Companies should register for VAT before 31 October 2017. The Federal Tax Authority (the Authority) recently announced that companies and MNCs with a turnover exceeding UAE Dirhams one hundred and fifty million (AED 150,000,000) per annum should register under the Federal Law Number (8) of 2017 on Value-added Tax (the VAT Law) before 31 October 2017. Entities with an annual turnover of over UAE Dirhams ten million (AED 10,000,000) should register with Authority before 30 November 2017. All companies falling within the purview of the VAT Law should submit their application for registration before 4 December 2017 and have to be registered by 1 January 2018. This notification may create some chaos initially but is ultimately aimed to avoid last-minute applications. The registration will be divided into two parts – namely, mandatory registration and voluntary registration. As per authorities this system of registration will stop last-minute rush from the companies on registration for the new VAT and the online portal will ease the registration process. The Authority requires businesses to show documents that produce evidence of company's activity and analyze the transaction (this has been explained below as per article 78 of the VAT Law).
Do companies have the time, awareness and knowledge to embrace the enactment of value added tax (the VAT) in January 2018? The compliance requirements under the VAT Law include internal changes in their system including bookkeeping and financial management, the operating system of accounts, besides charging VAT on taxable goods or services they supply. Firms in the UAE will be responsible and accountable to take these measures and understand the new VAT law and take all possible measures to comply with the VAT Law.
In our previous article, we had explained the provisions of the VAT Law and its implications on the country's commercial and industrial sectors. In this article, we have explained the procedural aspects of the VAT Law and how companies should register themselves and comply to the provisions of the VAT Law.
Article 65 of the VAT Law states as under:
- companies should issue an original tax invoice in the supply of taxable goods and/ or services and deliver it to the recipient.
- Companies should issue an original tax invoice in the deemed supply of taxable goods and/ or services and deliver it to the recipient. In case the recipient of the goods and/ or services is not available, then the company should retain the original tax invoice for their accounting records.
- Companies making the taxable supply (of goods or services) should issue a tax invoice to the recipient within fourteen (14) days from the date of supply (article 67).
- The Company that issues a tax invoice and receives the tax amount should pay this amount to the Authority even if the tax has not become due under the VAT Law.
Companies should be transparent and clear in declaring VAT paid (or payable) on every transaction. The Executive Regulation (that is yet to be published) will specify laws concerning data to be included in the tax invoice, the conditions, and procedure for issuing an electronic tax invoice, cases where the registrant does not have to issue and deliver a tax invoice to the recipient of goods or the recipient of services. The Executive Regulation is also expected to lay down the conditions when other records (or documents) could substitute the tax invoice as well as the requirements thereof and the data to be included therein.
Some of the compliance requirements have been laid down in article 78 of the VAT Law and states that companies should maintain the following records to comply with the VAT Law:
- Records and document(s) of import, export, and supply of goods and services;
- tax invoices and tax credit notes received when they purchase products or obtain services of other entities;
- tax invoices raised and tax credit notes issued;
- detailed list of goods and services that were used outside the course of business;
- detailed list of goods and services purchased or used - when tax was not deducted;
- a complete list of exported products and services;
- the valid record(s) of any amendments in the internal accounts and tax invoices;
- a full list of taxable products and services delivered or received; and
- a tax record (journal) including the due tax on products supplied, due tax after amendments, tax that may be recovered in case of supplies or imports and the taxes that may be recovered after alterations.
Firms will charge VAT to their customers at the current rate(s) and will be subject to pay the VAT on goods and services they obtain from their suppliers. The difference between these amounts is reclaimed or paid to the government. Therefore, the success of this procedure ultimately depends upon the procedural aspects that the Federal Tax Authority undertakes to implement the VAT Law - that only time can tell, certainly. However, the government is expected to have adequate methods in place to ensure that the implementation of VAT does not permit companies to unnecessarily increase the price of goods and services. Nevertheless, it is anticipated that the cost of living in the UAE may increase slightly with the implementation of the VAT Law as a majority of businesses within the UAE transacts in sales of goods or services. Tourists will also be covered under the payment of VAT and it may impact the sentiments of the tourism sector in the UAE as well. However, the ambit of this article is not restricted to this statute.
