VAT IN UAE THE BEGINNING.. November 2017 British Centres for - - PowerPoint PPT Presentation
VAT IN UAE THE BEGINNING.. November 2017 British Centres for Business Hoshedar Cooper, Associate Partner Contents: Contents: GENERAL CONCEPT OF VAT DATE OF SUPPLY OVERVIEW OF UAE VAT VALUE OF SUPPLY
November 2017
British Centres for Business
Hoshedar Cooper, Associate Partner
Exempt Supplies; Zero Rated Supplies; Out of Scope Supplies; Deemed Supplies
What is VAT ▪ Consumption tax on value added to the goods & services ▪ Designed to tax only value addition
▪ Borne by final consumers Pros of VAT ▪ Relatively simple to comply and easier to enforce ▪ Helps checking tax Loopholes ▪ Broad based ▪ Better integration into global trade practices / transparency Cons of VAT ▪ Increased cost of businesses ▪ Burden on final consumers ▪ Taxed uniformly across – not higher tax for higher income earners VAT Process Elements ❖ Output Tax - VAT due on any sale/supplies - is a percentage of the sale price/supply consideration ❖ Input Tax - Tax paid to vendors / suppliers - Taxable person is entitled to recover all the tax already paid at preceding stage ❖ Tax Payout – Output Tax less Input Tax ❖ Impact of VAT - Tax is paid only on the value added at each stage of production and distribution
Claimed input tax
Procurement of Utilities & Business Services Leases on warehouses and
Procurement of Goods Sale of Goods (electronics)
Business
VAT on Inputs = Input Tax VAT on Output = Output Tax Tax Payout INPUTS OUTPUTS
Business entity Sales (AED) (Invoice) Value Addition (AED) Tax on Output (Invoice) (AED) Tax on Input (AED) Net Tax Paid (AED) Supplier 20.00 20.00 1.00 1.00 Manufacturer 50.00 30.00 2.50 (1.00) 1.50 Wholesaler 70.00 20.00 3.50 (2.50) 1.00 Retailer 100.00 30.00 5.00 (3.50) 1.50 VAT Collected by the government 5.00
Where We Stand Now !!! A The Road Ahead !!! B
Federal Tax Authority;
introducing a region-wide value added tax system in 2018;
Federal Law in UAE concerning Tax Procedures
Taxation system
Regulations;
VAT rollout by 1 January 2018
Scope of Tax
Tax shall be imposed on every Taxable Supply, Deemed Supply made by the Taxable Person and
Goods and Services
can be supplied including real estate, water, and all forms of energy
Supply of Goods
to use them to another Person according to what is specified in the Executive Regulation of UAE Decree-Law
transfer of Goods at a later time, pursuant to the conditions specified in the Executive Regulation
Supply of Services
A supply of Services shall be every supply that is not considered a supply of Goods, including any provision of Services specified in the Executive Regulation of UAE Decree-Law.
Valuation of Supply
Decree provides for valuation of following supplies: 1) Supply against monetary consideration; 2) Supply against Non-monetary consideration; 3) Valuation of Import of goods and services; 4) Valuation in case of Related parties and deemed supplies
Taxable Person:
Taxable person means Any Person registered or obligated to register for Tax purposes
Registrations, Rate and Tax Groupings:
Proposed Mandatory threshold for registration is – AED 375,000 and Voluntary threshold is – AED 187,500 .The rate of tax is 5%. In relation to registration, Tax group means two or more Persons registered with the Authority as a single taxable person for Tax purposes
VAT IMPACT
Suppliers Customers Legal Implications Strategic decisions Sales Purchase Reporting Technology
flows;
exempted supplies;
payable ledgers, VAT adjustment accounts;
awareness;
commitments;
❖ Types of supply – Standard, Exempt , Zero Rated, Deemed, Out of Scope ❖ Place of supply - Place of supply rules will determine whether a supply is made in the UAE or outside the UAE for VAT purposes ❖ Time of supply - Place of supply rules will determine the point in time when tax needs to be paid ❖ Value of supply – Tax determination base shall be in accordance with valuation rules as prescribed ❖ Tax Rates – Standard rate for standard supplies of 5%, 0% for Zero-rated Supplies
Apply all rules and concepts to analyse and prepare for fully compliant VAT regime
❖ Exempted supplies are supplies on which no Tax is charged and for which associated Input Tax is not recoverable pursuant to the provisions of the UAE VAT Law; ❖ Exemptions should be applied strictly as they are an exception to the normal rule that VAT should be charged; ❖ The following supplies shall be exempt from UAE VAT. However, the exemptions shall be subject to Executive Regulations of UAE Decree-Law. The Executive Regulations of UAE Decree-Law shall specify the controls and conditions of exemption of supplies mentioned here-in
Specified financial services Residential properties (other than zero rated supplies) Local Passenger Transport Bare Land
❖ Zero - rated supplies of both goods and services are subject to 0% rate of VAT; ❖ Taxpayer have right to an input tax recovery on the corresponding procurements/expenses on which VAT has been paid; ❖ The following supplies shall be zero-rated from UAE VAT and shall be subject to conditions (if any) to be specified Executive Regulation of UAE Decree:
The first supply of buildings converted from non-residential to residential Supply of crude oil and natural gas Supply of educational services and related Goods / Services
authority Supply of preventive and basic healthcare Services and related Goods and Services International Transport of goods and passengers Supply or Import of investment precious metals The first supply of residential buildings within (3) years of its completion The first supply of buildings specifically designed to be used by Charities Export of Goods or Services Supply of air, sea and land means
Supply of Goods and Services related to the supply of the means of and which are designed for the operation, repair, maintenance or conversion of these means of transport.
