VAT in UAE – Experiential intelligence
May 15, 2018 | 6:43 PM
by CA Pritam Mahure*
CA Pritam Mahure. - Supplied picture

Muscat: Phew! Its been more than four months since successful introduction of Value Added Tax (VAT) in United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) from 1st January 2018. Now, the business organisations in UAE and KSA are moving from the pre-VAT era to post VAT-era wherein VAT is becoming a day-to-day part of each business function.

Till December 31, 2017, there was neither direct tax nor indirect tax in UAE. Thus, bringing an indirect tax was a biggest socio-economic change for UAE. How has this VAT transition fared in UAE and what could be the key take-away for the neighbours? Lets understand.

Single rate

What has worked well with UAE is the fact that it brought VAT with single rate of 5 per cent (as per Gulf Cooperation Council (GCC) VAT Agreement). No other rates. Even the exemptions in UAE VAT are restricted to a list of four items only (one of them is residential leasing). This has ensured lesser complications in the VAT law. Further, the reasonable rate of VAT i.e. 5 per cent has ensured remarkably higher compliances.

Reverse Charge Mechanism (RCM) is only a disclosure

In UAE, if credit is available, RCM is not required to be paid in cash. Thus, effectively, RCM only is a disclosure for VAT return purposes. To facilitate tracking of import transaction and the VAT liability thereon, the VAT registration numbers were linked with customs code. To some extent, this also has simplified the VAT compliances for the businesses.

One page return

In UAE only one VAT return is to be filed and its just a one page return. UAE has stayed away from asking invoice level details in VAT returns! This may sound like a dream for VAT taxpayers in other jurisdictions which demand detailed invoice level details and matching of invoices. This step of asking details at gross level (than invoice level details) has certainly simplified the compliances to some extent.

Staggered VAT return filing

As per recent statistics, more than 281,000 taxpayers registered for VAT in UAE. Given this, for VAT return filing, the Federal Tax Authorities (FTA) staggered VAT return period for taxpayers i.e. based on parameters such as turnover, taxpayers were either allotted monthly, quarterly or four monthly VAT return period.

This step of FTA to stagger VAT period has ensured that there is no overload on the VAT return filing common portal. This has resulted in more than 98.8 per cent taxpayers filing their first VAT return. This compliance of 98.8 per cent is one of the highest tax compliance rate in the world!

Few challenges and their solutions

It cannot be said that there were no challenges in the initial phases of VAT in UAE. Like any country introducing VAT, taxpayers in UAE also witnessed few challenges regarding VAT implications on free trade zone, imports, supplies to other GCC countries, determining place of supply etc. To ensure the aforesaid challenges are resolved appropriately, during the transition as well as post-transition, the FTA have regularly addressed seminars. Further, FTA published various VAT guides and flyers on social media platforms. This has also helped put many doubts on VAT applicability on to rests!

Additionally, FTA also ensured that the VAT Decree Law as well as Executive Regulations are available in both, Arabic and English language. This step of FTA helped the multi-national companies in appropriately decoding the VAT provisions and implementing VAT appropriately.

Way forward for VAT in GCC

As per the news reports, after the successful introduction of VAT in UAE and KSA, the other four signatories to GCC VAT framework i.e. Oman, Bahrain, Kuwait and Qatar are also considering introduction of VAT in 2019 or onward.

Experience of introduction of VAT in the UAE and KSA shows that a detailed roadmap of introduction of VAT including likely dates when the draft VAT law and regulations could provide an environment of certainty for businesses. Further, early sharing of criteria and process of VAT registration by VAT Authorities could also ease the transition.

Introduction of VAT entails co-ordination between multiples authorities such as customs authority, property registration authority, price regulation authority, corporate tax authority etc and thus, early initiation of dialogue between various authorities could be helpful.

Now, with VAT knocking on the doors, businesses need to roll-up the sleeves and strategies their transition to the idea (VAT) whose time has come.

* (The Author who has written five books on VAT, is Partner withMMJS Tax Consultancy, Morison Muscat Associate Firm)

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