VAT Guidelines Issued by Federal Tax Authority (FTA)

Some important guidelines have been issued by the UAE Federal Tax Authority (FTA) in respect of the Value Added Tax (VAT) System.

It is anticipated that the VAT regime will be implemented from 1st January 2018 in UAE, in compliance with the international standards.

Business enterprises must implement the following guidelines before registering for the VAT system, said FTA.

1. VAT is an indirect taxation system levied at each stage of the supply chain of goods and services. It has already been enforced in 150 countries across the globe, including 29 European states, and also Australia, Canada, New Zealand, Singapore, and Malaysia.

2. VAT will be borne ultimately by the end consumer and it is levied at each stage of the supply chain. Business enterprises will collect tax from the consumers on behalf of the government.

3. Businessmen will have to pay the amount of tax to the government that they collect from their consumers. Later, the businesses can claim (input credit) from the government the tax they already paid to the suppliers.

4. The upcoming taxation regime in UAE, VAT will provide a new source of income to the government that will be used to render high-quality public services to the consumers. It includes roads, hospitals, parks, public schools and civil services. The upcoming taxation system in the UAE will help the officials to reduce the dependency on oil, thus it will help create a sustainable and stable economy in the country.

5. The VAT rate has been decided by the UAE government and it will be levied at the standard rate of 5 percent throughout the country. It will be applicable at each stage of the supply chain of all goods and services and it includes commercial buildings, food, and hotel services unless there is a special provision that exempts a particular service/product from tax.

6. Zero VAT rate will be applicable on several goods and services in the UAE. This will include gold for investment, health, education, the supply of international transport of passengers, goods, and exports, and the first supply of residential buildings.

7. VAT will not be imposed in some cases, including the local transportation of passengers, bare land, rendering of some financial services and provision of residential buildings.

8. All the businesses who are engaged in rendering goods and services and come under the category of zero VAT rates, they also must register under the VAT system. Later, they can claim from the government the VAT they had paid on their purchases. On the other hand, All the businesses who are supplying exempted goods and services will not be able to reclaim VAT incurred on their purchases.

9. All the businesses whose taxable supplies and imports exceed the mandatory threshold limit of AED 375,000 must be registered under the VAT system.

10. Businesses, whose annual turnover is below the mandatory threshold limit, can register voluntarily under the VAT Regime, given that they pass the voluntary registration threshold limit of AED 187,500.

11. All the businesses must be registered under the VAT system as soon as possible to avoid the last minute rush. If any eligible business fails to register by 1st January 2018, a penalty will be charged as mentioned in the Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.

12. To register for the VAT system, businesses can use the Federal Tax Authority Website (https://tax.gov.ae/ar/index.aspx), which is open 24 hours and seven days.

13. It is essential for all the businesses to maintain proper financial records, including the records of Profit and Loss, records relating to fixed assets, balance sheet, payroll, inventory stock levels as well as accounting records, including payments, receipts, purchases, sales, revenues, and expenses.

14. Before 1st January 2018, businesses are allowed to charge VAT on any of the goods and services.

15. A business with turnover more than the voluntary threshold limit can register voluntarily under the VAT system. This facility is specifically designed for the newly established businesses having no turnover to be eligible for normal VAT registration.

16. VAT Regime is on the way – several businesses will be required to revise their major operations including financial management practices, the methods they will use to maintain the accounting books and records, and the technology they use in the accounting books.

17. Tax Group is one of the useful tools that can be exercised by the businesses to simplify the VAT accounting. In respect of this, the businesses that meet certain requirements mentioned under the legislation – such as having a registered address or a place of residence in the UAE and being related in some official manner (like being managed by the same board) – can apply for a Tax group registration.