A significant milestone in the GCC was achieved when UAE along with Saudi Arabia, Bahrain, Qatar, Kuwait, and Oman announced the adoption of indirect tax system, namely VAT (Value Added Tax).
The GCC countries under the GCC VAT Agreement have aiming to adopt 5 %VAT from 1st January, 2018. for countries that are VAT prepared and 1st January 2019 for GCC countries that are not VAT prepared.
The VAT is the largest-ever tax reform in the fiscal history of UAE. It charts a new course for indirect tax system in UAE. UAE declared the adoption of VAT from 1st January 2018.
UAE will introduce two laws and one guidance regulation
Will govern the general rules and procedures relating to all taxes in the UAE.
Will govern the application of VAT in UAE. This is built on the GCC VAT Framework.
Will support the VAT law and give clarifications.
Quick facts about VAT in UAE
Scope of VAT
VAT is imposed on
- The supply of goods and services in UAE and
- The importation of goods into UAE
VAT to be chargeable on a supply of goods and services, the following four conditions must be satisfied;
- The supply must be made in UAE
- The supply is a taxable supply
- The supply is made by a taxable person and
- The supply is made in the course or furtherance of any business carried on by taxable person
A “supply” includes anything done for consideration. It can be in the form of provision of tangible goods or provision of services
There are “transactions” treated as supplies for VAT purpose even though there is no consideration involved. These supplies are known as deemed supplies e.g. Private use of goods.
VAT Basic Concepts
Type of Supply
Are the output taxable? (Standard Rated, Zero Rated, Exempt)
Is my input taxable?
Place of Supply
Is the supply made in UAE or outside in UAE?
Time of Supply
When do I account for VAT?
Value of Supply
At what value should I charge VAT?
Summary of Key Provisions
Mandatory for businesses with taxable supplies over AED 375,000
Voluntary for business with taxable supplies between AED 187,500 and AED 375,000
|Registration||Commences from Q3 of 2017|
|VAT Rate||5% for standard rated supplies|
|VAT groups||It allows to register multiple companies with same shareholder with one VAT number. It generally allows to ignore the supply or transactions that usually takes place between those companies.|
|Categories under VAT||
|Record Keeping||Invoices issued and received should be kept for a minimum of 5 years|
|Reporting of transactions at an Emirates Level||Taxable businesses will be required to report details of the value of supplies made in each Emirate on their VAT returns|
|Audits||Audits may be conducted to inspect records and make sure persons are paying or reclaiming the right amount of tax|
How should companies prepare for the rollout of VAT? What is the VAT impact on Business
The following summarizes the four cornerstone issues to be considered
Understand how the introduction of VAT can affect your business. There are two main challenges to consider, which is how the charge of VAT may increase the burden of the customer and how the ability to recover VAT may affect who your suppliers will be in the future.
Understand whether your contracts are structured in a way to allow you to charge VAT or not.
Understand how receivers will react to the need to pay 5% VAT, which is often viewed as creating a tax burden. For suppliers who are unable to charge the VAT for commercial reasons, the reform is costly as the tax is borne as a cost which decreases the top-line profit.
The issuance of the special VAT invoice, the resulting VAT reporting obligations, should be automated. The ERP will need to be adapted to cater for the requirements of VAT.
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