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All About VAT in UAE

The Ministry of Finance (MoF) of United Arab Emirates (UAE) has announced the introduction of a new law under Federal Decree – Law No. (8) of 2017 pertaining to Value Added Tax (VAT) on products, services as well as businesses. To be implemented from January 1st, 2018, in UAE and Saudi Arabia, the announcement has brought upon the reign of confusion for businessmen as well as the common people or consumers of goods.

Essentially a consumption-driven tax, the entire process of new VAT regulations by the MoF of UAE can be simplified using expert help from tax and financial advisors who are experienced in the global economies and laws of tax implementation.

Keeping in mind every nitty-gritty of the new VAT law in UAE, the following are the answers to all your tax queries – simplified and collated for easy understanding of a relatively complex process.

  • What is VAT and when is it to be implemented?

    VAT or Value Added Tax is a consumption-based tax that is to be implemented from 1st January 2018 in UAE and Saudi Arabia. Announced through the Federal Decree – Law no. (8) of 2017 by the Ministry of Finance of UAE, the new VAT regulations state the implementation of a tax on goods and services for businesses and end consumers alike, with exemptions on a few goods and services. It is to be imposed on the supply and import of goods and services at each stage of distributions as well as production. The Executive Regulation accompanying the Federal Decree – Law no. (8) states the VAT law in detail and is now open for all to view online.

  • What is the VAT implementation rate?

    The VAT implementation rate is 5% on all goods and services listed under the Federal Decree – Law no. (8) as announced by the Ministry of Finance of UAE. The VAT should mandatorily be included in the pricing for goods and services, and as per the MoF guidelines, clarity should be maintained for all ‘advertised' prices to the consumers.

  • Who and what falls under the purview of VAT?

    All the businesses supplying goods and services to the GCC countries fall under the purview of VAT implementation. Non-resident entities are also required to register for VAT in case they exceed the registration threshold as defined in the Federal Law no. (8) of 2017 and the Executive Regulation. The pricing for all taxable goods and services according to the newest tax reforms will be revised and republished after the 5% addition of VAT as “advertised prices” for the end consumers.

  • What is Mandatory Registration Threshold and Voluntary Registration Threshold?

    The Mandatory Registration Threshold defines the mark crossing which the businesses are required to compulsorily register for VAT under the new tax reforms in UAE. The businesses with an annual revenue exceeding AED 3.75 million are under the purview of the Mandatory Registration Threshold.

    The businesses with an yearly revenue between AED 1.87 million to AED 3.75 million are under the purview of Voluntary Registration Threshold and have the option of registering their businesses for new tax registrations.

  • Defining goods and services in the new VAT regulations

    The Executive Regulation as well as the Federal Decree has defined goods and services in the new VAT regulations. According to the definitions, goods are any form of property (including real estate, all forms of energy and water) that can be supplied. Services have been defined in the law as anything other than goods that can be supplied.

  • What are “concerned goods” and “concerned services”?

    The “concerned goods” under the VAT law includes the goods that have been imported and fall under the purview of VAT regulations, that is, goods that are not exempt from VAT implementation. Similarly, “concerned services” are those that have been imported, the place of supply of which is inside the UAE and do not fall into the exempted categories of services as per the Federal Decree – Law No. (8) and the Executive Regulation.

  • Defining date of supply along with VAT regulations

    The date of supply is crucial for calculating the VAT impositions with regard to calculating tax returns to the Federal Tax Authority. The date of supply concerns the transfer of goods and, according to the new VAT laws, the earliest of the following is to be taken into consideration while calculating the taxes.

    • The date of the transfer of goods, if supervised by the supplier
    • The date of taking possession of the goods by the recipient, if supervised by the supplier
    • In case of goods that require assembly and installation, the date on which all installation of the goods were completed
    • In case of a returnable contract of supply, the date on which the recipient accepted the supply or 12 months after the date of transfer of goods
    • The date on which the provision of services was completed
    • The date of receipt of payment for the goods on the basis of the tax invoice issued for the same.

