VAT on Real Estates in UAE

The value-added tax (VAT) will be introduced in the UAE from January next year. The online registrations for the VAT eligible businesses have already begun on the FTA website. Among the industries that will be affected by VAT, real estate sector is the major one. In this article, we will try to understand the impacts of the new tax system in this industry.

Real Estate Definitions for VAT

Supply: Any sale, lease or transfer of rights of any property will be considered a real estate supply for the purpose of the tax.

Residential building: Any building or a part of a building that is intended to be used by individuals as a place of residence. A building cannot be considered residential in any of the following cases:

• Any place or building that is not fixed to the ground or can be moved without damaging it.
• Any building being used as a hotel, hostel, hospital, motel, bed, and breakfast or any related service.
• A building that is constructed without permission or proper authority.
• Service apartments where services are also provided, in addition to accommodation.

Commercial building: Any building or a part of it which is not being used as a residential property is a commercial building. Hotels and shops are the examples of it.

VAT on Real Estate

VAT on residential properties

The first supply/sale of a newly constructed residential building will be treated as a zero-rated supply for VAT, given that the property is sold within three years of its construction. However, the subsequent supplies of the same property shall be exempt from tax.

VAT on commercial buildings

The tax will be applicable at the standard VAT rate of 5% on the supply of all commercial properties such as offices, hotels, retail, etc.

There is no tax on the rental of residential properties, however, the rent/sale of a commercial building is subject to 5% VAT.

VAT on mixed-use buildings (residential and commercial)

The supply of a residential part of a building shall be zero-rated (the first supply) or exempt. The supply of a commercial part of a building shall be subject to 5% VAT.

That means the sale/rent of a mixed-use property should be treated accordingly. The tax paid on the taxable portion may be recovered.

VAT Registration for Real Estate Owners

The owners of residential properties are not required to register for VAT unless they have any other taxable business activities.

However, the owner of a commercial property (or a residential property being used for commercial purposes) will have to register for tax if the supplied value over the past 12 months is more than the VAT threshold of Dh 375,000 or is expected to reach this limit over the period of next 30 days.

Recovery of the tax paid on a real estate property

The value-added tax also has the mechanism of tax refund in specific cases.

The VAT paid by the owner of a residential building in respect of expense related to tax-exempt supplies of the building will not be recoverable or cannot be charged from the customers. The owner of a commercial building can recover the VAT paid in respect of the supplies.

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A 50% 'sin' tax on soda in Dubai could have global consequences

• The United Arab Emirates now taxes sugary drinks, partly as a way to lower obesity and diabetes rates.
• Other countries are considering similar taxes, and are watching the UAE's experiment to see if it works.
• Past soda taxes have had little success in improving public health, and evidence of a link between decreased soda consumption and decreased obesity is limited.

The United Arab Emirates has instituted a hefty tax on sugary drinks and cigarettes: 50% on soda and 100% on energy drinks and tobacco products. 

The tax, which went into effect October 1, has several goals. The first is to generate revenue for the UAE government as global oil prices remain low, according to Gulf News. The second is to improve public health, since the UAE has one of the worst diabetes rates in the world. 

Today, 19.3% of the UAE population (nearly one in five people) between the ages of 20 and 79 have type 2 diabetes. The UAE's diabetes figures have gotten worse in recent years, according to the International Diabetes Federation — in 2013, 10% of the population had diabetes. By 2040, the IDF suggests that the prevalence of diabetes in the UAE could double again.

Many have dubbed the new regulation a "sin" tax, since tobacco, caffeine, and sugar are often pleasurable, unhealthy, and addictive. In the days before the tax took effect, shoppers in the UAE stocked up on drinks and tobacco products, The Associated Press reports. 

While there's not enough evidence yet to know whether such taxes lead to a decrease in diabetes or obesity, some research has found links between high levels of sugar in people's diets and high levels of diabetes. A 2013 study at Stanford University examined data from 175 countries over the past decade, and found that increased sugar in a population’s food supply was linked to higher rates of type 2 diabetes. Other research has also suggested that obesity puts people more at risk for type 2 diabetes.

