With the UAE set to introduce a Value Added Tax (VAT) on the 1 January, 2018 many residents and business owners are concerned about how this will affect their businesses and the cost of living. James Swallow from PRO Partner Group highlights some of the key points that were raised in the session held by the UAE Ministry of Finance on 21st March at their VAT Awareness event.
When will the new UAE VAT rules be introduced?
- In the UAE, VAT will be introduced on 1st January 2018
- Other member states who form part of the VAT GCC Framework will implement the VAT on either 1st January 2018 (if they are ready) or on 1st January 2019
- The threshold for mandatory VAT registration has been lowered to AED 375,000 (down from AED 3.75 million reported last year)
- It is optional to register between AED 187,000 and AED 375,000
- UAE businesses will be able to start VAT registration in Q3 2017 and it is compulsory to be registered by Q4 2017
What will the new UAE VAT rules mean?
- A VAT of 5% will be charged on all goods and services unless explicitly exempt or zero-rated
- The UAE VAT law is currently under review and is expected to be finalised in the coming months (Watch our PRO Partner Group blog for details and updates!)
- Second hand goods (such as cars) are expected to be subject to a margin scheme based on profit margins
- Goods exported outside the GCC territory will be zero rated as will items such as investment gold
- The recipient business will be required to pay the VAT for business to business imports from outside the GCC (also referred to as a reverse charge mechanism)
- There will be many goods and services across various sectors which will be VAT free (either through exception or zero-rating) including:
- Local and international transport
- Real-estate (second sale of residential dwellings)
- Undeveloped land
- Charity related buildings
- Specified financial services
- Healthcare, medicines and medical supplies
- Worth noting commercial real-estate will be taxed at 5%
Who will be affected by the new UAE VAT rules?
- VAT regulations will clarify registration conditions for startup businesses
- Clarity is still required on the implication of the VAT rules for free zones. The Ministry have announced they will issue information and instructions at a later date
How will the new VAT be paid?
- Payment of taxes and VAT returns will be electronic and businesses will need to issue VAT invoices within 14 days of supply
- VAT returns will require the following:
- Filed quarterly within 1 month of the end of the period (Watch out! Penalties will be applied to businesses who are late filing their returns or paying taxes)
- Records will need to be kept for 5 years
- Businesses will be expected to show details of the value supplied in their Emirate and also turnover will need to be shown, and allocated to each of the seven Emirates
- The UAE has set up a Federal Tax Authority (FTA) who will collect taxes, review compliance, conduct audits, issue penalties and provide guidance on tax matters
- The Federal Tax Authority (FTA) will conduct VAT audits based on a risk assessment and it is thought that supporting documentation will be accepted in English however there may be times that a submission in Arabic is required
- Regulations for the registration of Tax agents will be issued by the FTA. Registered tax agents will be allowed to file tax returns on behalf of taxable entities
- It is expected that UAE law will include the concept of ‘VAT groups’ formed by two or more companies which are controlled by a single taxable person. Supplies within the VAT Group will be disregarded for VAT purposes
James Swallow is Commercial Director of PRO Partner Group. PRO Partner Group help investors to set up a business in Abu Dhabi, Dubai, the wider UAE and Oman. Contact James direct on firstname.lastname@example.org or call a member of the team on: