Key highlights of first VAT awareness session conducted by UAE Ministry of Finance

UAE Ministry of Finance held one of its first sessions on VAT Awareness on 21st March 2017. Key points highlighted in the session are as below:

  • According to VAT GCC framework treaty, member states ready to implement will do so on 1 Jan 2018 and other states will implement on 1 Jan 2019. VAT will be implemented in UAE on 1 Jan 2018.
  • “UAE VAT law” is currently being reviewed and is expected to be issued in coming months.
  • UAE has set-up a Federal Tax authority (“FTA”) to administer taxes, collect tax, review taxable person compliance and providing guidance on tax matters and responsible for tax audits and penalties.
  • VAT at 5% will be charged on supplies of goods and services unless specifically exempted or zero-rated.
  • Mandatory VAT registration threshold is no longer at the initial AED 3.75million (reported as per media reports last year) and it has been reduced to AED 375,000 (USD 100,000). There will be optional registration between AED 187,500 to AED 375,000.
  • Start-up businesses with no turnover and only expenses will be allowed to register based on certain criterions, which will be clarified in the VAT regulations.
  • VAT registration is expected to start in Q3 2017 and will need to be mandatorily completed by Q4 2017.
  • UAE will be having a electronic system for filing of VAT return, payment of taxes etc.
  • There has been no clarity yet on the implications of VAT for free zone entities. It is still under the process of review of Ministry and further instructions will be issued at later stage.
  • UAE is expected to have concept of “VAT groups” in VAT law. This will allow 2 or more companies within UAE (controlled by single taxable person) to form a VAT group. Intra group supplies will be disregarded for VAT purposes.
  • Margin scheme is expected to be applicable on second hand goods (e.g Cars). VAT will be based on the profit margins.
  • UAE has planned to “zero-rate” certain sectors such as Health care, Education, International transport, Real-estate (First supply of New residential buildings), Charity related buildings. Commercial real-estate will be taxed at standard rate.
  • UAE has planned to “exempt” local transport, bare land, Real-estate (second sale of residential buildings), some specific financial services.
  • There are certain supplies which must be zero- rated as per GCC treaty such as medicines and medical equipment, goods exported outside GCC territory, supply of Investment gold etc.
  • B2B import into UAE from outside GCC will be at reverse charge mechanism (wherein recipient is required to pay VAT).
  • B2B exports to GCC e.g from UAE to Saudi, will be at zero rate in UAE. VAT will be collected at first point of entry in GCC member state. VAT will be charged on landed cost inclusive of customs duty.
  • There will be specific regulations involved for transshipment transactions, temporary transfer of goods, goods imported for re-export to another GCC state etc.
  • Businesses will be expected to issue VAT invoices within 14 days from date of supply. VAT records will need to be kept for 5 years.
  • Quarterly VAT returns will need to be filed within 1 month following the end of return period. There will be penalties for late filing and payment of taxes.
  • It is expected that VAT Return will need to include details of value of supplies in each Emirate. Turnover will need to be divided in the return by 7 emirates.
  • FTA will conduct VAT audit based on risk assessment. Supporting documents will generally be acceptable in English but in some cases FTA might ask for submission of Arabic documents.
  • FTA is expected to issue regulations for registration of Tax agents who will be allowed to register and file the returns etc. on behalf of the taxable persons.
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