VAT recovery in the UAE is another thorn in the process of reclaiming the tax

The introduction of VAT in the UAE and Saudi Arabia will have implications for conference and event businesses, as companies not registered for the tax in both countries will pay the levy when they hold events, according to a VAT recovery firm.

"For businesses that are not VAT registered in the region, both sets of legislation [in the UAE and Saudi Arabia] have indicated a mechanism is going to exist for businesses to make standalone claims to recover VAT they might have incurred on hotels, subsistence things like that when visiting the country on business meetings,” said Richard Barrett, head of consulting for the UAE at VAT IT.

The UAE and Saudi Arabia are the only two GCCcountries to introduce VAT at a rate of five per cent in January as a means to boost government revenue dented by low oil prices.

Companies around the world are losing out on $20 billion globally every year in unclaimed VAT, according to VAT IT. This is mainly due to the complex and time consuming European rebate system, which leaves businesses less inclined to recover the VAT they paid. The figure is high because more than one-fifth of companies who incur VAT in foreigncountries say they are unable to recover it, due to procedures being too complex and burdensome.

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VAT not eating into UAE residents 

eating out pot

'Most retailers decided to take VAT in their account to make customers more confident' 

UAE residents have not cut down spending on food and beverages following the implementation of five per cent VAT from January 1 as sales remain robust, retailers and distributors said.

Speaking on the first day of Gulfood at Dubai, senior retail industry executives said that most - if not all - of retailers absorbed VAT in order to keep regular customers and maintain their market share.

"Most of the retailers decided to take VAT in their account to make customers more confident. Whenever new taxes are implemented in any part of the world, there is a reaction initially but then people start accepting it. Same is the case here in the UAE," said Haresh Bhatia, country head for the OOH sector at Choithrams.

The UAE levied five per cent VAT on food and beverage products from January in line with its GCC agreement. This resulted in some major retailers announcing absorbing VAT as part of their marketing strategy to woo customers while others passed it on to consumers.

Bhatia said there was a little bit of concern initially but now people have taken it very positively because they know taxes are levied everywhere in the world by the governments to expand their revenues.

Profit margins vs VAT

Bhatia, however, rejected the widely-popular perception about high profit margins by the retailers.

"Margins have never been very high. This is a wrong concept that people have. Here 90 per cent of retailers are on a rental basis. It is just recently few years back that people starting buying outlet and started saving a little bit. The market is so compact and competitive, you find six outlets in one small area and this was not the case in the past. Every retailer wants to hold its customers because the cake is the same and every body wants a pie of it," he added.

During promotions, he said, margins shrink every further. "Sometimes retailers don't even make two per cent."

Neeraj Vohra, CEO of Unikai Foods, also rejected any impact of VAT as residents continue with their regular foods and beverages purchases. "There were some issues initially but we are quite optimistic about growth in 2018 and beyond. Since we are already into value segments, so wherever we could mange we absorbed VAT and where we couldn't, we passed onto consumers," Vohra said during an interview at Gulfood.

Usha Pagarani, partner at Al Maya Group, also denied any impact of VAT on sales, claiming that five per cent is very low. "With regards to VAT, we are very okay; every country has VAT and here it is only five per cent. We are very positive and food is a very good industry to be in," Pagarani said.

Bhatia of Choithrams said beverages and energy drinks sales have declined. "It is a phase which will go away. Within three months' time, sales - which have declined around seven to eight per cent - will be back to normal. In the UAE, be it a labourer, businessman or a common man, savings are still there for everyone."

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UAE Issues Guidance Ahead Of VAT Filing Deadline

Businesses registered for the United Arab Emirates's value-added tax need to complete a four-step online procedure to file their tax returns, the Federal Tax Authority has said.

From the beginning of February 2018, the FTA launched an online system for filing tax returns and paying taxes, ahead of the filing obligation arising on February 28, 2018, for monthly filers whose first tax period ended January 31, 2018.

The FTA said the first step to submitting a tax return is to enter the e-Services portal on its website, then choose the "VAT" tab, select the "VATReturns" page, and initiate a new return. Taxpayers must then fill out information about supplies and expenditures, after which the system will produce a tax calculation. The return should then be submitted and payment can be made via the "My Payments" tab.

Businesses registered in the VAT system are required to submit their returns on a monthly or quarterly basis, as specified by the Authority. Information about tax periods is available on the FTA website, where registered businesses can check their allocated tax periods and whether their first tax period ended on January 31, 2018.