A 2017 Asian Development Bank study found that a 20% tax on sugar-sweetened beverages was associated with a 3% reduction in overweight and obesity prevalence in China, with the greatest effect on young men in rural areas.

Several US cities have instituted soda taxes, with some positive results. In early 2017, Philadelphia, Pennsylvania instituted a 1.5 cent-per-ounce soda tax that has brought in more than $52 million so far, which will go toward expanding education programs and renovating parks, recreation centers, and libraries.  Researchers in Berkeley, California saw a 10% decline in sugar-sweetened drinks after their city instituted a one-cent-per-ounce soda tax in 2015, but there wasn't enough data to draw conclusions about health outcomes there.

Results in the US are complicated by the fact that soda consumption nationwide has been dropping since 2000 (though obesity rates have stayed the same). The effectiveness of such taxes also depends on where they are imposed and how high the levy is, and some global health experts have noted that soda taxes disproportionately affect low-income people.

As the UAE's soda tax experiment progresses, other countries— including Britain and Thailand, as well as cities in the US — will be watching to see if it's worth implementing similar ones.

Whether the tax will fulfill its goals remains to be seen.

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VAT in UAE: Tax Rates on Various Food Items

The Value Added Tax, which is being launched in the UAE and five other GCC countries from the next year, includes a tax at the fixed rate of 5%. The businesses and consumers in the regions are getting themselves familiar with the laws and provisions of VAT as the launching date approaches. Meanwhile, an update regarding the tax on foods has surfaced recently.

VAT on Foods

The Federal Tax Authority (FTA) has recently confirmed that all the food items will be taxable under the VAT, which will be implemented on January 1, 2018.

Earlier, the government had commented that some essential food items such as flour, eggs, etc would be kept free of tax under VAT. However, the latest update confirms that the FTA is planning to levy a tax on all types of food, including basic food items such as bread and rice.

It was expected that the government will keep certain food categories exempt, or zero-rated, from the VAT that will be levied at a fixed rate of 5 percent. The categories put under the zero-rated slab will still be under VAT, but their supplies will not be taxed. The government had the right to treat any food item as a zero-rated supply, however, the final law doesn’t include foods. 

It is expected that the standard tax rate of 5% will be levied on all food items. The confirmation will be provided soon.

Zero-rated supplies

The government had issued, in August, a list of products and supplies that will be kept under the zero-rated slab of the VAT. The list included the following items:

• public transport
• investment-grade precious metals
• the supply of crude and natural gas
• commercial airlines
• education and healthcare
• Financial services

The selection was done based on the nature of the product/service. Most of these items are beneficial for the general public. Some other categories like financial services have been kept in this slab mainly because it would have been too complicated to define tax on them.

Note: Food items would not be zero-rated under VAT.

In 2015, when the news of VAT was first confirmed by the government, it was also recommended that about 100 food items would be zero-rated. This changed when the FTA announced to put all food categories under the same standard VAT rate, leading to a confusion among the businesses and the public.

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Last date for filing excise tax returns and paying dues in UAE

Excise duty was implemented by the UAE on October 1. The excise tax provision requires registered businesses to file monthly returns on or before 15th of every month. The last date for UAE businesses for filing their October tax returns is November 15, 2017. The Federal Tax Authority has requested companies to file their returns on time, otherwise, penalties would be levied.

The excise duty tax is applicable to the following items:

• Carbonated drinks – 50% duty
• Tobacco products and energy drinks – 100%

The excise duty returns are required to be filed by the 15th of every month for the previous tax month. The UAE tax law has the provision of administrative penalties for non-compliance with excise deadline rules.

Khalid Al Bustani, director-general of the Federal Tax Authority, said, “Since the beginning of November, businesses registered for excise tax have been consistently complying with their requirements and deadlines, filing their tax returns on time. We urge those who haven’t done so yet to file their returns before the deadline of November 15, 2017, and settle the payable tax stated in the submitted excise tax return, in order to fulfill their obligations according to the tax procedures in the UAE.”

