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UAE VAT Advice

UAE VAT – FTA Summary with comments

by mbrotzakis mbrotzakis No Comments

 

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.

 VAT Invoices

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.

Comments:
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.

Comments:
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.

Comments:
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:

  1. The business must be a taxable person (the end consumer cannot claim any input tax refund).
  2. VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
  3. The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
  4. The goods or services acquired are used or intended to be used for making taxable supplies.
  5. 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.

Comments:
Special attention must be given to expenses that disallow the deduction of input tax, thus affecting adversely the business P&L.

VAT Grouping

Companies satisfying certain criteria (UAE resident, being related/associated) will be able to apply for VAT grouping.

Comments:
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

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.

Comments:
Applicable to all second-hand car dealers and possible auctions of used items.

Penalties

Penalties will be imposed for non-compliance.

Examples of actions giving rise to penalties are:

  1. Fail to register when required to do so
  2. Non-payment or late payment of VAT
  3. Fail to submit and/or late submission of a VAT return
  4. Fail to keep records (see above Invoice Retention Period)
  5. Tax evasion (deliberate act or omission with intention to violate VAT Law)

VAT Reporting

Taxable persons will have to submit quarterly VAT returns.  Among other requirements to be published, they must report
revenues earned in each Emirate.

Comments:
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

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:

  1. FTA reconsideration.
  2. Tax Disputes Resolution Committee.  In order to appeal to the Committee all dues (taxes & penalties) must be paid.
  3. Court

 

Considering to close your company? Do it before VAT application in the GCC.

by mbrotzakis mbrotzakis No Comments

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.
  •   Deregister

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.