According to FTA’s site the following documents will be required per case:
|Natural person||Incorporated Bodies (e.g. a company, a UAE company established by Decree or Limited Liability Partnership)||Other non-Corporate bodies (e.g. a partnership, trust, club, charity, etc.)||Government entity|
|Trade License(s)||Trade License(s)||Trade License(s)||Law or decree of establishment|
|Emirates ID||Certificate of Incorporation (Free Zone Companies)||Certificate of Incorporation (if applicable)||Contact Information|
|Partnership Agreement (if applicable)||Certificate of Incorporation (if applicable)||Certificate of Incorporation (if applicable)||Bank Account details|
|Contact Information||Articles of Association/ Partnership Agreement (if applicable)||Club or Association Registration||Customs details (if applicable)|
|Bank Account details||Contact Information||Contact Information||Authorized Signatory documents|
|Financial Statements||Bank Account details||Bank Account details|
|Customs details (if applicable)||Financial Statements||Financial Statements|
|Passport and Emirates ID||Customs details (if applicable)||Customs details (if applicable)|
|Authorized Signatory documents||Authorized Signatory documents|
|Passport and Emirates ID of manager, owner and senior management||Passport and Emirates ID of manager, owner and senior management|
Call us for Registration Assistance: +971 (0) 184.108.40.206
KSA Approved the VAT Executive Regulations. A link to the Arabic-English version is below:
The U.A.E Federal Law N0 8 of 2017 on VAT has been published and is available at the following link:
NAFL Review talks to Markos Brotzakis, a tax expert and founding partner of Gulf Tax Consultants (www.gulftax.net), a boutique financial & tax consultancy firm specializing on VAT and tax advisory services about VAT and here’s what he says on some of your most common questions.
Why should companies take VAT seriously? What are the consequences if they don’t follow the rules on VAT?
VAT is a tax aiming to raise state revenue to meet public spending. It is taxing the end-consumer of goods and services and is designed to be neutral to businesses, thus, having no P&L impact. It is accounted and collected by businesses and paid to the state.
Companies should take VAT very seriously because of the following reasons:
1. VAT is a state law and companies must adhere to it.
2. Companies act as collectors for the state, collecting and paying money, that technically are not theirs. Therefore, they must be prepared to correctly apply the VAT legislation, make sure they collect and pay the correct amount of tax and have in place such procedures and controls to comply with VAT legislation, thus minimize their tax risk exposure.
3. VAT will have an impact on the cash-flow of companies. Therefore, they need to assess the impact and plan ahead.
Tax audits determine whether companies are compliant or not with VAT.
Non-compliance can have both direct and indirect adverse effects.
Direct Effects: Penalties for tax evasion can be high. UAE’s FTA has informally announced an administrative penalty equal to 500% of the unpaid tax. KSA has published in its draft law an administrative penalty equal to 100% of the unpaid tax. An additional penalty of SAR 1.000.000 or two (2) years imprisonment will be applicable should the Tax Authorities refer the case to the Administrative Court. Additionally, punishment from other laws (e.g criminal) might apply.
Indirect: Companies might face the cost of adverse publicity if they are caught red-handed and published in the press as tax evaders.
In your expert opinion, what steps should small/medium companies do to make their businesses VAT-ready? Should they invest on a new sales software or train at least one staff to oversee that VAT is complied with?
VAT is a transaction tax, affecting all functions of the company (Finance, HR, Operations, Sales etc.). Small and medium companies should take the following general steps:
1. Review their business model and prepare a GAP analysis determining the steps need to be taken to move to VAT.
2. Prepare an action plan and mobilize the necessary resources. In that step an internal VAT-champion must be appointed. That will be the person driving the project forward as well as the knowledge keeper.
3. Implement the Action Plan.
4. Test the Implementation.
5. Assure Post Implementation Assistance. It is critical that from VAT start date until the first or second submission the company tests regularly its transactions and its compliance procedures, safeguarding the correct application of VAT Law.
We must stress the need for constant training of all company employees handling VAT transactions and a continuous update on all the new VAT Law developments. VAT Knowledge will build eventually in the companies, but it needs effort and time.
In the logistics industry, how important is it in fully understanding VAT? Why?
The logistics industry and companies active in trading and offering services between the GCC countries will be the most challenged ones from the introduction of VAT. If we wanted to classify VAT transactions according to place of supply we could categorize them as domestic (within a country) and cross-border (between two countries).
