The final Law Update of 2022 is here, and it’s packed full of articles. The double edition features two focus areas, first is a spotlight on Energy and Resources and second we feature a collection of articles on Transport and Logistics. The developments occurring in these sectors in the MENA region are unprecedented and our lawyers cover vast themes for you.
The Energy and Resources focus features topics such as diversifying energy resources, solar PV, mining in the Middle East, renewable energy and green hydrogen. From a transport perspective, we draw attention to the Bahrain metro project, discuss the challenges and remedies associated with the repossession of an aircraft, and there is advice on what to consider should a party vary the terms of a shipping contract.
This edition navigates you through updates from across jurisdictions such as, Oman, Jordan, Saudi Arabia, Egypt, Iraq, Qatar, and the UAE. Each article is timely and provides insights into legal issues and cases that are affecting these sectors across the region.Read the full edition
Value Added Tax (VAT) will start in the UAE from 1 January 2018.
What you need to know:
Who has to pay VAT?
If your business provides goods or services, it must be registered for VAT. Examples include:
1. main contractors performing work for owners;
2. subcontractors performing work for head contractors;
3. consultants providing advice or services; and
4. suppliers selling goods.
We’ll call these businesses ‘sellers’ and their customers ‘buyers’.
How will VAT affect contracts signed before 1 January?
If your contract is formed before the VAT start date, any part of the supply occurs after the start date, and the contract doesn’t cover tax, the contract price, or relevant part, will be inclusive of VAT. The seller will have to pay VAT to the government and will not be able to pass that VAT onto the buyer.
There will likely be an exception to this rule: if the buyer is VAT-registered and can recover the VAT, then the seller can add VAT to the price so that the buyer pays for it. The buyer could then deduct that VAT in its tax return. We are awaiting confirmation of this rule.
Sellers should be especially careful here: if the price is VAT-inclusive because the contract doesn’t cover tax, the seller will automatically be liable for VAT, regardless of whether they didn’t include it in the price. Sellers could accidentally cost themselves 5% of the price this way.
Some contracts, such as FIDIC, allow sellers to adjust the price if a change of law affects the seller’s ability to perform the contract. It is uncertain if such a provision would qualify as “a clause relating to tax”. This means it probably wouldn’t protect sellers’ ability to recover VAT, because VAT liability would not interfere with the seller carrying out their obligations. Similarly most contracts will not allow for price changes due to changes in cost and will not allow for VAT to pass through to the buyer.
For any new contracts, the parties can negotiate who will be responsible for VAT, and in what amount. They must include such arrangements in their contracts.