VAT in UAE - Companies & Services (Complete Guide)

One of the biggest news in the United Arab Emirates (UAE) is the implementation of value-added tax or VAT in 2018. Consumers are expected to pay 5% VAT in UAE when purchasing goods and services.

Similarly, the six countries in the Gulf Cooperation Council (GCC) region have also agreed to implement VAT. Though it’s still less than a year away, people are curious as to how this will be implemented throughout the country and eager to know other useful information about VAT in Dubai.

The Federal Tax Authority will be responsible for administering, collecting, and enforcing federal taxes and will perform tax audits and administer penalties in cases of non-compliance with the tax laws.

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Table of Contents

• How to Declare VAT in the UAE
• What is the Tax Procedures Law
• FAQs about VAT in the UAE
• Areas in the UAE with VAT exemption
• VAT Services in the UAE

How to Declare VAT in the UAE

As the country gears up for the implementation of VAT next year, the Ministry of Finance will start registering companies that are above the yearly threshold (more than 375,000 AED annual revenue).

Businesses that provide taxable goods or services exceeding the threshold will be required to register. Moreover, businesses with taxable supplies below 375,000 AED but over 187,500 AED will have the option to register.

Preparing for the VAT implementation may take between 8 to 12 months or longer if some activities are outsourced. Here’s a guide for companies when preparing for VAT:

Step 1 – Project preparation
A project plan must be prepared to secure the necessary internal and external resources to ensure that business stakeholders are informed. VAT affects IT systems, finance, human resources, legal teams and even inter-organisation transactions. Moreover, IT systems must also be updated to handle the VAT. Thus, preparation for VAT will entail a cost that companies need to be aware of.

Step 2 – Impact Assessment
There should be a completed impact assessment to understand VAT and its commercial effects. This must be done to prioritize issues and prepare for implementation. This will look at the effects of VAT on different aspects of your company (organization, operation, financial). This will take usually 8 to 12 weeks to complete.

Step 3 – Design and implementation
Staff should be trained with new systems for VAT process requirements. Necessary changes to systems, controls, reporting, and governance must be implemented. The methods must be based on the initial impact assessment made. After this, a road map needs to be developed to identify required changes. The scheduling requirements and planning for work needs to be clear. Before you even start implementing the changes, you need to map the transaction footprint and understand the VAT obligations of your company. Changes will be reflected across levels of the organization (supply chain, human resources and IT).

Step 4 – Registering and testing
You should register your business for VAT and test your system to make sure they are capable of compliance and reporting. Changes made into the operations must be integrated. Staff should be trained about their new roles after the VAT has been implemented.

What is the Tax Procedures Law?

UAE President His Highness Shaikh Khalifa Bin Zayed Al Nahyan has issued the landmark Federal Law No. 7 of 2017 for Tax Procedures. The law provides a clear set of common procedures and rules to be applied to all tax laws in the UAE.

Here are the provisions included in the law:

1. Any person conducting any type of business to keep accounting records and commercial books, as well as any tax-related information as determined by the Law.
2. Tax returns, data, information, records and documents must be submitted to the authority in Arabic. The FTA may, however, accept documents in any other language, as long as the person provides a translated copy in Arabic at their expense and responsibility, if so requested. Any person obliged to register for taxation must do so.
3. Registrants must include their Tax Registration Number (TRN), in all correspondence and transactions with the authority or with others. They must also inform the authority by filling the form of any circumstance that might require the amendment of information related to their tax record within 20 working days of the occurrence of said circumstance.
4. Each taxable person must also prepare tax returns for each tax period and for each tax while being registered. They must then submit the tax returns to the authority and pay any payable tax as specified in the tax return or any tax assessment within the time limit. The authority reserves the right to turn down any incomplete return.
5. A register of tax agents be established at the authority will hold files for each agent documenting his/her conduct. It is not permitted for any person to practise the profession of a tax agent in the UAE unless he/she is enrolled in the register.
6. Procedures for registration, as well as the rights and obligations of the tax agent before the authority and the person, is specified in the executive regulations of the law.

