UAE issues VAT Law and Launches Tax Website
The UAE Ministry of Finance has issued the much awaited UAE VAT law and launched a new dedicated tax website for the Federal Tax Authority.
The VAT law is based on the common principles agreed by all GCC countries in the GCC VAT framework agreement, which was published in the Official Gazette on 21 April 2017. The executive regulations, which will contain more details on the application of the VAT, are expected to be published during the final quarter of 2017.
The key highlights of the UAE VAT law are as follows:
- As previously announced by the UAE Ministry of Finance, the VAT law now confirms that VAT will be implemented in the UAE and be effective from 1 January 2018.
- VAT will be imposed on a 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. Taxable supply in this context includes imports of goods and services subject to the reverse charge mechanism.
- In accordance with the GCC VAT framework agreement, the standard rate will be 5%.
- The supplier of the goods or services, the importer of taxable goods and the taxable person registered for VAT who acquires goods will be required to account for VAT.
- VAT registration will be compulsory where the annual supplies exceed the mandatory registration threshold (AED 375,000). VAT registration will be optional if the mandatory registration threshold requirement is not met and the taxable supplies or expenses exceed the voluntary registration threshold (AED 187,500).
- Group VAT registration will be available for related parties subject to certain conditions.
- Government entities will also required to register for VAT in accordance with a cabinet decision to be issued.
- Zero rated supplies include certain exports, international transportation, supply of certain education and healthcare services and related supplies, certain investment grade precious metals, supply of crude oil and natural gas, supply of newly constructed residential properties within 3 years of completion and supply of certain land, sea, and air means of transportation.
- Exempt supplies will include certain financial services, residential supplies other than the first supply noted above, bare land and local passenger transport.
- A person not registered for VAT will be required to pay tax on import of taxable goods from outside the GCC at the time of import.
- Subject to certain exceptions, a designated zone that meets the conditions specified 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.
- A margin scheme and capital assets scheme will be available on certain taxable supplies in accordance with the VAT regulations.
- Bad debt relief will be available for debts written off by VAT registered businesses in certain circumstances.
- There are various transitional rules for cases where payments or invoices are advanced before 1 January 2018; where contracts are concluded before 1 January 2018 and are silent on VAT; and contracts are concluded before 1 January 2018 but the supply is made after this date.
As the VAT registration process will open on a voluntary basis from mid-September and there is only four months remaining for VAT to be effective in the UAE, it is important for you to undertake a VAT impact assessment to understand the impact of VAT on your business and to comply with your VAT obligations.
If you have any questions on the above or require any assistance with VAT implementation, please do not hesitate to contact us.
Shiraz Khan, Senior Tax Advisor, Al Tamimi & Company
Ahmed Ibrahim, Partner & Head of Equity Markets, Al Tamimi & Company
Brinda Shroff, Associate, Al Tamimi & Company