Penalties for Excise Tax Law Violations

The Federal Law No. (7) of 2017 mentions the violations relating to tax procedures in the country and Federal Decree-Law No. (7) of 2017 mentions excise tax violations.

The Cabinet Decision No. (40) of 2017 includes the administrative penalties for any of these tax law violations.

In case of delayed or no submission of tax returns within the given timeline, the registrant will have to pay a penalty of Dh1,000 for the first offense and Dh2,000 on repetition within 24 months.

If a taxable person fails to pay his/her due taxes, as mentioned in the tax return, within the specified timeframe, he/she will also have to pay a late payment fine of 2 percent of the due tax amount, within 7 days from the deadline, in addition to the penalty. If a taxpayer fails to pay the due tax amount even after the seventh day from the deadline, the late penalty applicable will be 4 percent of the unpaid tax, for one calendar month from the deadline. After that, a daily penalty of 1 percent will be charged on the due amount, subject to a maximum of 300 percent.

There is also a penalty on the submission of wrong/misleading data in the tax return. Businesses are required to provide the accurate data in their excise returns, otherwise, a fixed penalty of Dh3,000 will be charged in addition to a percentage based penalty of as much as 50% of the unpaid tax amount.

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Impact of VAT on Automobile Industry in UAE

The automobile industry in UAE is facing a tough time due to excess stock and is gearing up with new VAT era carefully. Stakeholders consider that the final legislative framework of VAT agreement could provide some clarifications for the operational purposes, for imported and local vehicles.

Currently, several car manufacturers and dealers are making the automobile industry highly competitive specifically for the SUV, mid- size and SUV segment. Car manufacturers and dealers are trying to lure customers just by providing a discount on the new purchase, loan facility, low maintenance cost and free insurance for the first year. Dealers are doing this just because to clear out the available stock before the introduction of VAT in UAE.
It is estimated that a number of people using cars in UAE are expected to grow at a rate of 5 per cent CAGR approximately 10.3 million in 2015 to 13.2 million in 2020.

After the implementation of VAT from 1st January 2018, it will impact the car industry in both short term and long term. In the long term, the prices of cars will increase and VAT will be applied on sales of new cars. In the short term, this may lead to a rise in demand for cars before the introduction of VAT as the buyer is trying to beat the price rise. This could provide an encouragement to the car manufacturers towards the end of 2017 and they might offer some attractive offers to their potential buyers.

Automobile industry players are fearing about the introduction of VAT and believe that it will impact the sales of cars just because the price of cars will go up after the implementation of VAT in UAE. Currently, automobile sector is focusing on tactical offers and not expecting to stop in the future. Yet VAT framework agreement is not disclosed by the government and we are eagerly waiting for the VAT framework agreement, wondering how much tax will be levied on cars. We expected that buyers or customers pre-planning their vehicle purchasing decision to make use of the five percent savings.

The implementation of VAT is a common phenomenon for the development of the economy and currently, VAT is implementing in several others countries. So VAT is a new concept only for UAE members not for other countries. We do not anticipate any noticeable change in demand once VAT is embedded into the pricing mechanism of the vehicles.

Car manufacturers experience a significant rise in sales of cars. As users replace their existing cars with newer models before and after the year- end. Users will purchase the newer model of cars before the implementation of VAT to avoid 5 percent tax. Car manufacturers or dealers are trying to sell as many cars before December 2017 at pre- VAT prices. Although, car dealerships are trying to evaluate sales campaign to clear the available stock of 2017 models and pre-owned cars in anticipation of the introduction of VAT.

At present, the demand for cars in UAE is low and the supply or available stock of cars is high. It is affecting the automobile industry and making the sector think about clearing their available stock before December 2017.

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The UAE and Saudi Arabia ready for VAT, Other GCC Members to Follow

All the member countries of GCC mutually agreed to implement VAT Regime in January 2018. Out of the six member states, UAE and Saudi Arabia said they are all set to introduce the new taxation regime, however, it is expected that the rest of the GCC member states will implement it later.

Jihad Azour, the International Monetary Fund (IMF) director for the Middle East and Central Asia said that it is anticipated that the VAT regime will create GDP between 1.3 to 2%. Despite varying timetables, it will be implemented across all the GCC member states.