Customer (KSA, Other GCC countries, Rest of the world) Vendors (Rest of the world) Shipment of Goods / Ship To Location / Delivery of Goods Company UAE Bill To Location by Vendors Commercial Bill to Customers by Company
❖ Transaction between Vendors and Company (UAE) is outside scope of UAE VAT; ❖ Transaction between Company (UAE) and Customer is outside scope of UAE VAT; ❖ Place of supply is outside the UAE as the goods are outside the UAE when sold; ❖ Company (UAE) is entitled to recover VAT incurred on costs as the supply would have been taxable if it had been made in the UAE
Services pursuant to the Capital Assets Scheme
within a 12-month period, does not exceed the amount specified in the Executive Regulation of UAE VAT-Law, and the Goods were supplied as samples or commercial gifts.
a 12-month period is less than the amount specified in the Executive Regulation of UAE VAT-Law.
Taxable Person or a part thereof, but are no longer considered to be as such, provided that the supply was made without Consideration;- GIFT
his business assets from the State to another Implementing State (i.e. The GCC States that are implementing a Tax law pursuant to an issued legislation), or from the Taxable Person’s business in an Implementing State to his Business in the State, except in the case where such transfer: a) Is considered as temporary under the Customs Legislation, b) Is made as part of another Taxable Supply of these Goods,
the Goods or Services were used, in part or whole, for purposes other than Business, and such supply shall be considered as deemed only to the extent of the use for non-business purposes;
Deregistration
Deemed Supply- Inclusions Deemed Supply- Key Exclusions
DEEMED SUPPLY: EXPLAINED BY SPECIFIC INCLUSIONS AND EXCLUSIONS
Place of supply rules will determine whether a supply is made in the UAE or outside the UAE for VAT purposes:
Basic rule: The place of supply is the location of goods when the supply takes place; Basic rule: the place of supply is where the supplier has the place of residence
Goods Services
Earliest Of
IN CASE OF GOODS ▪ Transfer under the supervision of Supplier : Date on which goods were transferred ▪ Transfer not under the supervision of Supplier : Date
▪ Date of receipt of payment from customer ▪ Date on which VAT Invoice is issued IN CASE OF SERVICES ▪ Date on which Services were completed ▪ Date of receipt of payment from customer ▪ Date on which VAT Invoice is issued
NOTE : All Advances will be taxable under VAT when received
In case of PROGRESSIVE BILLING – Continuous Supplies Earliest of: a. Date of issuing Tax Invoice b. Date of payment due as shown in the invoice c. Date of receipt of payment Provided that the above does not exceed 12 months from date of provision of Goods & Services SALE ON RETURN/CONSIGNMENT BASIS Earliest of: a. Date on which goods are accepted by Customer b. Date not later than 12 months after the date
placed at the disposal of Customer
Date Of Supply Special Cases
REVERSE CHARGE MECHANISM Date on which the Goods are Imported under Customs Legislation ASSEMBLY OR INSTALLATION Date on which the Assembly or Installation is completed DEEMED SUPPLIES The date of Deemed Supply
date of their supply, disposal, change of usage
VOUCHER : Date of issuance or supply thereafter VENDING MACHINES: Date on which funds are collected from the machines
The value of supply of Goods or Services for Consideration shall be as follows: ❖ If the entire Consideration is monetary, the value of the supply shall be the Consideration less the Tax; ❖ If all or part of the Consideration is not monetary, the value of the supply is calculated as the overall monetary part plus the market value of the non-monetary part of the Consideration; ❖ The Executive Regulation of this Decree-Law shall specify the rules to determine the market value; ❖ The Import value of Goods consists of the customs value pursuant to Customs Legislation, including the value of insurance, freight and any customs fees and Excise Tax paid on the Import of the Goods; ❖ The value of the supply or Import of Goods or Services between Related Parties shall be considered equal to the market value in certain circumstances; ❖ The value of the supply in the case of a Deemed Supply when the Taxable Person purchases Goods or Services to make Taxable Supplies but does not use those Goods or Services for that purpose, will be equal to the total cost incurred by the Taxable Person to make this Deemed Supply of Goods or Services
Input Tax can now be recovered
Recipient must be a taxable person and must be registered for VAT The goods or services have been acquired for an eligible purpose Recipient must receive and retain a tax invoice evidencing the transaction
The amount of VAT which the recipient seeks to recover must have been paid in whole or in part, or intended to be paid in whole or in part Certain incurred VAT is specifically blocked from being recoverable as input tax regardless
whether the above conditions have been
for non- business/private purposes;
attributable to exempt supplies
Subject to Executive Regulation, the Taxable Person shall carry forward any excess of Recoverable Tax to the subsequent Tax Periods, in the following cases