Filing concessions were announced by the FTA on February 3, 2018, enabling certain monthly filers to file on a quarterly basis for the first three months of the tax year and allowing extra time for some quarterly filers also. Businesses whose first tax period is the three months ending March 2018 are not included in these adjustments, the FTA said.

Tax returns must be received no later than the 28th day following the end of the tax period concerned, and taxpayers are offered a number of ways to pay any tax due via the e-Dirham platform.

According to the FTA, tax returns must include: the value of standard-rated supplies made in the tax period and the output tax charged; the value of zero-rated supplies made in the tax period; the value of exempt supplies made in the tax period; the value of any reverse-charged supplies received in the tax period; the value of expenses incurred in the tax period (if the business in question is looking to recover input tax and the amount of recoverable tax); the total amount of tax due and recoverable input tax for the tax period; and the payable tax (or repayable) for the tax period.

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Developers and brokers absorb 

VAT costs, for now

But at some point, they are likely to do so since their margins continue to be squeezed.

Developers in Dubai are not passing on value added tax-related costs to property buyers as yet. This is, in turn, affecting their margins. But at some point, they are likely to do so since their margins continue to be squeezed. Contractors have already started passing on VAT-related costs to developers in the UAE.

For residential properties, the primary market purchase (direct from developer) if the property is off-plan or ready for less than 3 years is not subject to VAT, according to the law.

"Thus, developers cannot pass the VAT on to buyers. VAT is a consumer tax and should the law be amended in future to include the primary market sales, then one could assume that the VAT will be passed on to buyers," says Adrian Popica, general manager, House Hunters Real Estate Brokers.

"Developers in Dubai have so far not passed on the higher VAT-related costs they have been incurring on projects to property buyers. For residential developments, there is no VAT on the property for the first 3 years from completion. So, developers can recover the VAT they are charged on things like design, materials, construction and contracting as they form part of the developer's business costs. In fact, in the few launches that have already been seen in 2018, developers have not noticeably passed on any VAT to the buyer," observes Zaki Ameer, founder, Dream Design Real Estate.

Much also depends on the contracts signed between the developer and the property buyer. The property purchase price is fixed at the time of purchase through a legal agreement and generally contracts have provision for any additional government fees to be levied to the property buyer in which case the developer can pass such additional cost to the buyers. However, there remains ambiguity for properties purchased before December 2017 and which are still under construction on whether VAT can be classed under additionalgovernment fees, say market observers.

"In the current market conditions, property buyers will not entertain such an increase in price. I believe such an increase in cost cannot be charged to the customer and we decided to absorb the definite increase in cost. In this scenario, it will be from the developer's margin that such cost will be paid for ongoing projects. I am sure that for all future projects, cost estimates will include a VAT component in order to avoid an impact on the bottom line," reckons Atif Rahman, director and partner at Danube Properties.

Says Shaher Mousli, CEO, Arthur Mackenzy Properties Group: "Our major involvement is within the residential real estate sector, which is exempted from VAT, hence there has been no price shift as far as our real estate offerings are concerned. It will affect our margins but we have a plan in place that will cover this."

Contractors have increased their cost and are charging developers VAT on building materials. "While it does affect our margins, we have been able to accommodate them by making bulk purchases based on our development pipeline," adds Mousli.

"For contracts awarded before VAT and if the works are still ongoing, the VAT will be applicable on the outstanding balance only," clarifies Danube Properties' Rahman.

Meanwhile, a few brokerages in the UAE are absorbing VAT charges to incentivize property buyers and tenants. A property brokerage firm in Dubai recently announced that it is absorbing all VAT-related charges on commissions for transactions on a building in City Walk.

This comes on top of other add-ons brokerages and developers are already deploying, such as waiver of registration fees.

"It is likely that more and more brokers will absorb VAT, especially in the off-plan space as the conditions soften and investors recalibrate to the secondary market," says Hussain Alladin, head of IR and research, Global Capital Partners.

"Today, the incentives include post-handover payment plan, return guarantees, absorption of VAT and transfer fees as well as even buyback agreements. But it's become increasingly clear that these incentives are now becoming exhausted and that developers do not have much leeway to offer further to investors. This is part of the reason why off-plan launches are slowing down. The only incentive that now remains is the inevitable reduction of the price," explains Alladin.

"In the long run, VAT waivers/absorption cannot be sustainable for brokerages. However, for short-term promotions, it can be one of the ways to incentivize buyers. It all depends on the availability, marketing strategy and most importantly the customer's interest in a certain product," concludes Popica.

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Will Bollywood, Hollywood 

celebrities pay VAT for their UAE

 shows?

