As previously announced, the GCC have now signed the issued the landmark Federal Law No. 7 of 2017 for Tax Procedures, which sets the foundations for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA). This will become effective from 1st January 2018.
What is the rate charged and on what items?
The rate will be 5% and chargeable on all goods and services. Tourists will also pay VAT.
Zero rated (0%)
- Exports of goods and services to outside the GCC;
- International transportation, and related supplies;
- Supplies of certain sea, air and land means of transportation (such as aircrafts and ships;
- Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
- Newly constructed residential properties supplied within 3 years of their construction;
- Supply of certain education services, and supply of relevant goods and services; Supply of certain Healthcare services, and supply of relevant goods and services.
Exempt rated (0%)
- The supply of some financial services (life insurance);
- Residential properties;
- Bare land;
- Local passenger transport.
What are basic requirements and thresholds?
Only onshore (free zone and LLC) companies will have a requirement to register if they meet thresholds. Offshore companies are excluded because their tax status is deemed offshore and they do not trade within UAE.
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
What are the responsibilities of a business?
All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event.
VAT-registered businesses generally:
- must charge VAT on taxable goods or services they supply;
- may reclaim any VAT they’ve paid on business-related goods or services;
- keep a range of business records which will allow the government to check that they have got things right
- Maintain records for a minimum of 5 years
If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a quarterly basis, within 28 days of the period end date. It will be a formal submission and can be made online but must be in Arabic language.
How should a business determine the place of supply?
The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.
For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).
For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).
Will there be bad debt relief?
VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business, providing they meet the conditions and limitations concerning the use of this relief.
Will there be penalties?
Penalties will be imposed for non-compliance. Examples of actions and omissions that may give raise to penalties include:
- A person failing to register when required to do so
- A person failing to submit a tax return or make a payment within the required period
- A person failing to keep the records required under the issued tax legislation
- Tax evasion offences where a person performs a deliberate act or omission
Can you appoint a local agent?
Animo Consultants will be able to provide local support for completing returns as required and filing with government registry.
If you have any further questions regarding this type of company, please contact our office.