The six member states that comprise the GCC have become the latest to join a host of countries that have introduced VAT since it was first established in France just over 60 years ago. The UAE will see it formally becoming a part of its system as of 1 January 2018. To date, the issuance of the Federal Decree-Law No. (8) of 2017 has provided some high-level guidance as to how relevant entities and people can expect the 5% transaction tax to operate.
Just as with VAT in Europe, the UAE Law provides for two rates of tax: the standard rate at 5% and the zero-rate. It also identifies four exemptions from VAT: certain financial services; the supply of certain residential buildings; the supply of bare land; and, commuters will be happy to know, the supply of local passenger transport. It is hoped that the Executive Regulations, due to be issued later this year, will flesh out some of the detail with regards to a number of aspects in the law.
Essentially, any person or business entity that makes, receives and/or supplies goods and/or services should seek advice promptly (if they have not already done so), as to whether or not they need to register for VAT. There are two thresholds based on turnover: those mandatorily required to register (the threshold being AED 375,000 per year), and those who wish to register voluntarily (the threshold being AED 187,500). The tax will be administered by the Federal Tax Authority (FTA), which will also be the body to which complaints and/or challenges can be submitted, should a taxpayer consider that there are reasonable grounds for objection.
Businesses need to act promptly and prospectively in order to prepare for VAT. This will include ensuring full compliance from an operational perspective, as well as issues relating to financial management and book-keeping, technology and possibly even those in an advisory capacity (particularly with respect to accountants and tax advisers as well as lawyers). It is anticipated that the FTA will issue guidance on how businesses should ensure that they are fully compliant with VAT legislation – however, businesses will ultimately be held to account to ensure that they have complied with their obligations.
Dentons' top-rated Middle East practice has an in-depth understanding of the nuances of each local market, stemming from more than 50 years of experience advising on a wide range of transactions in the region. Please reach out to our team with any queries in relation to VAT in the UAE.
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