Cross-border transactions in the case of GCC and EU only, being a single market of independent countries, can be further classified to supplies between any GCC country and a 3rd country and intra-GCC or Internal supplies being supplies between two (2) GCC countries (e.g. forwarding services from a UAE forwarder to a Kuwait company).
Logistics companies will have to deal with the full spectrum of transactions in VAT, must be able to identify and invoice correctly all steps in a transaction (e.g. shipping, clearing, handling, storing, transporting etc.), as well as offer correct advise to their clients on VAT during import and cross-border movement of goods.
In our view, logistics companies will have to invest in training their operations, sales & finance personnel, adapting their IT systems as well as in drafting & putting in place compliance systems to assist them during any tax audit. Additionally, they will have to improve their KYC (Know-your-customer) procedures & update their Customer & Vendor Masters with more detailed information & the VAT TIN to be issued.
Closing, the introduction of the new electronic systems for monitoring the Internal Supplies (movement of goods between member states) will create the need to adjust internal procedures and increase the amount of work handled.
The interview was taken from Markos Brotzakis, Gulf Tax Consultants Founder, for the June 2017 issue of the magazine of NAFL.
Federal Law 7 of 2017 on Tax Procedures applies to Federal Tax Authority tax procedures related to the administration, collection and enforcement of federal taxes. Executive Regulations will follow giving detailed procedures on a number of issues described in the Law.
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 U.A.E and the G.C.C, please contact our team.
Main points addressed by the Law, impacting U.A.E businesses to be registered for VAT and excise taxes are:
Accounting Records and Commercial Books
Submission of Tax Returns, information, records and documents to FTA must be in Arabic. In case they are in any other language a translation might be needed at the expense of the taxpayer.
- Taxable Persons must apply for Registration.
- Use of Tax Registration Number (TRN) in all communications with FTA
- Changes in taxable person’s information affecting its Tax record must be communicated within 20 business days
- Appointment of Legal Representative must be communicated to FTA within 20 business days from appointment
- Incomplete Tax Returns are considered will be treated as not having been received.
- Taxable Person is responsible for the accuracy of the Tax Return data.
- Payment less than the Payable Tax amount, will trigger the issue of a Tax Assessment by the FTA and the relevant penalties.
In the Law is allowed to provide voluntary disclosure correcting errors in Tax Returns and Tax Refund Applications.
- Tax Agents are persons appointed to act on behalf of a Taxable Person with regard to its Tax affairs with the FTA.
- Tax Agents must meet certain conditions and be registered with the Authority.
- Tax Audit can be performed at FTA office or at the place of business of the Taxable Person.
- In case of an audit at the place of Business, FTA has to inform the business 5 business days in advance.
- In certain cases, FTA can shut for 72 hours any place where the Business carries its business, stores its goods or keeps its records subject to a prior written consent of Director General.
- Audited Person has the right to:
- request the Tax Auditors show their job identification cards.
- obtain a copy of the Tax Audit Notification
- attend the Tax Audit which takes place outside the Authority
- obtain copies of any original paper or digital documents seized or obtained by FTA
A number of violations is prescribed in the Law, where an Administrative penalty will be issued. The amount and the procedure will be issued by the Cabinet, but it will not be less than AED 500 and more than 3 times the amount of Tax in respect of which the Administrative penalty was levied.
Tax Evasion Penalties
Tax evasion carries penalties of monetary penalty not exceeding five times the amount of evaded tax and/or imprisonment. More severe penalties applicable under any other law (e.g criminal) might also apply.
In the Law is set the framework for resolving disputes between the Taxable Person and the FTA. The steps are:
- Apply to FTA to reconsider. If rejected or reconsideration is not satisfactory than appeal to:
- Tax Disputes Resolution Committee.
- For total Tax and Administrative penalties up to AED 100.000, its decision are considered final.
- Court. Committee’s decisions can be challenged at the competent court.
Refund and Collection of Tax
The Law sets some procedures relevant to application for Tax Refund and collection of payable taxes.
- 5 years from the end of the relevant Tax Period, for cases where there is no tax evasion.
- 15 years in case tax evasion is proven.
- 15 years in case of non-registration for Tax purposes.
For a more detailed reading and a download of the English text of the Law, you can access it in our Knowledge Base, following the below link:
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.
Saudi Arabia ratified its domestic VAT Law, keeping up with implementation timelines. In the following link you can the Official Government Gazette publication in Arabic.