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 • • AMBIT OF SUPPLY INPUT TAX - RECOVERABLE VAT • Exempt Supplies; VAT ADJUSTMENTS Zero Rated Supplies; • REVERSE CHARGE Out of Scope Supplies; • VAT COMPLIANCES Deemed Supplies • • VAT INVOICES AND DOCUMENTATION PLACE OF SUPPLY
GENERAL CONCEPT OF VAT
VALUE ADDED TAX (VAT) Pros of VAT What is VAT Cons of VAT ▪ Relatively simple to comply and ▪ Increased cost of businesses ▪ Consumption tax on value added to ▪ easier to enforce Burden on final consumers the goods & services ▪ ▪ Taxed uniformly across – not Helps checking tax Loopholes ▪ Designed to tax only value addition ▪ Broad based higher tax for higher income on each stage ▪ Better integration into global trade earners ▪ Borne by final consumers practices / transparency 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
General Concept of VAT INPUTS OUTPUTS Procurement of Goods Leases on Sale of Goods warehouses and Business (electronics) offices Procurement of Utilities & Business Services Claimed input tax VAT on Inputs = Input Tax Tax Payout VAT on Output = Output Tax
Example Tax on Value Sales (AED) Output Tax on Input Net Tax Paid Business Addition (Invoice) entity (AED) (AED) (Invoice) (AED) (AED) Supplier 20.00 20.00 1.00 0 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
OVERVIEW OF UAE VAT
CURRENT STATE OF AFFAIRS Where We Stand Now !!! The Road Ahead !!! A B • Issuance of Federal Law in UAE for establishment of the • Finalization and issuance of VAT Executive Federal Tax Authority; Regulations; • Release of VAT Framework Agreement by GCC aimed at • Go-live date introducing a region-wide value added tax system in 2018; • Issuance of Federal Law in UAE concerning Tax Procedures • Issuance of Federal Law in UAE relation to Value Added Taxation system • VAT rollout by 1 January 2018 Commencement of VAT registrations;
OVERVIEW OF UAE VALUE ADDED TAX (VAT) Taxable Person: Scope of Tax Taxable person means Any Person registered or obligated to register for Tax shall be imposed on every Taxable Supply, Tax purposes Deemed Supply made by the Taxable Person and on Import of Concerned Goods Valuation of Supply Decree provides for valuation of following supplies: Goods and Services 1) Supply against monetary consideration; • Goods to mean physical property that 2) Supply against Non-monetary consideration; can be supplied including real estate, water, and all forms of energy 3) Valuation of Import of goods and services; • Services defined to mean any supplies 4) Valuation in case of Related parties and deemed supplies other than goods; Supply of Services Supply of Goods A supply of Services shall be every supply that is not • Transfer of ownership of the Goods or the right considered a supply of Goods, including any provision of to use them to another Person according to Services specified in the Executive Regulation of UAE what is specified in the Executive Regulation of Decree-Law. UAE Decree-Law • Contract between two parties entailing the Registrations, Rate and Tax Groupings: transfer of Goods at a later time, pursuant to the Proposed Mandatory threshold for registration is – AED 375,000 and Voluntary threshold is – conditions specified in the Executive Regulation AED 187,500 .The rate of tax is 5%. In relation to registration, Tax group means two or more of UAE Decree-Law Persons registered with the Authority as a single taxable person for Tax purposes
VAT IMPACT ON BUSINESS FRAMEWORK • Supplier’s communication on VAT awareness; • Registration and compliances; • Account reconciliations; • Preference for VAT registered vendors Suppliers • Changes in vendor master, customer master; • • Customer’s communication on VAT Creation of VAT receivables ledgers, VAT Reporting payable ledgers, VAT adjustment accounts; awareness; Technology Customers • • Changes in periodic MIS Registration and compliances; • Account reconciliations VAT • Impact of VAT on inward supplies cash • Impact of VAT on long term contracts and IMPACT flows; commitments; Legal • Impact on tax credits attributable to Purchase • Impact of VAT on short term contracts; Implications exempted supplies; • Impact of VAT on transitional activities • Reverse charge mechanism compliances • Impact of VAT on business restructuring plans; • Impact of VAT on pricing; Strategic Sales • Impact of VAT on direction of supply chains; • decisions Impact of VAT on discount and incentive structure; • Interaction with tax authorities; • Interaction with key dealers and customers; • Strategic tax positions and opinions there on.
Specific Rules and Concepts – UAE VAT ❖ 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
AMBIT OF SUPPLY
EXEMPT SUPPLIES ❖ 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 Residential properties Specified financial Local Passenger (other than zero rated Bare Land services Transport supplies)
ZERO RATED SUPPLIES ❖ 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: Supply of Goods and Services related to the supply of the means of and which Supply of air, sea and land means are designed for the operation, repair, maintenance or conversion of these Export of Goods or Services of transport for the transportation means of transport. of passengers and Goods The first supply of residential The first supply of buildings International Transport of goods Supply or Import of investment buildings within (3) years of its specifically designed to be used by precious metals and passengers completion Charities Supply of educational services Supply of preventive and basic The first supply of buildings and related Goods / Services healthcare Services and related converted from non-residential to Supply of crude oil and natural gas owned / funded by Federal / local Goods and Services residential authority
OUT OF SCOPE SUPPLIES ❖ Transaction between Vendors and Shipment of Goods / Company (UAE) is outside scope of UAE Ship To Location / VAT; Delivery of Goods ❖ Transaction between Company (UAE) and Customer is outside scope of UAE VAT; Customer (KSA, Vendors ❖ Other GCC countries, Place of supply is outside the UAE as the (Rest of the world) Rest of the world) 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 Commercial Bill to Customers by Bill To Location by Company Vendors Company UAE
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