      These apart, the Federal Law also states some special cases pertaining to the date of supply and its importance in tax calculations that can be viewed in detail in the Executive Regulation.

  • Defining place of supply along with VAT regulations

    The Federal Law no. (8) of 2017 defines the place of supply of goods and services for taking into consideration the VAT calculation as per the new regulations. The place of supply is crucial in determining the import and export status of the goods and services and is essential for the necessary VAT calculations according to the new regulations. Import and export conditions do not apply to the goods and services if the place of supply was within UAE and in case of goods that require assembly and installation, assembled and installed entirely within UAE.

    The places of supply including import or export duties for goods and services inside the state (UAE) will be considered for tax calculations in the following cases:

    • The date on which the provision of services was completed
    • The intended recipient of the goods is not registered for VAT in the destination state, and the total export from the same supplier to said state does not cross the mandatory registration threshold
    • The intended recipient of the goods does not have a Tax Registration Number (TRN), and the total exports from the same supplier in a GCC country to UAE exceeds the mandatory registration threshold

      The places of supply including import or export duties for goods and services outside the state (UAE) will be considered for tax calculations in the following cases:

    • The supply of goods or services involves a customer who is registered for VAT in one of the implementing states (GCC countries).
    • The recipient of goods is not registered for VAT in the GCC country where the export is being made, and the total export from the same supplier exceeds the mandatory registration threshold in that country.
  • What is “deemed supply” and “exempted supply”?

    Any supply that is considered as a taxable supply (and not exempt from VAT regulations) under the Federal Decree Law no. (8) of 2017 by the Ministry of Finance of UAE are considered as “deemed supply” under the new VAT laws.

    Exempted supply includes the range of supplies of goods and services that are under consideration while conducting business in UAE with no taxes due or payable as per the Federal Decree Law no. (8) of 2017.

  • What happens to the advance contracts of supply entered into before the announcement of the VAT law?

    In case of businesses who have entered a contract in 2017 for a supply of goods or services in 2018, they will be applicable for additional VAT charges (5%) in case they fall under the taxable goods and services as per the new VAT regulations irrespective of the fact whether the pricing of such supplies and goods have been drawn up considering the tax reforms or not.

  • What is a TRN?

    The TRN is a Tax Registration Number, a unique ID issued for each taxable person or business or group by the Federal Tax Authority for registration into the tax services, including the newly announced VAT. Businesses, tax groups and individuals should register for VAT using their respective TRNs.

  • What else does the VAT law cover?

    The new VAT law covers the provisions for capital assets, tax evasions, tax adjustments for errors and bad debts, tax on industrial samples and commercial gifts, tax treatments of apportionment measures, and on supplies between related parties along with the basic tax implementation on goods and services as per the Federal Decree Law no. (8) of 2017.

  • How are “Designated Zones” defined in the new VAT law?

    A "designated zone" is defined as a free zone in the new VAT law. It might be a warehouse where the goods are stored or any such space as deemed fit by the Cabinet Decision. No VAT is levied to the goods kept in the designated zone, and the import to and export from the designated zone is not under VAT either. However, the goods enter the chain of production and consumption the moment they are removed from the designated zone, and 5% VAT is levied on them in case they fall under the category of taxable items in Federal Decree Law no. (8) of 2017.

  • Will the entire GCC be affected by the new VAT rules?

    Yes, the entire GCC will be affected by the new VAT rules with effect from January 1st of 2018. While the official date of implementation in UAE and Saudi Arabia has been announced, the other GCC countries are expected to follow suit by the first quarter of the coming year.

  • How can the financial advisors come of help in light of the new VAT law?

    The financial advisors are of crucial importance in these times of confusion about the new VAT laws. For a smoother transition through this phase, it is advisable to seek help from the financial experts who can help you through the entire registration process and offer a host of prompt and effective services for VAT calculations and reordering of the accounts of your business.

    The experienced team of financial executives at UAE VAT Experts has the necessary acumen to help you with the registration process in this phase of transition and take your business to newer heights through the wide array of accounts and tax consultancy services for effective reordering of accounts in accordance with the new VAT laws to be implemented soon.

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