While Speaking at the launch event of IMF’s Regional Economic Outlook report in Dubai, Azour said “all” the six member countries of the GCC are dedicated to preparing to implement VAT system in the regions, that he called “an important tax reform that requires preparation” and communication with the private sector “to be ready to help them.”

He further added that “Countries, especially those with a buffer, can decide on the timing of implementing those measures.”

“Saudi Arabia and the UAE are the two largest economies, and both of them have reiterated their commitment to introduce [VAT]. Other countries can follow the suit. It’s a domestic type of tax. The impact of this tax on other countries will be fairly limited “, said Azour.

Azour added that the 5% rate of the VAT, with a large number of products and services exempted or zero-rated, will help reduce the impact on prices by 1.5 to 2%.

Azour said that the VAT will be levied at each stage of supply chain at the rate of 5 percent on goods and services. A large number of products and services will come under the exempted or zero-rated category. The upcoming tax regime will help to reduce the impact on prices between 1.5 to 2 percent.

The prime minister of Kuwait – Sheikh Jaber Mubarak Al Sabah of Kuwait government resigned from its position on Monday. Azour said in IMF discussions that Kuwait is still dedicatedly working and preparing to implement VAT Regime.

“I think we will have to wait until the government is formed, and for the government to [come up] with its economic programme, to see if VAT is still in their plan.”

The UAE Decides on Tax non-compliance charges 

In a public message released earlier this month, the UAE government has made it clear that the UAE businesses not complying with the new tax policies will have to face adequate punishments, normally in the form of financial penalties in the range of Dh1,000 to Dh50,000.

The decision, which was made by the UAE Council of Ministers recently, is expected to bring more transparency to the relationship that exists between the FTA (Federal tax Authority) and UAE businesses, a tax expert said.

The penalties will be charged from businesses who fail to comply with the new tax laws being introduced in the country, including excise duty and VAT. The normal cases of tax non-compliance will attract fines in the range between Dh1,000 to Dh50,000, while other more specific tax violations may incur penalties as much as half of the unpaid tax amount.

As one can understand, any tax system in any legislation is meaningless without proper penalties in place. A tax expert, said, “Those who do not comply with the tax provisions are bound to face penal consequences … Fines and penalties are the key drivers for a person to be more compliant with the law.”

Excise duty and VAT are the two newly launched or upcoming taxes. Excise tax has already been introduced on October 1 and will be levied as a duty on tobacco products, some energy drinks, and carbonated drinks. VAT (Value Added Tax) is expected to be officially launched on January 1, 2018.

The UAE government and FTA have officially published the list of penalties to assure the businesses that the authorities are serious about tax laws compliance throughout the country. It may mobilize business owners to think more seriously about the potential costs of non-compliance. Hopefully it will convince everyone to take the tax implementation issues seriously and drop the notion of VAT being delayed in UAE or not implemented at all.

Khalid Ali Al Bustani, Director General, FTA, denied the claims of VAT being delayed and confirmed that the new tax system (VAT) is on schedule to launch on January 1.

The new UAE tax penalties are in line with the tax laws in other countries. However, there are some exceptions. “it was quite some time ago when such a major tax implementation was taking place in a whole region, almost simultaneously. The penalties must take the broader context into account,” he added.

Shah also supported Nawrot’s statement by saying that the UAE is introducing a consumption-based tax (VAT) for the first time, and it is not fair to expect the same level of non-compliance penalties as other tax matured countries.

Most countries around the world already have a proper tax system in place. The UAE was one of the few last tax-free countries. However, if the news is to be believed, the penalties applied by the UAE are even harsher as compared to the ones announced by Saudi Arabia. “Late payment penalties are higher — for Saudi it is 5 per cent to 20 per cent of the tax amount due, while in the UAE it ranges from 2 per cent of unpaid tax to 300 per cent, depending upon period of delay,” said Amit Chib. “The penalties seem to be on the higher side to act as deterrent for non-compliance.”

