VAT (Value Added Tax)
VAT And TAX Advisory Services:
Gulf Co-operation Council (GCC) countries have agreed ‘in principle’ to the GCC VAT Agreement to implement VAT (Value Added Tax) in the region. VAT is a type of indirect tax and the most common type of consumption tax found around the world.VAT is charged at each step of the ‘supply chain’. End consumers generally bear VAT cost while registered businesses collect and account for tax, in a way acting as a tax collector on behalf of the Federal Tax Authority.
Synopsis of VAT in UAE with Compliance & Requirements:
VAT, a general consumption tax, will apply to most transactions in goods and services. Only a few items are exempted from VAT in the UAE. A couple of items are zero-rated and the rest of the items are standard rated. The criteria for VAT registration is based primarily on the annual turnover of business entity. The government has decided to implement VAT in UAE by 1stJanuary 2018. The standard rate of VAT in the UAE is 5%.
Output VAT:
Output VAT is the value added tax calculated and charged on the value of sales of goods and services.
Input VAT:
Input VAT is the value added tax paid by a business to the supplier of goods and services when goods are purchased or services are rendered. If buyer is registered in the VAT Register, the buyer can deduct or claim refund of input tax paid on his purchases.
Exempt Supply:
An exempt supply is a supply on which VAT is not applicable and for which the related input VAT is not deductible / non-refundable. For example: bare land, local transport, sale of residential property (second sale onwards) and lease of the residential property.
Zero rated supply:
A zero-rated supply is a taxable supply on which VAT is charged at 0% and for which the related input VAT can be claimed as refund from FTA.
Standard Rate Supply:
A taxable supply at the Standard Rate is a supply on which VAT is charged at 5% and for which the related input VAT is deductible. All items which are not falling under exempt and zero rated category are covered under standard rated supplies.
Reverse charge mechanism under UAE VAT:
In the UAE- VAT, the Reverse Charge Mechanism is applicable while importing goods or services from outside the GCC countries. Under this mechanism, businesses will not have to physically pay VAT at the point of import. The responsibility for reporting of a VAT transaction is shifted from the seller to the buyer; under Reverse Charge Mechanism. Here the buyer reports the Input VAT (VAT on purchases) as well as the output VAT (VAT on sales) in their VAT return for the same quarter. The importer has to disclose the amount of VAT under both Input VAT as well as Output VAT categories of the VAT return of that quarter. Reverse Charge Mechanism eliminates the obligation for the overseas seller to register for VAT in the UAE.
Compliance & Requirements
VAT Registration Threshold
If the value of taxable supplies during past twelve months is more than AED 375,000/, it is mandatory for the company to register under UAE VAT before the end of the year 2017. If the Annual Turnover is between AED 187,500 & AED 375,000/, it is optional for the company to be registered under UAE VAT law. Further, if it is less than AED 187,500/, the company need not register under this law.
Record Keeping
It is mandatory for every taxable person to maintain proper record of all their sales and purchases and other transactions related to their businesses. These records are required to be maintained for a minimum period of 5 years.
VAT And TAX Advisory Services at PAAC
With the professional and effective team of PAAC, we are able to offer customized services based on individual client requirements, specifically targeted to the relevant industry. PAAC will follow a three-phase approach for most engagements seeking a comprehensive solution; however, a tailor-made strategy is always an option based on the needs of the business.
An impact analysis is of particular importance in this market as VAT is currently being introduced for the first time. Businesses need to determine the impact of VAT across all areas of operation, achieved through a detailed analysis of operations from primary input to final output. This phase will also evaluate the VAT readiness of the business and staff to focus training and implementation efforts in Phase II.
Consider the impact on the following key areas:
Sales and Marketing
Supply Chain
Contracts
Terms of Payments with Debtors
Finance and Accounting
Cashflow Issues
IT Systems
Training of staff and implementation of policies and procedures is the next most essential phase of the VAT journey. These are tailored to the needs of the business, as established in Phase I, and conducted side by side to ensure that trained employees completely understand the amended policies and procedures for efficient implementation.
Individual members of the team will receive appropriate training that is industry specific.
Post formal training, there will be continued access to our VAT specialists through a helpline, by phone and email, to troubleshoot any issues on a day-to-day basis.
All services offered in the above phases can be split up as required and a tailored approach can be executed based on the individual options below.
Awareness and Compliance Seminars – ranging from basic VAT awareness to industry specific seminars.
Training of Team Members
Guidance on Registration
Setting Up or modifications in Chart of Account as per VAT Laws
Selection of Appropriate VAT Scheme
Contract Review from VAT perspective
VAT Return Preparation and Submission
FTA Queries and Assessments
Planning and Strategy