Implementation of VAT (Value Added Tax) in the UAE

Back to News

The United Arab Emirates and other GCC (Gulf Cooperation Council) countries have decided to implement Value Added Tax for all business transactions inorder to strengthen the Governments for providing adequate infrastructure, safety, security, public services and welfare of the people.

Towards the end of 2017, the Finance Ministry will start registering companies for value added tax that are above the yearly threshold as the country gears up for applying the 5% levy from January 1 2018. The Companies have to keep record of their financial transactions and make sure that all records are accurate. The companies in the UAE that report annual turnover of over Dh 3.75 million will have to register under the GCC VAT system. As per the government the companies whose revenue fall between Dh1.87 million and Dh3.75 million will have the option to register for VAT throughout the first phase of the VAT implementation. The government also mentioned that it will ultimately become obligatory for all companies to be registered under the system, when it is rolled out in the second phase, regardless of the reported revenues.

VAT is charged at each step of supply chain. The ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

The tax collected from the customers is paid to the government by the businesses while it may also receive a refund from the government on tax that it has paid to its dealers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.

WHAT COMPANIES SHOULD DO?

• Must charge VAT on taxable goods or services they supply
• May reclaim any VAT they’ve paid on business-related goods or services
• Keep a range of business records which will allow the government to check that they have got things right

If your business is registered for VAT you must report the VAT amount charged for you and the amount you paid to government on a regular basis. This will be an official submission and it is probable that the reporting will be made online.

If the amount of VAT charged is more than you have paid then you have to pay the difference to the government. And if the amount you paid is more than you have charged then you can reclaim the difference.

WHAT DOES A BUSINESS NEED TO DO TO PREPARE FOR VAT?

The businesses will have the time to get ready before VAT will come into effect. The businesses need to make few changes in their core operations book-keeping and financial management, human resources, technology, etc. to comply totally with VAT. It is important that businesses try to understand the implications of VAT now and once the legislation is issued make every effort to align their business model to government reporting and compliance requirements. The final responsibility and accountability to comply with law is on the Companies.

WHEN ARE BUSINESSES SUPPOSED TO START REGISTERING FOR VAT?

The businesses that meet the requirement criteria are expected to register for the VAT three months before the launch of VAT. Using eServices businesses will be able to register for VAT through online.

HOW OFTEN ARE REGISTERED BUSINESSES REQUIRED TO FILE VAT RETURNS?

The VAT return submission is expected on a regular basis for registered Companies. The default period for filing Vat returns for the majority of businesses is expected as three months. The return can be filed through online eServices.

WHAT KIND OF RECORDS ARE BUSINESSES REQUIRED TO MAINTAIN, AND FOR HOW LONG?

The businesses will need to maintain the records which will allow the authorities to identify the details regarding the business activities and to review transactions. The details regarding the documents which will be required and the time period for maintaining them will be informed by the authorities.

HOW AURION CAN SUPPORT?

Aurion can extend support by providing assistance of experienced Accountants for guidelines and submissions of documents, complying with the law. Team Aurion can act as a single window solution for all your company requirements.