Finally VAT has arrived in UAE
VAT IMPLEMENTATION IN UAE
Prepare ahead to meet the challenges of VAT accounting environment in UAE
The Government of UAE is implementing VAT with effect from 1st January 2018 and has commenced active engagement with business groups on the need to be ready for VAT in 2018.
UAE is implementing VAT chargeable at the rate of 5% w.e.f. 1st January 2018
WHAT IS VAT (VALUE ADDED TAX)?
▪ VAT is an indirect tax applied upon the consumption of most goods and services.
▪ It is levied by VAT registered businesses which make supplies of goods and services in the course or furtherance of their business. It will also apply on import of goods.
▪ VAT is levied at each stage in the supply and is collected by the business on behalf of the Government and it will be ultimately incurred and paid by the end consumer.
▪ For levying of the tax under VAT, products and services are broadly classified into three categories i.e., Zero-Rated Supplies, Tax-Exempt Supplies and products with standard rates.
REGISTRATION AND LEVY OF TAX:
Registration applicability for VAT:
▪ Businesses with annual revenue of over OF AED 375,000 (USS 100,000) will be required to register for VAT purposes.
▪ Businesses with annual revenue between AED 187,500 (USSS 50, 000) and Dh 375,000 will have the option to register for VAT purposes voluntarily
▪ Registration started on October 1st, 2017 and registration deadline for all businesses is December 4th, 2017.
LEVY OF TAX
▪ Registered businesses to charge and add VAT to the value of Goods and Services they supply.
▪ Businesses can also reclaim VAT incurred on goods and services acquired for business purpose (subject to some restriction) such as purchase of raw materials and other consumables used for the business.
▪ Services exempted from VAT: Residential property, Rental Income, Local transport services such as Bus, Taxis & trains etc.
▪ Zero-rated VAT will be applied to healthcare and education services.
▪ No VAT will be imposed on Life Insurance, but all non-life insurance products will be subject to the standard VAT rate.
VAT IMPACT ASSESSMENT ON BUSINESS OPERATIONS
Businesses operating in the UAE need to take immediate steps to become compliant in accordance to UAE Federal Law No. (7) of 2017.
It follows that, UAE businesses should initiate VAT impact assessment immediately in order to determine the impact that VAT will have across their operations.
This assessment should consider the VAT impact on the following key areas:
▪ Finance and Accounting
▪ IT and Systems
▪ Tax and Compliance
▪ Supply Chain – Goods and Services
▪ Contracts
▪ Sales and Marketing
▪ Legal Structure
The impact assessment should be used to develop clear plan as per the steps that must be taken to be ready for VAT by the go-live date of 1 January.2018
The introduction of VAT will put the onus on businesses to ensure that they keep proper records and ore assessed as to the VAT liability based on those accounting records.