The penalties being charged by the UAE seem even higher when compared to other countries like India (Dh11 per day tax penalty) and German (1% per month of due tax amount).

Tax experts, while in agreement regarding the tax evasion policies, believe that there will not be many tax evasion cases after the implementation of VAT in the country, except the ones appearing due to the lack of awareness and preparedness among businesses.

Nawrot also said that his firm believes that most of UAE businesses and people will comply with the new tax laws. “In my opinion, the ‘real’ fraudsters and criminals will be outliers among the taxpayers due to the diligent and procedural approach the FTA is applying (for example with the excise tax registration). I predict, however, that some taxpayers may simply not prepare in time,” he said.

Nawrot further added that the purpose of the publication of the penalty list is to remind the UAE based businesses that they still have three months to get ready for the VAT system. It is expected to drop the non-compliance statistics.

Tax expert Amit Chib assured that tax evasions are not expected to be very high. However, there might be an issue related to the “capabilities of business whether in terms of accounting and bookkeeping, training or the resources available to be VAT compliant,” he said. “Businesses may find it challenging to maintain necessary records and systems and thus may end up incurring administrative penalties.”

VAT likely to create finance and accounting jobs

 The Value Added Tax, which is likely to implement in the UAE from 1 January 2018, is expected to create as many as 5,000 jobs for the students of accounting and finance streams. The introduction of VAT in the GCC region will create an immediate need for graduates from finance backgrounds to assist businesses with their VAT implementation and taxation procedures.

The stat was confirmed by Paul Drum, who is the head of policy at CPA Australia and a tax expert. He said that the VAT is anticipated to create around 5,000 finance and accounting jobs in the region. He further added that VAT has been implemented and run by more than 150 countries around the world.

In a tax workshop held at the University of Wollongong in Dubai, Drum explained, “The UAE will apply a VAT rate of 5 per cent on taxable supplies which is very low in comparison to the average tax rate of 19 per cent globally. However, not everything will be charged VAT as the law makes provision for zero-rated and tax exempted goods and services to ensure that the impact of VAT on consumers is kept to a minimum.”

As for the job openings, Drum said that the launching of the VAT is definitely a good thing for current finance and accounting students in the country as they will get immense job opportunities in many big organizations.

Since the 5% VAT rate in UAE is the lowest among all the countries following this tax mechanism, the new tax system is not likely to create much burden on the businesses. The government revenues generated from taxation will be spent on creating more public facilities and in services like public health services, parks, public schools and transport facilities.

The VAT will be applicable on consumer electronics goods, cars, smartphones, legal services, jewelry, financial and accounting services, beverages, entertainment and eating out. Many basic need items, including basic food items, transport and public education, basic health facilities, etc., will be exempted from the VAT. However, the zero-rated tax is different from the exempt tax, in that the suppliers of zero-rates services and goods will still have to pay tax but will be able to reclaim the input VAT paid, whereas there is no mechanism of input credit for the suppliers of VAT-exempt goods.

As per the VAT norms, businesses with an annual turnover of Dh375,000 or more will have to register under VAT. There is also a voluntary registration facility for business with annual turnover more than or equal to Dh187,500 but less than the threshold limit of the normal registration. VAT registered businesses are required to maintain proper records of business deals and taxes paid to the government.

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VAT to further distress retailindustry

By K Raveendran| A clear assessment of the impact of the introduction of value added tax (VAT) in the UAE is not available yet, but it is fairly clear that it will have serious adverse results for the retail industry, which is already suffering a dip in demand.

Minister of State for Financial Affairs Obaid Humaid Al Tayer announced the other day after a joint press conference with IMF Managing Director Christine Lagarde that the UAE will implement VAT at the rate of five per cent from January 1, 2018. The revenue yield in the first year is expected to be AED12 billion.

VAT essentially being a consumption tax, most of this revenue will come from the retail and services sectors. To that extent, it would mean retail prices would go up and by implication there would be a proportionate or even larger drop in retail spending, apart from job losses.

It is not known whether any study has been undertaken about the impact of VAT with specific reference to the UAE or even the GCC because the issue has so far been approached only from the perspective of additional revenue generation in the wake of the slump in oil prices.

