As the eagerly awaited VAT Procedures law and the detail VAT law is subject to review by the UAE Government. There are two sources of information, which can help small, and medium sized businesses in the UAE prepare for VAT. The first is the GCC VAT Framework, which sets out the broad rules in which the GCC states will be implementing VAT. The second is the information updated on the MOF (Ministry of Finance) website which details some of the basic information on VAT which can be useful. In this article, we will provide an update on the new information released as of July 2017.
The following sections are abbreviated from the website.
VAT registered business must retain invoices issued and received for a minimum of 5 years.
The place of supply will determine whether a supply is made within the UAE (subject to VAT), or outside the UAE.
For a supply of goods, the place of supply should be the location of goods when the supply takes place. For the supply of services, the place of supply should be where the supplier is established.
VAT is payable on top of custom duties paid and cannot be deducted. VAT shall be computed on the value that includes the customs duties.
The VAT treatment of real estate will depend on whether it is a commercial or residential property.
In general terms, supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate. Supplies of residential properties will generally be exempt from VAT.
VAT will be charged at 0% for the following categories of supplies:
The following categories will be exempt:
Businesses under certain requirements will be able to register as a VAT group. This will be useful for simplifying VAT accounting.
VAT registered businesses will be able to reduce their output tax by the amount of VAT that relates to bad debt which has been written off.
A double taxation situation can arise where second hand goods which are acquired by a registered person from an unregistered person for the purpose of resale. Here, the VAT-registered person would account for VAT on the profit margin when sold.
In the situation where an expense relating to a non-taxable supply, the registered person may not recover the input tax paid. However, in certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person. In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.
Penalties will be imposed for non-compliance. For example: failure to register, failure to submit a tax return or payment in time, failing to keep adequate records and tax evasion.
There are no special rules planned for small or medium sized enterprises.
Special rules will be provided to deal with various situations that may arise in respect of supplies that occur in the period when VAT is introduced.
Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.
VAT treatment of Islamic finance products, will be aligned with the treatment of similar standard financial services.
A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family. This will allow the recovery of VAT on such expenses as contractor’s services and building materials.
Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.
The FTA may provide its views on various matters in the law and taxpayers may choose to challenge these views. Note that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.
A business VAT registered business must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the legislation.
VAT will not be deductible for making non-taxable supplies. Input tax cannot also be deducted if it is incurred in respect of specific expenses.
VAT on expenses that were incurred by a business can be deducted in the following circumstances:
Non-residents who make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies.
VAT is due on the goods and services purchased from outside the GCC. If the recipient is a VAT registered person, then the import will be recorded via a reverse charge mechanism. If not registered then the goods will be charged VAT before goods are released to the person.
Supplies made by government entities will typically be subject to VAT. However, certain supplies will be excluded from the scope of VAT. For supplies made to a government entity which is subject to the standard rate, then treatment remains the same even if provided to a government entity.
It is expected that businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate.
There maybe goods, which are imported, that are exempt from customs duties but subject to VAT.
Please note that this article has been prepared in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Alpha Pro Partners would be pleased to advise you on how to apply the principles set out in this publication to their specific circumstances. Alpha Pro Partners accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this course.