VAT is an indirect tax and will be levied at each stage of supply chain start from manufacturing to consumption. VAT will be implemented from 1st January 2018 in UAE and other Gulf Countries at the rate of 5 per cent. According to Khaleej times, It has been disclosed that 94 basic food items would be exempted from the VAT as well as services which include health, education, bicycles and social services would be tax exempt. Yet VAT laws has not been disclosed in UAE or other GCC countries, however, there is no official confirmation which basic food items will be exempted from the tax.
Finbarr Sexton, Mena Indirect Tax Leader at Ernst & Young stated that there has been no official announcement of 94 basic food items that are zero rated for VAT purposes. Sexton also added that We expect that Basic food items will be zero rated for the implementation of VAT purposes and these basic food items are exempt from the customs duties and we expect the same food items with limited additions to be VAT zero rated.
Basic food items which include coffee, tea, fresh fruits, wheat and cereal flours, infant milk foods, sugar, uncooked pasta and other.
Processed and cooked food items fall under the category of luxury goods which includes soft drinks, confectionary, chocolates, candies are expected to be levied VAT at the rate of 5 per cent. Goods which are hazardous to health which includes Alcohol, Tobacco, Hard drinks will be levied VAT at the rate of 5%.
A lot of groundwork will be required before the implementation of VAT. The private sectors will want more time for the compliance of taxation rules. It is estimated that UAE will generate Dh12 billion income in UAE in the introduction year after the implementation of UAE.
All six member countries of GCC and UAE had mutually agreed and signed VAT laws. VAT laws in UAE had approved by the finance ministry and it is going to introduce across UAE. Finance Ministry of UAE has disclosed that VAT laws framework agreement will be announced in October 2016.
VAT on real estate sector is one of the most complex structures that governments in the region have to make a determination on. From the VAT point of view, Real Estate sector divided into three categories i.e., undeveloped property, residential property and developed commercial property, However, Rent of commercial property may be treated differently from the rent of the residential property.
VAT is an indirect tax and it will impact ultimately the end consumers, specifically low-income group, and tourists. After the introduction of VAT in UAE will automatically enhance the price of goods and services. Several businesses, industries or companies such as real estate sector, tourists, hospitality will be affected with the introduction of VAT in UAE. Due to implementation of VAT in UAE from 1st January 2018 will increases the prices of goods or can lead to inflation
Companies or business enterprises must have to remember following points before the implementation of VAT in UAE or Gulf Countries:-
Invest in updating software systems of business or apply Enterprise Resource Planning Software System will be required to accommodate VAT into their daily routine activities
Aware staff, employees, and stakeholders about the implementation of VAT in UAE which will implement from 1st January 2016
Educate team or existing staff about how to ensure that tax calculations are done professionally and Hire trained staff who have a knowledge of taxation system
Maintain proper bookkeeping accounts of daily routine activities for filing returns timely