But a study by Ernst & Young on VAT in connection with the introduction of such tax in the US showed that the burden would shift forward to consumers through higher consumer prices and a consequent fall in consumption. By increasing consumer prices, the VAT also reduces real or inflation-adjusted wages, which would affect labour supply.

The Ernst & Young study estimated that the introduction of VAT in the US would reduce retail spending by $2.5 trillion over the next decade. Retail spending would decline by almost $260 billion or 5.0 percent in the first year after enactment of the VAT, it said.

The report was particularly harsh on impact of the VAT move, saying it would pose serious risks to the US economy itself. The drop in retail spending, jobs, and GDP under an add-on VAT has the potential to further weaken the economy in the near term, rather than strengthen it. Many countries have reduced their VATs in the face of the recent economic downturn, it noted.

The report went to the extent of suggesting that it would rather be more prudent to cut government spending to reduce budget deficit than cause a depressing effect on retail spending through the introduction of VAT.

“Reducing the deficit through lower government spending would have such more favourable economic effects – more jobs, higher GDP, a better standard of living for Americans, and a less depressing effect on retail spending – in both the near term and in the longer term,” Ernst & Young said.

According to the management consultancy, perhaps the most troubling aspect of a deficit-reducing VAT is that its negative effects on GDP, consumer spending, and employment would occur in the face of the current economic climate of weak economic growth, high unemployment, and low consumer confidence. These would raise additional economic worries, rather than shoring up the weak economy, it said.

The introduction of VAT will also pose serious challenges about its administration as the UAE or the GCC countries do not have any infrastructure in place for administering such a tax structure. Also, there are issues about collection, exemptions, procedures etc both at a central administrative level, manufacturing and distribution levels as well as at the retail outlet level, apart from the realignment of existing taxes such as the municipality tax for hotels and special taxes on goods like tobacco. A major challenge would be to equip the retail trade to handle the complex operation.

VAT IN UAE: Dubai to remain city of gold

Thanks to favourable conditions, new tax won't dim shine of jewellery sector

                                                   

Dubai will continue to shine as the 'city of gold' and its position as a preferred destination for gold and jewellery purchase would not be affected by the implementation of value added tax (VAT), industry experts and jewellery retailers said

However, jewellery sales could witness a modest fall in the short term that would gradually recover as soon as consumers get used to VAT, they said

GCC countries have agreed to collect a five per cent VAT on non-essential luxury goods from January 2018. According to an estimate the implementation of VAT will generate around Dh12 billion in the first year in the UAE

"VAT exists in many countries so most people, especially tourists, are used to it. VAT is relatively less here compared to many other countries so the gold price in the UAE will remain competitive. The UAE jewellery retail is not just about the price, it is more about quality, consumer trust and design. These factors still remain the same. So in the long term, the market will adjust itself," argued Karim Merchant, group CEO and managing director of Pure Gold Group

Analysts also noted that a surge in jewellery sales is expected in the last quarter with the advent of festival season and 'pre-VAT' buying spree

"We will probably see a spike in gold sales in the fourth quarter of 2017, followed by a slowdown in the first part of 2018 as the tax is introduced. In the long-term, however, not much of an impact is anticipated on jewellery sales," reasoned Yaser AbuShaban, member of CFA Society Emirates

Jewellers' strategies

Jewellery retailers are chalking out plans and strategies to remain attractive for the customers

Arjun Dhanak, director of Kanz Jewellers, said that he is considering measures to reduce costs

"Jewellery is not just a commodity - it's a luxury good. We will expand our manufacturing operations here in the UAE to bring costs down and at the same time we will bring a unique product offering to our customers. Our customers can therefore expect to get the best in terms of value and designs," Dhanak said

He is also planning to share the burden of VAT to retain customers' attraction. However, he said that VAT has to be added on making charges to avoid any price shock for customers during the final stages of the billing process

Echoing the sentiment, Merchant said: "We will focus on the quality of our products, unique designs, customer service, loyalty programmes and retail experience, especially the use of technology in our stores to enhance the shopping experience

