UAE VAT LAW - THINGS YOU NEED TO KNOW FOR SMOOTH TRANSITION16-11-2017
Only recently, the UAE published Federal Decree Law No. 8 of 2017 on Value Added Tax (“VAT Law”) which sets out the framework within which VAT will be levied in the UAE. VAT will be implemented across the UAE on 1st January 2018. Below we have set out the key points in relation to the implementation of VAT in the UAE and the guidelines published by the Federal Tax Authority (“FTA”).
WHAT IS VAT AND ON WHOM DOES IT APPLY? VAT is an indirect tax and will apply on the supply of goods and services in the UAE, including imports, by a taxable person for consideration in the course of business. The exempted financial services and zero-rated supplies are specified in the recently published Draft Executive Regulation of VAT Law.
TAX RATES: VAT will be charged at the rate of 5% unless the goods or services are exempt or zero rated. Exempted good and services and zero-rated goods have been recently addressed in the Draft VAT Executive Regulations, in particular and for instance but not limited to, sale and purchase of residential properties is VAT exempted. Additionally, it is important to note that the Law introduces a separate category for zero-rated supplies, for instance, exports of goods and services outside the GCC are zero-rated supplies; meaning thereby that such zero exempted businesses would be required to maintain the books for their transactions but would be eligible to claim the zero-rated VAT recovery.
GOODS AND SERVICES: It is important to establish whether a tax payer is supplying either goods or services, since different rules apply to each for the purposes of determining where and when the supply takes place.
PLACE OF SUPPLY: The place of supply determines whether a supply is made in or outside the UAE. If the supply is made outside the UAE, VAT is not chargeable. However, if a supply is made inside the UAE, VAT may be chargeable.
TAXABLE PERSON AND REGISTRATION AS PER VAT LAW:
- Taxable Person: Any person (natural or legal entity) conducting an economic activity for the purpose of generating income. Such person is obligated to register for VAT as per the registration thresholds.
- Mandatory registration: A business must register for VAT if its taxable supplies and imports exceed the mandatory registration threshold of AED375,000/- or is expected to exceed within 30 days. It is important to note that businesses that supply goods or services that are zero rated are also required to register for VAT but can recover the VAT incurred on their purchases.
- Voluntary registration: A may choose to register for VAT voluntary if its supplies and imports exceed the voluntary registration threshold of AED187,500/- or is expected to exceed in the next 30 days.
- How to register for VAT: TLG’s Corporate Department is pleased to assist in registration, implementation, and in ensuring overall compliance with VAT.
If you have any questions on the above or require legal advice and assistance with VAT registration, compliance or implementation, please do not hesitate to contact us.
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