Who can or will be able to register for VAT?
The mandatory registration threshold for a normal business under VAT is AED 375,000, i.e., the minimum taxable supplies and imports should be higher than this amount.
The voluntary VAT registration threshold is AED 187,500, i.e., the minimum taxable supplies and imports value should be higher than this amount for voluntary registration.
Startups and smaller businesses having expenses over AED 187,500 can also register voluntarily under VAT, irrespective of their turnover.
What are the VAT-related responsibilities of businesses?
All the business holders across the country will need to keep the record of their financial transactions accurate and up to date. The businesses, which meet the minimum annual turnover fixed by the government, will have to register for VAT.
VAT-registered businesses generally have to follow the given instructions:
- They must charge VAT on all the taxable goods and services they provide.
- They can reclaim any VAT they’ve paid on goods and services.
- They have to maintain proper business records so that government can check that things are going in right direction.
- VAT registered businesses must report the amount of VAT they’ve charged and the amount of VAT they’ve paid to the government on a regular basis. If the charged VAT is more than the VAT paid to the government then the business holders have to pay the difference to the government.
What does a business need to do to prepare for VAT?
The business organisations will have enough time to get prepared before the implementation of VAT. Business holders should the preparation as soon as possible so that they will be ready at the right time. Businesses will also need to make some changes in their basic operations, their financial management and book-keeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). Businesses have to understand the implications of VAT and should make every possible effort to work honestly with the government after the implementation of VAT.
When are the businesses supposed to start registering for VAT?
The businesses that fulfill the requirement criteria will be able to register for VAT before three months of its launching via eServices.
How often are registered businesses required to file VAT returns?
Registered users are likely to submit VAT returns on a regular basis. The default time period for filing VAT returns is expected to be three months for a majority of businesses. Registered businesses will be capable of filling their returns using online eServices.
What kind of records are businesses required to maintain, and for how long?
Businesses will have to maintain genuine records so that government authorities will be able to identify the details of the business activities and review transactions. The time period and more details regarding the documents will be announced in due course.
How long must a taxable person retain VAT invoices for?
A taxpayer must keep his VAT invoices for at least 5 years from the date of issuance.
How should a business determine the place of supply?
The Place of Supply will be used to determine whether the particular supply is taxable within the UAE or not.
The location of goods when the supply takes place will be treated as the place of supply for goods, with special rules and exceptions for some categories including cross-border supplies, water and energy supplies, etc.
For services, the place of supply would be the location of the supplier, with special rules for some services such as cross-border supplies.
Can businesses offset customs duty against VAT payments?
VAT will be levied in addition to the customs duty on the imports of goods. VAT cannot be deducted or reduced in such cases, and it will be levied on the supply value plus customs duties.
How will real estate be treated under VAT?
VAT will be applied differently on commercial properties and residential properties.
The standard 5% VAT rate shall be levied on the supplies (sales or leases) of commercial estates. However, the supplies of residential properties will be exempt from the VAT with a few conditions.
What sectors will be zero-rated?
The following categories of taxable supplies will be zero-rated under VAT:
- Supply of specific health care services and relevant goods/services
- Supply of certain education services and relevant goods/services
- The first supply of new residential properties within 3 years of the construction
- Some investment grade metals like gold and silver.
- Transport to international markets and other related supplies
- Supplies of certain transportation vehicles including aircraft and ships.
- Exports made outside GCC
What sectors will be exempt?
VAT will be not be levied on the following sectors or categories of supplies:
- Bare land
- Certain financial services
- Local transport for passengers
- Residential properties
Will there be VAT grouping?
A VAT group can be formed and registered by businesses that fulfill the basic requirements as mentioned under the VAT Legislation. VAT grouping might make the VAT accounting easier for some businesses.
Will there be bad debt relief?
VAT registered businesses that may have previously written off any bad debt can reduce their output tax liability by the VAT amount on such debt. The terms and conditions of such relief will be explained in the Legislation.
Will there be a margin scheme?
The VAT-registered dealers involved in the sales of secondhand items will have to pay the VAT only on the difference value between the actual purchase price and the sale price of the item (i.e., the profit margin). This is to avoid doubt-taxation on items on which VAT was already levied during the first time supply.
How will partial exemption work?
The input tax paid on the business expenses relating to a taxable supply by a VAT registered person can be fully recovered. However, the expenses made on a non-taxable supply may not be eligible for input tax credit.