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FAQS about VAT in the UAE

On a smaller scale, how will VAT impact consumers? Take a look at these frequently asked questions and answers about VAT in the UAE.

1. Do I have to pay VAT every time I buy something from the grocery?
You don’t have to pay VAT every time you buy something from the group. Ministry of Finance Secretary Younis Al Khouri said that “GCC states had already agreed to exempt about 94 food products, as well as the healthcare and education sectors.”

Thus, some items will be VAT-free. Grocery, hospital or school bills will most likely remain the same. A new law will specify which items are non-taxable.

2. Are electronics, clothes, home furnishings included in the VAT?
Yes, these are included. VAT will be imposed on the non-essentials. Electronic items and home appliances will have VAT.

3. Will airline tickets also be taxable?
For the UAE, there is still no definite answer to this. However, compared to other countries, airline tickets aren’t likely to go up. It can be expected that air tickets in the UAE may be carrying similar VAT rate of zero percent as other countries such as Singapore and UK.

4. Will the cost of living increase because of VAT?
Depending on the individual’s buying preference and lifestyle, cost of living may go up for a lot of people.

5. Are tourists obliged to pay VAT?
Yes, tourists will pay VAT. Goods purchased by visitors will not be exempted by VAT. Anyone who purchases perfumes, make-up, luxury bags and big-ticket items in the UAE can expect to pay an additional 5 per cent of the sale price.

6. Is UAE considering other types of tax?
The Ministry of Finance said “As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes.”

7. What are the penalties for non-compliance with VAT?
The Ministry of Finance is yet to identify the fees and penalties for non-compliance with the new tax system.

8. When will registration for VAT begin?
Companies can start registering for VAT on October 1, 2017. Registration will be open three months before the go-live date (January 1, 2018). Companies can register online.

9. How often are companies required to file VAT returns?
VAT returns should be filed every three months. The government’s eservices online has the option of filing of returns.

10. What should businesses do to prepare for VAT?
The Ministry of Finance advised: “It is essential that businesses try to understand the implications of VAT now and once the legislation is issued, make every effort to align their business model with government reporting and compliance requirements.”

11. Should companies start hiring VAT professionals?
Companies should employ professionals who can prepare and implement the new tax policy. This, however, depends on how tedious or frequent the process is.

Areas in the UAE exempted from VAT

The Federal Tax Authority has announced 20 designated zones exempted from the recently-implemented 5% VAT in the UAE.

Below is the list of the designated zones exempted from VAT:
Abu Dhabi:

• Free Trade Zone of Khalifa Port
• Abu Dhabi Airport Free Zone
• Khalifa Industrial Zone

Dubai:

• Jebel Ali Free Zone
• Dubai Cars and Automotive Zone (DUCAMZ)
• Dubai Textile City
• Free Zone Area in Al Quoz
• Free Zone Area in Al Qusais
• Dubai Aviation City
• Dubai Airport Free Zone

Sharjah:

• Hamriyah Free Zone
• Sharjah Airport International Free Zone

Ajman:

• Ajman Free Zone

Umm Al Quwain:

• Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
• Umm Al Quwain Free Trade Zone on Sheikh Mohammed bin Zayed Road

Ras Al Khaimah:

• RAK Free Trade Zone
• RAK Maritime City Free Zone
• RAK Airport Free Zone

Fujairah:

• Fujairah Free Zone
• Fujairah Oil Industry Zone (FOIZ)

VAT Services in the UAE
Below is a list of VAT service consultants and companies in the UAE:

1. Emirates Chartered Accountants

2. Mac and Ross Chartered Accountants

3. Re-Think

4. IDMS Accounting Services

5.PMC

6. VSG

7. OLMCC

8. QNA Auditing & Accounting

9. UHY Saxena Chartered Accountants

10. Esaar & Associates Chartered Accountants

For more information, visit Ministry of Finance website.