This is a short update from our previous blog article relating to the implementation of VAT in the UAE.
On 23 August 2017, Federal Law No. 8 of 2017 concerning Value Added Tax (the “UAE VAT Law”) was issued together with the launch of the official tax website for the Federal Tax Authority. Further detail will become available in the yet-to-be-published Executive Regulation.
Here’s a summary of what we know from the UAE VAT Law:
- Implementation Date – 1 January 2018. The VAT registration process will open from mid-September 2017.
- VAT rate – 5%.
- What will be taxed – “taxable supply of goods or services for consideration and deemed supplies by a taxable person conducting business in the UAE and the import of taxable goods.” Includes imports of goods and services subject to the reverse charge mechanism.
- Who will be required to account for VAT – The supplier of the goods or services; the importer of taxable goods; and the taxable person registered for VAT who acquires goods.
- VAT registration – VAT registration will be compulsory where the annual supplies exceed AED 375,000 (the mandatory registration threshold). VAT registration will be optional if the mandatory registration threshold requirement is not met but the taxable supplies or expenses exceeds AED 187,500 (the voluntary registration threshold). In addition:
- Group VAT registration will be available for related parties who meet specific criteria
- Government entities will also be required to register for VAT.
- Individuals not registered for VAT will be required to pay tax on import of taxable goods from outside the GCC at the time of import.
- Zero rated supplies – Certain exports, supply of certain education and healthcare services and related supplies, supply of crude oil and natural gas, certain investment grade precious metals, supply of new-build residential properties within 3 years of completion and supply of certain means of transportation.
- Exempt supplies – Certain financial services, residential supplies other than the first supply noted above, bare land and local passenger transport.
- Free Zone – Subject to certain exceptions, a designated zone that meets specific criteria in the regulations shall be treated as being outside the UAE and goods transferred from one designated zone to another designated zone will not be subject to VAT. Exact details will be in the Executive Regulations. In particular, it remains to be seen how financial free zones such as the ADGM and the DIFC will be treated.
- Invoices dated pre 1 January 2018 – Various transitional rules apply for cases where (i) payments or invoices are advanced before 1 January 2018; (ii) where contracts are concluded before 1 January 2018 and are silent on VAT; and (iii) contracts are concluded before 1 January 2018 but the supply is made after this date.
For example, if a contract entered into in 2017 for a supply to be made in 2018 does not contain express provisions about tax on that supply, the price will be considered to include VAT if chargeable, whether or not the tax liability has been taken into account in determining the price. It is therefore recommended that express provision be made for VAT now in the supply of future goods/services.
- Retaining VAT invoices – Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.
With four months remaining for VAT to apply in the UAE, it is important for individuals to consider the impact of VAT on their business and to comply with VAT obligations by seeking independent financial advice.
Davidson & Co. are available to assist with any VAT implementation queries you may have specific to your business criteria, including the review and amendment of commercial agreements to understand the applicable VAT position.