Celebrities often come to UAE to attend events on the request of residents and citizens and are paid for this gesture.

Be it education, banking or entertainment, services industry is huge. Where there is no delivery of goods that is characterized as service industry. And the recent application of VAT in the UAE covered both the categories with few exemptions.

When it comes to entertainment, Dubai is second home to dozens of celebrities - especially from Bollywood - who come here frequently to perform in front of thousands of fans and also in private parties invited by individuals. This entertainment sector is subject to five per cent value-addedtax (VAT).

But the question arises whether all those Bollywood and Hollywood celebrities will also be subject to new tax for their services - readperformances - provided in the UAE.

When asked tax experts, they said, as per UAE laws, Bollywood and Hollywood stars who want to continue performing here in the UAE will have to register with the Federal Tax Authority to obtain Tax Registration Number in order to pay VAT if the invitee is not registered with FTA.

As per UAE law, every person, who does not have a place of residence in the UAE or any GCC country and who is not already register, shall register mandatory if he makes supplies of goods and services in the UAE, and where no other person is obligated to pay the due tax on these supplies in the UAE.

If a person is not a resident in the UAE and is required to register in accordance with the provisions of the Decree-Law, the Authorityshall register him with effect from the date on which he or she started making supplies in the UAE, or from such earlier date as agreed between the Authorityand the person, whether or not person notifies the authority of the liability to register for tax.

Considering the above legislation of the law, it can be interpreted that, a person who is a Bollywood or a Hollywood celebrity, and not a resident in the UAE, comes to perform any service in the UAE will have toregister mandatory in case no other person is obligated to pay the VAT on the services performed by them in the UAE.

The celebrities would have to register in his or her name as an individual with the Tax Authority by submitting the required details online on the FTA portal.

Most - if not all - of the Bollywood celebrities of modern era have performed in the UAE and continue to perform. Even Hollywood stars are also invited time and again to perform in the UAE.

A PricewaterhouseCoopers report had forecast that the UAE's leisure and entertainment market potential would reach 45 million visitors by 2021, with international tourists accounting for 30 million, while residents and friends and relatives of residents total a further 15 million.

Dilip Jain, Principal - VAT, Nimai Management Consultants, noted that in cases of celebrities performing in UAE, the organizing event companies who bring celebrities are likely to be registered for VAT and would pay tax on the amount paid to celebrities.

"Where the performance of such services exceeds or is likely to exceed the threshold limit of Dh375,000 in 12 months, and the payment is received from an unregistered persons, then the celebrities will have to register for a Tax Registration Number with Federal Tax Authority and pay VAT. They can also appoint a legal representative to register on their behalf."

The UAE VAT law states that if the taxable person imports concerned goods or services for the purpose of his business, then he shall be accounting for due tax in respect of these supplies.

But if celebrities or other service providers offer services to unregistered or nontaxable persons in the UAE, they need to register themselves in the UAE. Otherwise, this will result in contravention of the UAE VAT law.

"Celebrities often come to UAE to attend various personal events on the request of residents and citizens of UAE and are paid for this gesture."

However, the mandatory and voluntary threshold limits of Dh375,000 and Dh187,500, respectively, for registration under UAE VAT law are not applicable to non-resident suppliers of goods and services. Thereby, all non-resident suppliers supplying goods or services, where article 48 is not attracted, have to register and need to comply with UAE VAT law provisions even if the value is less than the threshold limits.

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UAE firm waives VAT 

costs for one month at City Walk deals

Real estate brokerage will cover the VAT costs on the commission of all units sold.

DUBAI — One of the UAE’s largest real estate brokerages has announced it will absorb the newly implemented 5% VAT on the commission of all real estate deals done at City Walk in Dubai from Feb. 15 to March 15.

 

To mark the launch of Building 18B in City Walk, f&m Properties will cover the VAT costs on the commission of all units sold and leased in the new destination developed and managed by Meraas in the heart of Jumeirah.

Additionally, f&m Properties will bear the costs of the 4% Dubai Land Department registration fees specifically for Building 18B from Feb. 15 until March 2.

Commenting on the new deal, Firas Al Msaddi, CEO of f&m Properties said: “While we have welcomed the introduction of VAT to real estate transactions in the UAE in order to bring much needed transparency to the market, we do understand that such changes are often met with a phase of resistance. This initiative has been designed to help bridge the market’s acceptance of VAT and to help investors manage this phase smoothly.

“Our decision to absorb VAT costs on the commission of all transactions in City Walk, as well as waiving the DLD registration fees for the new Building 18B, will offer major financial incentives to buyers who are considering investment opportunities at a time when current conditions can yield strong medium to long-term gains.”