If the Taxable Person’s Recoverable Input Tax set forth in UAE VAT Law exceeds the Output Tax payable for the same Tax Period If the Tax paid to the Authority by the Taxable Person exceeds the Payable Tax. The carried forward input tax can be
against Payable Tax
any Administrative Penalties imposed under UAE VAT Law or Tax Procedures in subsequent Tax Periods until such excess is fully utilized The Executive Regulation of UAE VAT Law shall specify the time limits, procedures and mechanisms of returning any remaining excess to the Taxable Person If there remains any excess for any Tax Period after being carried forward for a period of time, the Taxable Person may apply to the Authority to reclaim the remaining excess i.e. Refund of Taxes
3 2 1
❖ VAT adjustments can be triggered due to following reasons: Post Sales discounts; Post purchase discounts; Rebates and incentives accruing post purchase-sale transaction; Sales returns; Purchase returns; Bad Debts; ❖ The Tax VAT adjustments shall have an impact of either reducing or increasing final tax liability
SUPPLIER RECIPIENT Transaction written-off
A supplier may reduce the Output Tax in a current Tax Period to adjust the Output Tax paid for any previous Tax Period if all of the following conditions are met: a) Goods and Services have been supplied and the Due Tax has been charged and paid; b) Consideration for the supply has been written off in full or part as a bad debt in the accounts of the supplier; c) More than six months has passed from the date of the supply; d) The Registrant supplier has notified the Recipient of Goods or Services of the amount of Consideration for the supply that has been written off The Recipient of Goods/ Services shall reduce the Recoverable Input Tax for the current Tax Period related to a supply received during any previous Tax Period where the Consideration has not been paid and all
a) The registered supplier reduced the Output Tax and the Recipient
supplier of the Consideration being written off; b) The Recipient of Goods and Recipient of Services received the Goods and Services and the relevant Input Tax was deducted; c) The Consideration was not paid in full or in part for the supply for
Supplier’s Obligations Recipient’s Obligations
❖ VAT registered purchaser has to account for VAT in respect of supplies ❖ Typically used for cross-border transactions to relieve a non-resident supplier from the requirement to register and account for VAT in the country of the purchaser; ❖ The purchaser will account for VAT on its normal VAT return and he may be able to claim that VAT back on the same return, subject to the normal VAT recovery rules; ❖ It will apply in UAE in the situations where a VAT registered person imports goods or services into the UAE which would be subject to VAT if purchased in the UAE
Service Fees : AED 5000 Supplier is not registered in UAE Consultant (USA) Client (UAE) VAT @ 5% : AED 250 Recipient shall firstly pay tax under reverse charge and then recover the tax paid
Reverse Charge
Online Submissions of VAT Returns
discretion of the FTA), the VAT return can be filed on paper;
Deadlines for submission and payment
by the Executive Regulations
to the first following working day Late Submission
time & AED 2,000 in case of repetition within 24 months)
Taxable Persons will be required to report details of the value of supplies made in each Emirate on their VAT returns The mechanism for the allocation of supplies made in each Emirate will be announced in the Executive Regulations EMIRATE WISE REPORTING
Where an error has been made on a VAT return submitted within the last 5 years, then the taxable person must disclose this error to the FTA within 30 days of becoming aware of the error Depending on the nature of the error and the amount of tax under / over declared, the adjustment to take account of the error could be made: a) either on the next tax return due for submission b) via a separate voluntary disclosure to the FTA
REPORTING OF ERRORS In case of any error, It is recommended that errors in VAT returns are corrected as quickly as possible
Failure by the Taxable Person to display prices inclusive of Tax 15,000 Failure by the Taxable Person to notify the Authority of applying Tax based on the margin 2,500 Failure to comply with conditions & procedures related to keeping the Goods in a Designated Zone or moving them to another Designated Zone Higher of 50,000 or 50% of tax chargeable in respect of the goods. Failure by the Taxable Person to issue the Tax invoice or an alternative document when making any supply 5,000 for each tax invoice/alternative document Failure by the Taxable Person to comply with the conditions & procedures regarding issuance of electronic Tax invoice/credit notes 5,000 for each incorrect document Failure by Taxable Person to issue a Tax Credit note or an alternative document. 5,000 for each tax credit note/document Failure by Taxable Person to submit a registration application within the timeframe specified in Tax Law 20,000
Who is Mandatorily required to Register for VAT ?
