The value-added tax, which is going to be introduced in the UAE on January 1, 2018, is expected to bring major changes in all taxable business sectors. The construction industry of the country has already started making preparations for the new tax system. Due payments are one of the things construction companies would want to settle before the launching of the VAT.
VAT will be applicable to all payments that are processed relating to the construction of a taxable property, including the ones that were started but not finished before January 2018. Therefore, the construction industry is now trying to settle all their due payments as soon as possible to avoid having to pay VAT on the same.
Settlements of Due Property Payments Before VAT
Everyone in the construction industry of UAE is now demanding for invoices as they all want to clear all their pending invoices before the year ends. This has been going on ever since the official announcement of VAT declaration.
Many contractors have even put an official statement in their contracts that the clients are liable to pay any VAT applied to anything related to their services, except for their service fees.
The construction companies are quite happy with this transformation as they are getting immediate payments for all their services, instead of the usual 90-120 days credit periods, which had only gotten longer in recent years. However, after the implementation of the VAT, everything is expected to go back to normal, and payments will again be processed on credits, same as before. For now, the contractors and construction companies are happy to get cash immediately.
Ever since the VAT announcement, clients are focusing on buying all building materials at once for any of their upcoming construction work to avoid paying VAT on these purchases. This means a surge in quick cash for all the involved companies while a stock of building materials for customers.
Fortunately, this increased demand for building materials has not yet resulted in any price surge, which is a good thing for everyone. Some materials like steel rebar have achieved a price gain of 10-20 per cent, which is mostly affected by the international demand and supply of this material. Other building materials have been steady in price.
One reason for the increment in the price of steel is the upcoming infrastructure redevelopment programme by the US. The UAE contractors are presently sourcing cheaper steel from other countries like China instead of buying from local manufacturers to save on the cost. However, it is being estimated that more and better import options will be introduced along with the implementation of the VAT.
The country is witnessing a large number of construction projects happening on the same time, mainly because of the upcoming Expo 2020, which is expected to inflate the cost of construction related products and services for the upcoming years. Whereas the hands of most contractors are full of construction projects, clients are trying their best to keep the project’s cost in check. The industry has reported a surge of about 15-20 per cent in construction-related activities in recent months.
Placing Orders Now to Get Deliveries Before VAT
The businesses have benefited from the fact that they were given sufficient time to get prepared before the VAT is introduced officially. They are passing these benefits to their customers in a proper way by allowing them to place early orders of building materials for any upcoming projects.
As per the VAT rules, any supply that is performed before the implementation of VAT will be exempt from the VAT. That means, if a customer places an early order on building materials and related supplies with a contractor and gets delivery before VAT deadline, they may not be liable for the tax. However, it is still unclear whether VAT would be applicable to those orders that are placed before January 1, but delivery is made only after the deadline.
For the next few days, it will be crucial for contractors to find and place orders only with those manufacturers who can deliver on time.