Building 18B in City Walk is a six-storey residential and retail property, comprising one, two, three apartments and a four bedroom penthouse offering unique privacy as the only unit on the top floor, with retail space on the ground floor.

City Walk is the only freehold, modern, low rise development in Jumeirah with exclusive retail and entertainment components. The five-and six-storey pavilion-style CityWalk Residences are complemented by many first-time shopping, entertainment, hospitality and wellness options.

The project will house signature hotels, more than 300 retail brands and a High Street Boulevard featuring boutiques, galleries, restaurants & cafés.

Added Msaddi: “We were the first real estate company to start promoting City Walk to investors after Meraas launched sales, and we have channeled a great deal of capital investment under our control into the project because of its unique appeal.”

To date, f&m Properties has topped AED1.5 billion in residential property sales at City Walk and is using an 18-strong team of real estate advisors for all property management, leasing and sales requirements on site, while its engineering team is handling handover and snagging.

A technology-driven real estate company built around integrity and the highest ethical standards, f&m Properties sets out to redefine what investors, landlords and tenants in the UAE expect of real estate agents. Providing a full range of real estate services covering off-plan and ready sales, leasing and a real estate development consultancy, the agency also offers comprehensive technology-driven property management solutions.

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No plans to raise UAE VAT rate in next 5 years.

UAE is in 'the early stages' of studying the framework needed to implement corporate tax

The UAE’s government has no plans to raise the rate of value-addedtax (VAT) or excise tax in the near future, according to Minister of State forFinancial Affairs Obaid Al Tayer.

“If you’re referring to the next five years, we don’t see anything [about] increasing the VAT rate of the excise tax,” Al Tayer told reporters at the Arab Fiscal Forum.

“I also want to confirm that there aren’t any subsidies or any legislation regarding introducing income tax.”

However, Al Tayer noted that the UAE is in “the early stages” of studying the framework needed to implement corporate tax.

In a January note, S&P Global Ratings said it believed some GCCcountries may double the rate of VAT to 10 percent to account for the difference between “statutory and effective tax rates”, which in turn would raise government revenues, on average, by between 1.7 and 2 percent of GDP.

Speaking at the forum, International Monetary Fund managing director Christine Lagarde said that the implementation of VAT “is an important step toward diversifying revenue and building tax capacity.”

“There is of course scope to do more as domestic revenues are very low, averaging only 10 percent of GDP,” she added. “This must be done with equity and fairness in mind, both of which are conditions for the acceptability of taxation.”

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VAT impact on UAE

workforce seen minimal

While most companies in the UAE will not take any specific measures to compensate against the introduction of VAT, a new study shows that VAT will only have a minimal effect on people’s buying power.

Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly owned subsidiary of Marsh & McLennan Companies has released its latest research on the impact of VAT on the purchasing power of the UAE workforce.

“While VAT is applied to most items that are purchased on a daily basis, such as food, clothing and personal care, the so-called ‘additional spend’, which is made up of items such as financial services, education and flights are non-taxable,” said Rob Thissen, Talent Mobility leader for Mercer in the Middle East.

“Along with housing, these are accounting for a large proportion of employees spending power which will not be impacted by VAT. However, VAT will not affect everyone in the same way. Different individuals and households will have different spending patterns.”

Mercer research shows that income level and family size can cause the impact of VAT to vary considerably. For example, lower salary households living on an income of Dh100,000 would typically spend 48.5 per cent of their income on taxable goods and services, meaning a 2.4 per cent loss in purchasing power, while higher salaried single individuals with an income of Dh500,000 would only spend 37.7 per cent of their pay on taxable goods and services, decreasing the impact of VAT on their purchasing power to only 1.5 per cent.

At the same time, Mercer’s study forecasts that VAT will be offset by the expected salary increases.

Ted Raffoul, Career Products leader at Mercer in the Middle East said: “While the VAT implementation will have a measurable impact on purchasing power, we forecast the average salary increase in the UAE to be 4.3 per cent across all industries, which is considerably higher than the expected level of inflation.

According to the IMF, inflation for 2018 is forecasted at 2.9 per cent. Inflation statistics already account for the expected consumer price increases, and most companies incorporate this figure while budgeting for salary increases. Therefore, most companies feel no need for any extraordinary measures, but will likely monitor the situation closely as it evolves.”

Industries such as life sciences and technology expect an even higher increase close to 5 per cent, while the energy and financial services sectors project salary increases closer to 3.5 per cent.

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