There are some expenses that may include both taxable and non-taxable supplies, and the registered person will be able to recover only partial input tax which will be apportioned between the supplies.
What are the cases that would lead to the imposition of VAT penalties?
The following actions will be treated as non-compliance of VAT rules and may result in penalties:
- An eligible person not registering for VAT
- A registered person not filing returns or paying taxes on time
- A registered taxpayer who is not maintaining proper tax records as instructed under the legislation
- When a person deliberately avoids paying taxes or pays wrong tax amount.
Will there be any special schemes for SMEs?
No, there will be no special rules or schemes for SMEs as such, but the FTA will provide required help, guidance and resources to assist businesses with compliance in the new tax system.
Will there be transitional rules?
There will be some special rules to deal with the situations regarding the supplies made during the VAT introduction and transition period. These situations may include the following:
- If the payment for a future supply is received before the VAT implementation and the actual supply is made after the introduction of VAT, the supply will be covered under the VAT system. The rule will apply to the supply of both goods and services.
- If a contract was made before the implementation of VAT but the actual supply is made in partial or whole after the VAT implementation, and the contract doesn’t mention anything about VAT compliance, then the supply will be considered under VAT. There will be provisions such that the supplier can charge VAT from the recipient who can recover it from someplace else.
How will insurance be treated?
Life insurance will be exempt from the VAT. Other general insurance types, including medical and vehicle insurance, will be taxable.
How will financial services be treated?
It is not confirmed but fee-based financial services will be taxed under VAT whereas margin based services might be exempt from tax.
How will Islamic finance be treated?
Under the VAT system, all kinds of financial services including Islamic finance products/services will be treated the same.
Can UAE nationals claim VAT?
A UAE national not registered under VAT might still be able to claim VAT paid by him on the construction goods and services when building a new residence for his personal/family use. This will include the VAT paid on construction materials and contractor services.
How quickly will refunds be released?
Refunds will be made within a few days after the receipt of the application, subject to the validation and verification of fraud claims.
Will FTA issue rulings advice on tax?
To facilitate interaction with taxpayers, the FTA may often share its views and/or provide advice on certain tax matters and laws. Taxpayers may even challenge an FTA rule or view. There will be penalties for violation of tax rules and regulations.
Can a business issue a cash receipt in place of a VAT invoice?
All the taxable supplies must include valid VAT invoices in the format specified in the VAT legislation. In certain conditions, the registered supplier may issue a simplified tax invoice which will also be in a prespecified format.
Are there any VAT types on which input credit cannot be claimed?
Input credit will not be available on tax paid on certain types of expenses, such as expenses on non-taxable supplies, entertainment expenses, etc.
Under which conditions VAT can be claimed by businesses on their expenses?
Businesses can claim VAT on expenses in the following conditions:
- The business must be a registered taxable entity
- Must have proper documentation to show the VAT paid
- VAT input credit can only be claimed on the actual amount and only within 6 months from the agreed date of payment.
- The VAT should have been paid in full and correctly.
- Input credit can be claimed only if the received goods/services are or will be further used for making taxable supplies.
Does a non-resident need to register under VAT?
A non-resident making taxable supplies within UAE needs to register under VAT and pay tax unless any other registered UAE resident is already paying VAT for such supplies. For example, a UAE business purchasing supplies from a non-resident and accounting for VAT on these supplies under reverse charge mechanism.
Is VAT applicable on imports?
Yes, VAT will be levied on the imports of goods and services. If the supplies are being received by a registered taxpayer, he shall pay the VAT on import under the reverse charge mechanism. However, if the supplies are imported by a non-registered person, the VAT would be paid by the sender before the supplies are released to the recipient.
Will government entities be included under VAT?
Yes, the supplies made by a government entity will be applicable for VAT. However, there are some specific supplies, the ones which are not in competition with private entities or the ones supplied only by the particular government entity, which will be exempt from the VAT. Certain government entities may also be eligible to get VAT refunds to maintain their budget and operations.
The VAT on the supplies made to a government entity will depend on the supply, not on the recipient of the supply, and so such supplies will be covered under the same standard tax rate.
Will Businesses have to report on their business in each of the Emirates?
Businesses may have to provide additional information when filing their tax returns to mention revenues generated in each Emirate. The FTA will provide guidance for this. The rules will be clarified further after the launch of the VAT system.
Can VAT be levied on goods that are exempt from customs duties.
It is possible. Some imported goods which are exempt from customs duties may still be liable under VAT.