187,500 per annum.
- An Exemption application can be made for businesses providing exclusively zero-rated supplies.
- Tax Groups may be formed for multiple, related businesses to register under one number – one taxable party (the ‘representative’) takes on the responsibility to prepare and submit a consolidated return.
- Deregistration is permitted on the cessation of the taxable supplies and is subject to approval by the tax authorities.
The UAE have special geographical areas named VAT Free Designated Zones. The transfer of goods or provision of services within these Zones will not be subject to VAT.
How often do VAT returns need to be filed?
- The standard VAT reporting period is on a quarterly basis.
- VAT returns must be filed by the 28th day of the month following the reporting period.
Transition rules and penalties
Penalties will be imposed for non-compliance; for example:
- Failure to register for VAT when the threshold has been met
- Failure to submit a VAT return or make a payment within the required period
- Failure to keep the records required
- Deliberate tax evasion
Special transition rules will apply to deal with supplies that span the introduction of VAT; for example:
- Goods or services provided before the implementation of VAT will be treated as having been provided on the implementation date.
- A payment for the services prior to the implementation date will be disregarded for determining the time of supply after the implementation date.
- The value prior to VAT implementation of any goods or services will be treated as exclusive of VAT.
The responsibilities of businesses and what should be done to prepare
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 do not think they should be VAT registered should maintain their financial records in case the authorities need to establish whether they should be registered.
VAT registered businesses generally:
- Must charge VAT on taxable goods or services they supply
- May reclaim any VAT paid on business related qualifying goods or services
- Keep a range of business records which will allow the Government to check they have been accounted for correctly
To fully comply with VAT, businesses may need to make changes to their core operations, their technology and their financial management and bookkeeping. It is essential that businesses make every effort to align their business model to government reporting and compliance requirements.
The final responsibility and accountability to comply with law is on the business. Working with our specialist Local Service Providers (LSPs), we can provide guidance to ensure businesses are compliant with the new requirements.
For more information on this latest development, please contact David Jenkins.
Head of GEA Network
+44 (0)20 7430 5881