VAT FAQ: What you need to know?

When will VAT be implemented?

VAT will be introduced in the UAE, along with other Gulf countries, from the beginning of 2018 at 5 per cent.

How does it work?

Companies in the UAE that report annual revenues of over Dh 3.75 million will be obliged to be registered under the GCC VAT system, the Undersecretary of the UAE Ministry of Finance, Younis Al Khoury, said.

Al Khoury also confirmed that companies whose revenues fall between Dh1.87 million and Dh3.75 million will have the option to register for VAT during the first phase of the VAT implementation.

He also mentioned that it will eventually 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.

What will be exempt from the tax?

The UAE government has already announced that 100 food items, health, education, bicycles, and social services would be exempted from VAT.

What will be taxed?

Electronics, smart phones, cars, jewellery, watches, eating out, and entertainment will fall under the taxed category. GCC countries are also expected to introduce excise duties on certain beverages that are deemed to be harmful to health, including those with high sugar content.

Will VAT be a cost to the business?

Where you are engaged in the supply of goods or services that are subject to VAT (including at the zero rate) you will be entitled to reclaim VAT you incur on costs. Where you are engaged in activities that are exempt from VAT and you cannot reclaim VAT incurred on costs, VAT will be a cost to your business (as suppliers will charge VAT that you cannot reclaim).

Will this impact economic growth of the UAE?

Our analysis suggests that it will help the country strengthen its economy by diversifying revenues away from oil and will allow us to fund many public services. This is a sign of a maturing economy.

Will I pay VAT every time I purchase something at the grocery?

No. There will be a number of items in your shopping cart that will be VAT-exempt. Younis Al Khouri, undersecretary at the Ministry of Finance, has said that GCC states had already agreed to exempt about 94 food products, as well as the healthcare and education sectors. That means your grocery, hospital or school bills will most likely remain unchanged, unless there are price hikes. A new law, however, has yet to be released to specify which items are non-taxable.

How about buying airline tickets, will it also be taxable?

Since the VAT law is not out yet, there is no definitive answer to this. But judging by the VAT implementation in other countries, there is a likelihood that the price of airfares won’t go up because of VAT. “We will have to wait and see, but if we look at examples in other countries, for instance in the UK as well as in Singapore (where VAT is called GST), passenger transport carries VAT at zero percent. So, it is expected that air tickets in the UAE may be carrying similar VAT rate of zero percent,” said Pardasani.

Will the 5 per cent VAT increase the cost of living in UAE?

The cost of living will likely go up slightly for a lot of people, but this will all depend on the individual’s buying preferences and lifestyle. If you keep on taking home things that are taxable and maintain an expensive lifestyle, expect your outgoings to increase. “If you ask me, I don’t think 5 per cent will break the bank,” said Pardasani, when asked whether VAT will make dining at restaurants costlier. “If one is to spend mainly on items which are not attracted by VAT, then the cost of living of the individual is unlikely to have any significant increase,” according to the Emirates Chartered Accountants Group.

Will businesses be penalised if they don’t collect VAT?

Businesses are encouraged to implement the new tax system, but the Ministry of Finance said that the government is currently in the process of defining the exact fees and penalties for non-compliance.

When will registration for VAT begin?

If the initial date for the VAT roll-out is followed, businesses can probably start registering for VAT from 1st October 2017. As announced recently, the registration will be open three months before the go-live date. Companies will have the option to register online.

How often are companies required to file VAT returns?

For most businesses, VAT returns should be filed every three months. Filing of returns can also be done online using the government’s eServices.

should companies start hiring VAT professionals?

Hiring new staff that will enable businesses prepare for and implement the new tax policy should be done at this point in time. “Companies should have started to think about the additional resources they would need to ensure VAT compliance. Depending on how tedious / frequent the process is, companies would need resources based on the complexity of their operations. But one thing to bear in mind is that VAT is not only a finance issue,” said Pardasani. “It flows through all operational departments of the company. This is because wherever a company acquires products or services, it may pay VAT and it would need to capture all the documentation relating to VAT paid, in order to claim refunds.”