Countdown revs up for VAT implementation in UAE
VAT comes into effect from 7am on January 1, 2018 in the UAE.
Dubai - Companies invited them to 'work together for the advancement, progress and prosperity of the UAE'
The message is loud and clear to all UAE businesses required to register for value-added tax (VAT) to complete their registration prior to the January 1, 2018 deadline or face penalties for late registration as executive regulations have been approved by the Cabinet.
The UAE's Federal Tax Authority (FTA) on Wednesday announced that the countdown has begun as 53 days are left in total, of which 35 are working days, before VAT comes into effect from 7am on January 1, 2018.
As part of the GCC-wide agreement, the UAE and Saudi Arabia will be the first countries to implement VAT while the other countries will follow. VAT has been set at a standard rate of five per cent on the import and supply of goods and services at each stage of production and distribution, as well as on deemed supply.
All those businesses are required to register if the total value of their taxable supplies made in the UAE exceeds Dh375,000 during the 12-month period. A business may choose to register for VAT voluntarily if its supplies and imports are below the mandatory registration threshold.
VAT is expected to generate Dh12 billion revenues for the government in its first year and Dh20 billion in its second year.
The UAE Ministry of Finance has announced that the executive regulation for the Federal Decree-Law No. (8) of 2017 on VAT at a Cabinet has been approved.
Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and Minister of Finance, said the release of the Executive Regulation of Federal Law No. (8) of 2017 on VAT is a new stage in the implementation of an effective tax system in the UAE - one that measures up to the highest international standards.
"We extend our hand in partnership to all concerned parties, inviting them to work together for the advancement, progress and prosperity of the UAE," Sheikh Hamdan said.
Explaining the executive regulations, Thomas Vanhee, founding partner at Aurifer Middle East Tax, pointed out that supplies to free zones are subject to VAT. This means potentially high VAT pre-financing for companies in fenced free zones such as Jebel Ali Free Zone and Dubai Airport Free Zone, etc.
Khalid Ali Al Bustani, director-general of the Federal Tax Authority, said: "We have allowed businesses considerable time to fulfill their registration requirements, with free registration through our website 24 hours a day, seven days a week, as well as extensive awareness campaigns. The registration process is seamless and simple, taking no more than 20 minutes." Al Bustani added: "With the countdown to the introduction of the tax system, we call on businesses to expedite their registration and compliance procedures. They must make changes to their core operations, financial management procedures, accounting methods, and the technical means they use, in addition to changes in their human resources, including accountants and tax advisers."
Speaking on the impact of VAT on UAE-based firms, Mansoor Sarwar, regional technical director for the Middle East at Sage, said compliance with the UAE VAT law requires significant changes to a firm's technology, operations, financial management and accounting practices. The reality is that businesses in this region have never had to deal with taxation before, and it is unlikely that their current systems are VAT-ready.
"Investing in a cloud-enabled accounting solution can streamline the VAT collection, record-keeping and reporting processes," he added.