The Federal Tax Authority has published new highlights of the upcoming VAT legislation.
The team at Gulf Tax Consultants has compiled, for information purposes, a list of the most important points for the business community.
Should you require to learn more about VAT in UAE and the GCC, please contact our team.
A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply.
VAT Invoices will have to follow a specific format to be described in the upcoming legislation.
I.T vendors and companies must make sure they comply with the VAT Law format. Furthermore, a control must be in place to safeguard that all necessary data will be present on each and every VAT Invoice issued and received.
VAT on Imports
VAT is due on the goods and services purchased from abroad.
In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.
In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC.
Such VAT will typically be required to be paid before the goods are released to the person.
VAT on imports by registered persons will be accounted using the reverse change mechanism, thus no VAT will be payable during import but will be payable upon the supply of goods.
Attention must be paid to the import value used to calculate VAT for the reverse charge mechanism.
Invoice Retention Period
Taxable Persons will need to retain VAT invoices (issued and received) for a minimum of 5 years.
We expect it to be 5 years from end of fiscal year (e.g 2018 must be retained up to 2023 inclusive).
Aligns with article 26 of Federal Law 2/2015 on Commercial Companies.
Prerequisites of VAT Deductibility
VAT on business expenses can be deducted following the below prerequisites:
- The business must be a taxable person (the end consumer cannot claim any input tax refund).
- VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
- The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
- The goods or services acquired are used or intended to be used for making taxable supplies.
- VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.
Additionally, any VAT charged for expenses relevant to non-taxable supplies cannot be deducted. Furthermore can’t be deducted if it is incurred for specific expenses like entertainment expenses.
Furthemore, if the business is performing both taxable and non-taxable supplies, VAT charged on expenses will be deducted on a pro-rata basis.
Special attention must be given to expenses that disallow the deduction of input tax, thus affecting adversely the business P&L.
Companies satisfying certain criteria (UAE resident, being related/associated) will be able to apply for VAT grouping.
VAT grouping means acquisition of a single TIN number and easier VAT accounting treatment for the member companies.
Grouping also means joint liability of the group members.
Bad Debt Relief
Output VAT reduction will be available for companies suffering bad debts, subject to VAT rules and regulations.
Margin scheme will be introduced for sales of second-hand items. VAT will be included in the calculated profit margin, which will be the difference between selling and purchase price.
Applicable to all second-hand car dealers and possible auctions of used items.
Penalties will be imposed for non-compliance.
Examples of actions giving rise to penalties are:
- Fail to register when required to do so
- Non-payment or late payment of VAT
- Fail to submit and/or late submission of a VAT return
- Fail to keep records (see above Invoice Retention Period)
- Tax evasion (deliberate act or omission with intention to violate VAT Law)
Taxable persons will have to submit quarterly VAT returns. Among other requirements to be published, they must report
revenues earned in each Emirate.
For B2B transactions it is advisable companies to update their customer master with most up-to-date data and include the respective emirate in each customer location. For B2C transactions the location of store will suffice.
VAT refunds will be made available after a refund application is submitted and an audit verifies the amount requested.
Dispute Resolution Procedures
The VAT dispute resolution steps defined are the following:
- FTA reconsideration.
- Tax Disputes Resolution Committee. In order to appeal to the Committee all dues (taxes & penalties) must be paid.