Every taxable PERSON RESIDENT OF MEMBER STATE (as per Law currently member state means UAE and KSA) ❖ Whose annual Taxable supplies in the Member State exceeds mandatory threshold limit over the previous 12 months or is expected to exceed mandatory threshold in the next thirty 30 days Every taxable PERSON WHO IS NOT A RESIDENT OF MEMBER STATE (as per Law currently member state means UAE and KSA) ❖ Shall register for Tax if he makes supplies of goods or services, and where no other Person is obligated to pay the due Tax on these supplies in the state
Mandatory Registration Threshold is AED 375,000 Note : The Executive Regulations shall specify the Time Limits within which a person has to inform the FTA about his liability to register for Tax and effective date of Tax Registration No threshold applies to Non Resident Taxable persons
Who can Voluntarily Register for VAT ? Total Taxable Supplies Expenses Subject to Tax OR The person who proves, at the end of any given month that During the previous 12 month period or the coming 30 day period has exceeded the Voluntary Registration Threshold Voluntary Registration Threshold is AED 187,500
Entities with a turnover exceeding AED 150 million Before 31st October 2017- (passed) Entities with a turnover exceeding AED 10 million Before November 30, 2017 All other entities By December 4, 2017
Provisions of UAE VAT Law lay down conditions and Requirements for Issuing Tax Invoices : a) A Registrant making a Taxable Supply shall issue an
Goods or Services; b) A Registrant making a Deemed Supply shall issue an
Goods or Services if available or keep it in his records if there is no Recipient of Goods or Services c) The Executive Regulation of this Decree-Law shall specify the following: Data to be included in the Tax Invoice; The conditions and procedures required to issue an electronic Tax Invoice; Instances where another Person may issue a Tax Invoice on behalf of the registered supplier Tax Invoice – Written/Electronic document which records the details of a taxable supply made Only a VAT registered business can issue a tax
invoice Invoices issued and received should be kept for a minimum of 5 years Invoice must be issued within 14 days of the date
As per the provisions of Article 56 of GCC VAT Framework :
provided that the tax Ministerial Committee shall at least determine the minimum details that have to be included in the tax invoice
simplified invoices in accordance with the conditions & modalities determined by such states
that the tax value is expressed in the currency of the member state where the place of supply takes place, and this shall be on the basis of the official exchange rate prevalent in such state on the tax due date.
Amount of VAT expressed in UAE AED The date of issue of the invoice The time of supply (only if different from the invoice date) The Name, address and Tax Registration Number of the supplier Quantity goods / services supplied, the rate of VAT and amount payable, in AED Sequential number which uniquely identifies the document
Date of issue of invoice Name, Address and Tax Registration Number of Supplier Name, Address and Tax Registration Number of Recipient Description of Goods / Services Supplied Quantity Supplied, Unit Rate, VAT Rate, VAT payable in AED Sequential Numbering 1 2 3 4 6 5 Rate of Discount and monetary value of Discount 7 Total Taxable value in AED on which tax is payable 8 Gross Invoice amount payable in AED, Net Invoice amount payable in AED 9 Total amount of VAT expressed in AED together with exchange rate and the source of that rate 10 If the supply is in a currency other than the AED, then for the purposes of the Tax Invoice, the amount stated in the Tax Invoice shall be converted into the AED according to the exchange rate approved by the Central Bank at the date of supply.
Date of issue of Tax Credit Note Name, Address and Tax Registration Number of Supplier Name, Address and Tax Registration Number of Recipient Description of Goods / Services Returned Quantity Returned, Unit Rate, VAT Rate, VAT reversed in AED Sequential Numbering 1 2 3 4 6 5 VAT invoice Serial Number to which the Tax Credit Note relates 7 Brief explanation of the circumstances giving rise to issuing the Tax Credit Note 8
Accounting Records and any information necessary to verify entries, including, but not limited to: Annual Accounts, General Ledger, Purchase Register, Invoices issued and received, Credit notes, Debit notes Additional records required for specific taxes Different taxes may require different records to be kept in order for taxpayers to be compliant, for example, a VAT account. Any other information as directed by the FTA that may be required in
register
Taxable persons for VAT must in addition retain the following records for at least 5 years
Invoices, Debit notes and Credit Notes:
Additional records of :
business;
VAT Account:
300 member firms in 150 countries, over 5 regions & 440 locations. 6 offices in UAE, 155 qualified staff.
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