Value Added Tax (VAT)- UAE

The UAE aims to implement the Value Added Tax (VAT) along with the other GCC member states from 1st January 2018. A standard rate of 5% is applicable. The Federal VAT Law (27th August 2017) establishes the domestic rules with applying VAT in the UAE. The VAT Executive Regulations are in the process of being approved.

Possible hurdles:

  • Lack of understanding of VAT rules & regulations.
  • Compliance issues
  • Lack of resources (Availability of experts)
  • Ensure redressal of any issues.Improper book keeping system
  • We at ClearLogics Management Consultants will help you with the implementation of VAT among your operations and VAT accounting. The following are the services that we offer in regards to VAT:
  • VAT implementation and preparation of Chart of accounts in your current accounting software.
  • Assistance for VAT registration
  • VAT Accounting
  • Assistance for monthly VAT Payment
  • Assistance for quarterly VAT return filing
  • Assistance for VAT auditing

Understanding VAT:

Collection of VAT

It is an accountability of the companies to document thoroughly their business revenue and expenses along with associated VAT charges. A prevailing VAT rate will be applied by registered businesses and traders to all of their customers to bear the VAT costs on goods and services bought from suppliers. The difference between these figures can be reclaimed or paid to the government. VAT is a consumption-based tax; it will be applied to the most of the transactions of goods and services except those that are exempt by law.

Exemption from VAT

  • Following sectors are exempt from VAT
  • Financial services listed in VAT legislation
  • Residential properties
  • Land without any assets
  • Local passenger transport
  • VAT will be applied at 0% rate for the following categories:
  • Exports of items and services to the markets outside of GCC region;
  • International transportation and other relevant goods and services;
  • Aircrafts, ships, and other air, sea, and land means of transportation;
  • Investment grade precious metals such as gold, silver of 99% purity;
  • New residential properties for the period of three years of their construction supplied for the first time;
  • Education services and other related goods and services; and Healthcare services and other related goods and services.

Minimum Sales turn over for registering Tax:

Businesses with taxable supplies worth more than AED375, 000 need to register for VAT. Moreover, businesses with taxable supplies worth more than AED187, 500 and less than the mandatory registration threshold of AED375, 000 may opt for voluntarily registration for VAT. This option is developed to give the opportunity for start-up businesses to register for VAT whilst they still have not generated the revenue.

Responsibilities of Business Firms:

All businesses in the UAE will be required to keep an accurate and up-to-date record of their financial transactions. It is mandatory to register for VAT for businesses that meet the minimum annual income requirement based on their financial records. Businesses that fall under the category of “VAT- registered” must retain their financial records in case if their registration is required in the future.
  • VAT- registered businesses should collect VAT on taxable goods or services they provide
  • VAT- registered businesses are entitled to reclaim any VAT paid on their business- associated goods or services
  • VAT- registered businesses should maintain their business records for the relevant government departments to verify the accuracy of VAT calculation.
If your company is registered for VAT, you must notify the concerned government department on regular basis on what amount of VAT was charged and paid by your company to the government. It will be an online process to simplify a formal submission.
If there is a difference in VAT amount you have charged and paid, you have to clear the outstanding amount in the relevant government department or reclaim the difference in case if you have paid more VAT than you have been charged.
VAT will be applied starting from January 2018. Thus, concerned businesses will be given the opportunity to prepare beforehand, as online registration for VAT will be launched in the 3rd quarter of 2017. This period allows the companies to align their business model with the government platform specifically created for the collection of VAT. Businesses have to ensure that they meet all compliance requirements to get ready for taxation. To follow VAT compliance standards, businesses may require restructuring their divisional system in Accounts, IT, and HR departments opening new positions such as accountants and tax advisers. Businesses have full accountability for VAT compliance obligations. A complete guidance on VAT compliance will be provided once the legislation is released.

VAT Registration

The online registration for VAT will be launched in the 3rd quarter of 2017 for those who are willing to register voluntarily beforehand. Early registration will give an advantage to the businesses to prepare thoroughly for compliance with VAT obligations.

VAT returns Filing

According to VAT legislation procedures, VAT-registered businesses are required to file VAT returns consistently with Federal Tax Authority on a quarterly basis (during 28 days from the end of the taxation period). To simplify the process, VAT returns filing can be done online through e-Services implemented by the UAE government.

Track Record of the Documents

Taxpayers should keep a track of issued and received VAT invoices for a minimum of five years.

VAT in real estate sector

It will be applicable only for commercial properties. All commercial properties transactions, sales, and leases alike will be subject to 5% VAT. Residential properties are exempt by law for the time being to offset additional amount to the irrecoverable cost paid by the buyers upon acquiring a new property. Real estate developers will be zero-rated for a period of three years of residential property construction. It will allow securing the market on the residential side. Zero-rated goods and services are VAT taxable but the actual tax charges are zero.

Imposition of Penalties

Noncompliance will lead to the imposition of penalties. Penalties may be caused by the following actions:
  • Failing to register for VAT if required;
  • Failing to submit a VAT return or settle a payment before the deadline;
  • Failing to retain the records required by the legislation
  • Tax evasion offenses caused by the intention to violate the terms of the tax legislation