"We often offer zero making charges during special occasions and our making charges are very competitive so it will help customers shopping with us," Merchant explained

On a contrary note, Chirag Vora, managing director of Bafleh Jewellery, said it would be impossible for any jeweller to share or compensate consumers with the VAT amount. "Lowering the making charges will not even be an option because the cost will be further rising now with new laws coming in place," he argued

"No one can formulate any strategy to attract individual customer based on VAT because it's a federal law and everyone will have to comply with it. However, one will have to revise marketing strategies in order to keep a competitive edge of Dubai as the city of gold over the world," Vora said

Talking about Malabar Group's strategy, group executive director Abdul Salam K.P. said that he is waiting for more clarity on the method of calculations for VAT in the jewellery industry

"We currently operate in other countries where there is taxation, hence we are not new to the concept. However, we will wait for clarity regarding VAT and plan accordingly," he said

?EVER WONDERED WHY DUBAI GOLD IS POPULAR

Dubai gold is famous for its quality, purity, standard, variety and competitive pricing. For that reason, a large number of tourists and expatriates living in the UAE prefer to buy gold in the emirate

Ravi Shankar, senior analyst for investment research and analytics at Aranca, said that Dubai is a renowned location for gold and jewellery and has always been strong in terms of sales

"Tourists purchase gold in Dubai not only because of pricing but also because of the quality and wide range of varieties. They might get back their VAT at the time of departure or exit from the UAE," he said

Karim Merchant, group CEO and managing director of Pure Gold Group, is confident that prices will remain competitive in the UAE

"We do not expect customers of any nationality to reduce purchases because of VAT as prices in UAE will remain competitive plus let's not forget the peace of mind that buying from UAE ensures, the customer can rest assured he is buying a genuine product. Also, the variety of designs available in the UAE is second to none," Merchant said

"Dubai will continue to offer tourists a variety of gold designs at a reasonable mark-up for workmanship relative to other markets such as Europe and Asia," Yaser AbuShaban, member of CFA Society Emirates, said

"Tourists arriving from these geographies also have VAT imposed in their own countries on jewellery purchases, often at a rate higher than five per cent, so in that regard Dubai should remain competitive even after the imposition of VAT"

Abdul Salam K.P., group executive director of Malabar Group, said the Indian community in particular and other sub-continent nations in general will continue to prefer Dubai's gold

"The gold jewellery industry in the UAE is much cheaper. India has 10 per cent custom duty plus three per cent GST on gold jewellery," he said

Globally, an international consumer pays VAT at shops and collects a refund on the way back home

"So far the law has not mentioned any such refund applications. As long as there is a refund policy in place the Dubai gold prices will be cheaper than the local prices back home," Chirag Vora, managing director of Bafleh Jewellery, said

Don’t stress about VAT in the UAE  it’s not complicated at all

Tax expert Dinesh Kanabar says the levy is quite simple in the UAE

With the roll-out of value added tax (VAT) in the UAE drawing ever nearer, some businesses and residents are growing increasingly concerned about how the levy will affect their incomes

But the UAE’s new tax regime is very simple and nothing to fear. The UAE and Saudi Arabia will implement a 5 % VAT from January 1, with the other four Arabian Gulf countries expected to follow suit in 2018; a 100 % excise tax on tobacco products and energy drinks, and a 50 % tax on sugary drinks, will start

The introduction of VAT could generate Dh12 billion in its first year and Dh20bn in its second year, according to Sultan Al Mansouri, Minister of Economy, as the country moves to diversify away from its reliance on oil revenues

VAT will affect the UAE economy, small business owners, and the pockets of UAE residents

First there is 5 %VAT on taxable supplies, then you have a set of goods and services that are exempt, so for example there is no VAT on education, medical services, public transport and residential real estate. Third you have a group of items that are zero-rated, such as airline companies, metals and gold. So when people say the UAE’s tax regime is complicated, it depends on what you compare it to. Yes, moving from a regime where there is no tax to this is complicated, but if you compare it to Europe it is not at all complicated

?If it is such a simple model, why are some businesses and individuals getting stressed about it

