The GCC introduced Value Added Tax in accordance with the GCC accord beginning of 2018, wherein companies qualifying certain criteria of registration must register and implement VAT system in their organizations.
At BBATC, we help our clients comply with the tax laws implemented in GCC in accordance with the federal laws introduced by each GCC country.
This includes:
- Registration/De-registration of Companies with the Federal Tax Authority
- Identification of Tax Groups
- Assessment of key transactions for tax impact
- Tax Impact Analysis
- Implementation of relevant laws and procedures
- Tax advisory on complex transactions
- Review of Accounting/MIS Systems
- Impact Assessment Report
- Road map on Implementation of the VAT
- Tax Filing Procedures and Planning
- Review of Tax returns and filing
- Communication with Federal Tax Authority
- Training and workshops
What is Value Added Tax (VAT)
Value Added Tax (or VAT) is an indirect tax. Occasionally, it might be referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the “supply chain”. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the “value add” throughout the supply chain. Below is a simple, illustrative example explaining how VAT works (based on a VAT rate of 5%)
“VAT was introduced in UAE effective 1st January 2018. The initial legislation issued included the following:
Unified VAT Agreement for the Cooperation Council for the Arab States of the Gulf
Federal Decree-Law No. (8) of 2017 on Value Added Tax
Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax
Federal Law No. (7) of 2017 on Tax Procedures
Cabinet Decisions No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures
Cabinet Resolution No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE
Common Excise Tax Agreement of the States of the Gulf Cooperation Council (GCC)
The internal accounts team of many organisations had initial training or advisory from external consultants or by
attending the government conducted seminars but there have been many clarifications issued since the launch.
BBATC VAT team is fully up to date with laws and clarifications. We provide FTA Audit service to the clients who would like to ensure that they are compliant, and their internal team is processing the data and keeping records as required by the FTA law.
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold but exceed the voluntary registration threshold of AED 187,500.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
VAT-related responsibilities of businesses
All businesses in the UAE need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) are required to register for VAT. Businesses that do not think they should be VAT-registered should maintain their financial records in any event, in case we need to establish whether they should be registered.
VAT-registered businesses generally:
Must charge VAT on taxable goods or services they supply.
May reclaim any VAT they’ve paid on business-related goods or services.
Keep a range of business records which will allow the government to check that they have got things right
If you are a VAT-registered business, you must report the amount of VAT you have charged and the amount of VAT you have paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.
If you have charged more VAT than you have paid, you must pay the difference to the government. If you have paid more VAT than you have charged, you can reclaim the difference.
VAT in real estate
The VAT treatment of real estate depends on whether it is a commercial or residential property. Supplies (including sales or leases) of commercial properties are taxable at the standard VAT rate (i.e. 5%).
On the other hand, supplies of residential properties are generally exempt from VAT. This ensures that VAT does not constitute an irrecoverable cost to those who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within three years of completion at the time of VAT introduction is zero-rated.
Zero-rated sectors
VAT will be charged at 0% in respect of the following main categories of supplies:
Exports of goods and services to outside the GCC
International transportation, and related supplies
Supplies of certain sea, air and land means of transportation (such as aircraft and ships
Certain investment grade precious metals (e.g. gold, silver, of 99% purity)
Newly constructed residential properties, that are supplied for the first time within three years of their construction
Supply of certain education services, and supply of relevant goods and services
Supply of certain healthcare services, and supply of relevant goods and services
VAT- exempt sectors
The following categories of supplies will be exempt from VAT:
The supply of some financial services (clarified in VAT legislation)
Residential properties
Bare land
Local passenger transport
Partial exemption
Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.
In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.
Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.
Government Entities and VAT purposes
Supplies made by government entities are typically subject to VAT. This ensures that government entities are not unfairly advantaged as compared to private businesses.
Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. Certain government entities are entitled to VAT refunds – this is designed to avoid budgeting issues and provide a level playing field between outsourced and in sourced activities.
For the supplies provided for government entities, the treatment of such supplies depends on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment will remain the same even if it is provided to a government entity.
VAT implementation in the UAE
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for using government budgets. VAT provides our country with a new source of income, contributing to the continued provision of high-quality public services in the future. It also helps the government move towards its vision of reducing dependence on income derived from oil and other hydrocarbons. VAT was introduced across the UAE on 1st January 2018 at a standard rate of 5%.
VAT implementation in coordination with other GCC countries
The UAE is part of a group of countries which are closely connected through “The Economic Agreement between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognise that such a collaborative approach is best for the region.
The name for VAT Return Form is ‘VAT 201’
This has been divided into different sections: Taxable Person Details VAT Return Period VAT on sales and all other outputs VAT on expenses and all other outputs Net VAT Due Additional reporting requirements Declaration and Authorized Signatory In order to access VAT 201, one needs to log in FTA E-services using their username and password.
The non-filing or incorrect filing could in paying penalties ranging from AED 1,000 to AED3,000. If you are an entrepreneur and planning to start your business in UAE, you are mandated to keep proper book of accounts and register for VAT. At BBATC, we can help you file VAT Returns correctly.
VAT training is beneficial for any company, as it keeps you and your responsible staff updated about VAT in a user-friendly way. VAT is still a relatively new concept in the UAE. With this training, the accounting staff of companies will gain full understanding of VAT, how to interpret the Law and how to stay compliant. We cover the following:
Legislation at GCC and UAE level
Impact of Legislation
Steps to keeping compliant with VAT Law
Mandatory requirement under the law and options available
VAT Accounting records required for compliance
VAT Return preparation and filing
Penalties
Appeals Process
VAT has been introduced in UAE effective 1st January 2018. There are various framework, laws and regulations issued at GCC and UAE level. As this is a new tax introduced, there have been various clarifications issued since VAT was implemented in UAE. The list of current legislation is as below:
Unified VAT Agreement for the Cooperation Council for the Arab States of the Gulf
Federal Decree-Law No. (8) of 2017 on Value Added Tax
Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax
Federal Law No. (7) of 2017 on Tax Procedures
Cabinet Decisions No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures
Cabinet Resolution No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE
Common Excise Tax Agreement of the States of the Gulf Cooperation Council (GCC)
As a business owner you are require complying with the laws. Experienced Tax Consultants can assure peace of mind to the owners. BBATC team comprises of UK & ICAP qualified Chartered Accountants where they have extensive experience of dealing with VAT. Our team of VAT experts at BBATC are constantly updating themselves with the new clarifications issued by Federal Tax Authority and work closely with our clients to ensure compliance.