Federal Law Number 7 of 2017 on Tax Procedures (the Tax Procedure Law) has addressed the procedural aspects of enforcing the VAT Law and collecting federal tax in the UAE. This statute has laid down regulations regarding the collection and administration of VAT (and other Federal taxes) in the UAE. Among other things, it broadly covers tax evasion compliance areas such as tax computation, filing tax returns, audits, claiming tax refunds, and obligation of taxpayers to register themselves.
The Tax Procedure Law mandates companies to maintain accounting records and commercials of their activities – the specific list of documents have been mentioned in article 78 of the VAT Law. For instance, according to the article 5 of the Tax Procedure Law, reports such as tax return(s), and other documents and recording pertaining to tax must be submitted to the Authority in Arabic. However, this may raise a question on whether all the companies (registrants) should maintain all the internal documents in Arabic. Well, the answer is no. The Authority may accept these documents in other languages as long as they are submitted along with the Arabic translations. In line with international taxation standards, the Tax Procedure Law has also placed vital importance to the Tax Registration Number (TRN). The Authority will provide an exclusive TRN to each taxpayer and article 6 of the Tax Procedure Law states that companies should explicitly mention this TRN in all their applications and correspondence with the Authority.
Procedure to Pay Tax
While making a tax payment, companies should specify the TRN, relevant tax period and the type of tax to ensure that the Authority adjusts the tax to their accounts respectively. If a person pays more than the taxable amount, the authority has the right to allocate the difference the next tax period. However, taxpayers may apply for a refund of this excessive payment before the Authority adjusts the difference. But the Authority may adjust the tax amount (paid) in accordance with the Executive Regulations if a person makes a payment without specifying the type of tax or the tax period. Therefore, companies are recommended to maintain a full database of their tax liability to avoid penalties and last-second hassles.
Audit and Dispute Resolution
Further, the authorities have also been conferred with the power to conduct tax audits in the offices or business premises of any person or entity after serving a five (5) days' notice to ascertain the extent of that person's compliance with the VAT Law and Tax Procedure Law. During the audit, the authorities may obtain originals or copies of the relevant documents or take samples from the stock of the taxpayers. The Executive Regulations will discuss more on the Authority's right to audit taxpayers.
The Tax Procedural Law has also established a dedicated Tax Dispute Resolution Committee under article 28 and 29. Any party who is aggrieved by a notification or decision of the Authority may submit a request for objection within twenty (20) days from the date of the notification. However, the party should first raise the complaint with the Authority and ensure that the all the taxes and penalties that form the subject matter of the objection are paid before filing a request with the Committee. The Committee will issue its decision on the matter within twenty (20) days from the date of submission of the application, and this decision shall be considered as final if the disputed amount is less than UAE Dirhams hundred thousand (AED 100,000). Parties who are aggrieved by the conclusion of the Committee may file a case in a competent court within twenty (20) days from being informed of such decision.
Considering the technicalities and compliance provisions, the new Tax Procedure Law permits taxpayers to appoint a tax agent to act on their behalf in tax-related matters and liaising with the Authority. Companies may consider hiring tax specialists who are registered with the Ministry of Economy and the Authority. A person can be registered as a tax agent only if he or she was never convicted of a crime, holds a degree from a recognized university or institution, and has insurance and is medically deemed fit to perform his/her duties. Corporate entities would also need to obtain counsel and advice from tax specialists from time to time to guide them on this new regulation.
Tax rate in the UAE is considered as one of the lowest in the world and some private analysts and financial specialists argue that the VAT Law will affect the UAE's investment climate in every sector. Nevertheless, this may improve market sentiments and pave way for road development, public school, police services, waste control and much more. A final analysis of the implementation of VAT in the UAE can be explained only after the release of the Executive Regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.