The last few weeks we were performing VAT Assessments for some of our UAE customers.
During these assessments we are using our unique 360 degrees methodology, developed in Europe during my 25 years of Tax practice.
In one of our sessions a rather interesting and mostly overlooked issue came up.
The customer, based in the UAE, had decided to close one of his business, which was still operating and his timeline was to liquidate and close it sometime in 2018.
The above raised a critical point in our assessment, because of the following reasons:
- Activity will be subject to VAT
- Turnover is more than the U.A.E VAT registration threshold, thus making it eligible for VAT registration
- According to Article 8, 1c “A Taxable Person shall be deemed to have performed a Supply of Goods when disposing of Goods that form part of its assets in any of the following cases:
c. retaining Goods after ceasing carrying on an Economic Activity”
- According to Article 8, 3 “The provisions of this article shall apply if the Taxable Person has already deducted Input Tax related to the Goods and Services mentioned in this Article”
If the customer will liquidate and close his business in 2018 the following will need to be addressed:
- Register for VAT
- Adjust his systems to match VAT requirements
- Separate and monitor Goods (Assets and Inventories) between items with no deducted Input Tax and items with deducted Input Tax
- During deregistration make a complete inventory and account for output tax on the items he still has in his possession and had Input Tax deducted.
All the above apply also to companies in Saudi Arabia, where the draft VAT Law stipulates the following in article 6, 4:
“A Person who deregisters in accordance with this Law is treated as having made Taxable Supply in the Kingdom equal to the Fair Market Value of all Goods on hand, including Capital Assets, at the effective date of deregistration, but only to the extent that the person has deducted Input tax with respect to those Goods.”
A thorough VAT Assessment and understanding of the particular aspects of each company in each industry are the cornerstone of a correct implementation.
We, at Gulf Tax Consultants, have been doing that since 1990 in many countries in the European Union and we are already assisting companies in the UAE, KSA and Kuwait to correctly implement VAT.