It’s actually a matter of perception. So far it has been a tax-free regime, so when you suddenly talk taxes to people they just get stressed. But there is no need to get stressed for a number of reasons. Firstly, you have never seen as proactive a government as you are seeing here; they are coming out with FAQs, they are doing seminars, they are training people and they have a portal up and running

?What are the other reasons to stay calm

The second reason is that it is a very simple law. In fact, the compliance form is just a half page return. In India for example the compliance is so difficult that the computer system is unable to take it and the compliance dates keep being changed. The third is the rate itself. In India the generic rate at which GST is levied ranges from 5 % to 28 % ; in Europe the rate is anywhere between 14 and 16 %

?What should businesses preparing for VAT be concerned about now

They should be looking at three things. One, how are they restructuring the business? For example, a group has multiple entities and one is a sourcing entity that sources the goods and gives it to a selling entity; unless you are defined as a group under tax laws, the moment you do an inter-group transfer there is a tax, so you are out of pocket before you recover the tax from the ultimate customers. Those sort of inefficiencies need to be removed. The second thing is to make your processes and IT systems compliant so that all the provisions of law are incorporated

?What’s the third

The third, and maybe this is one of the reasons that people are stressed out, is that today companies prepare accounts and those accounts are not really subjected to any scrutiny by a regulator. Now for the first time a regulator is going to look at the accounts – that means you’ve got to preserve the accounts, you need to ensure their authenticity and you need to be worried that when compliance happens you are ready so that if you were audited you can substantiate whatever you are buying

?How will small businesses with a handful of employees cope

There is a threshold limit of Dh375,000, so if your annual turnover is less than that you are not in the VAT net at all. For smaller businesses that are in line for VAT, they need to look at using apps – which are being developed by private consultants – that can capture the data from the business and do the filing for them so that the cost of compliance is not burdensome

?What about the average UAE resident worried about the cost of living

Is the cost of living going to go up? The answer is yes. Is it significant? The answer is absolutely no because there is a World Bank report that says that the expected impact of inflation is somewhere between 0.5 and 0.6 %. So that’s not earth shattering and I don’t see a dent in people’s savings or investments

?Is there anything households can do to prepare

There is nothing they can do. Businessmen, yes, they need to start building compliance, but for an average person, the very fact that day-to-day items – whether houses, education, medical care or public transportation – are outside the limit shows that the government is conscious that people in the lower strata, whose bulk of income goes towards necessities, are not impacted at all. Will your grocery bills go up? Yes, they will, but as I said the expected impact is low

?So residents should view VAT as a positive move

You are moving from a laissez-faire environment to a regulated environment and that is actually very welcome because the world is moving towards regulation. By imposing a tax, the GCC is falling in line with what the world is doing and I go back to the rates issue: Singapore is 7 %, Malaysia is 6 %

But the UAE is already an expensive place to live and the perception is that it is going to get more expensive?e

It really depends on where your income goes to. If you are a smoker, for example, and smoking is 10 % of your total spends then your costs will go up more because of excise tax. To an extent it is the people that are able to save after buying the necessities, that are spending on luxuries and therefore can afford to contribute, that will be really impacted

?Are businesses ready

The answer is NO. We have seen in the marketplace that the larger businesses are aligned and they started huge exercises on VAT implementation months back. There are smaller / mid-sized businesses that are now coming to grips with reality that the government is serious. There is some expectation in the air that this is going to be postponed but the government has been very categorical that there is no intention to postpone. So if you are going to put it on the back burner then you do so at your own peril

?What do businesses need to have in place by January 1

They need to have an accounting system and a billing system so the IT infrastructure needs to be in place because every single invoice produced from January 1 has to have that VAT component. One of the issues is that non-compliance could invoke huge penalties so people need to be absolutely sure that they are fully compliant – they can’t afford to take chances with compliance.

?What trends are you noticing

There are some companies clutching at straws. A report came out today saying that the non-implementation of VAT in other GCC countries should not impact the UAE. People interpreted this to mean that the UAE is also going to postpone. It is going to happen and they need to prepare

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