VAT Update

We attended a VAT workshop run by the Ministry of Finance last week and have summarised our notes as follows:

-Implementation date – UAE insistent on the implementation date of 1 January 2018, with early registration open within three months.

-UAE VAT model is to be similar to the EU model as it is very much a GCC framework

-Registration threshold – mandatory for AED 375k revenue per annum, more than AED 185k optional

VAT law will be released in two stages

-UAE Procedures law (VAT framework) – to be issued in a few weeks

-VAT Law (detailed guidance) – to be issued within 2-3 months

Key VAT concepts

-Taxable person – any person (corporation or not), can be business located outside the GCC, can be any natural person conducting economic activity irrespective of whether they have the correct registration license or not

-Supply – any means of supply of goods or services in exchange for consideration

Items to be Zero rated (can claim VAT on expenses,  but no VAT charged to customers)

-Health (essential medical, not cosmetic)

-Local Transport (for passengers only)

-Education – full scope to be determined but school fees to be zero rated (education provider must be a educational entity/institution)

-Investment in precious metals (platinum, gold and silver)

Items to be Exempt (cannot claim VAT on expenses, no VAT charged to customers)

-Rental income on residential property

Financial Services

-Margin based products (e.g. interest) – VAT Exempt

-Fee based products  (e.g. credit card fees) – VAT Standard rate 

-Islamic finance treatment – will match the equivalent conventional product 

VAT Groups

-One return for a group of companies who are eligible to form a VAT Group

-Intercompany invoices – not subject to VAT 

-VAT group only for domestic entities – foreign company can join VAT group if they have an entity in the UAE 

VAT Filing

-Quarterly returns – to be submitted and paid one month after the quarter end and will be via electronic filing only

-Tax payments and refunds – will be electronic, no cheques issued or accepted

Mandatory Record-keeping

-Annual accounts, General ledger, Invoices, Credit notes

-Contracts and agreements maybe required

-Records to be kept for 5 years

-PDF copies may not be adequate if not verifiable

Penalties

-Not less than 500 dirhams and not more than 3 times the amount of tax for which the penalty was levied 

VAT investigations & Audit

-Will be based on a risk based selection criteria 

-Audit will be conducted at the place of the business

-Notice of 5 business days given and may come within 72 hours 

Other announcements

-Freezone VAT status – TBC

-Employee benefits – employers can recover VAT but must be standard benefits. 

-No VAT on statutory fines to the government (e.g. traffic fines etc)

-Bad debt relief will be available (claim back VAT charged on bad debt invoices)