It is essential to familiarize ourselves with this important fiscal reform.” VAT in the UAE is an extensive consumption tax that will apply to most transactions involving goods and services, unless they are specifically exempted by the law. This tax will be applied at various stages of the value chain, and businesses will be responsible for collecting and remitting the tax from end consumers. Ultimately, it is the end consumer who bears the tax burden.
Government authorities in the UAE have been diligently working to establish the VAT system. The following are key milestones achieved in this process:
1. The draft UAE VAT Law was made available through the Ministry of Finance (MOF).
2. The Federal Law on tax procedures was officially released.
3. The VAT Decree-Law was issued.
4. Online VAT registration has been opened on the Federal Tax Authority (FTA) portal.
5. The next significant task on the horizon is the finalization of the UAE executive regulations to guide VAT implementation in the UAE.
Introduction to VAT Implementation in the UAE
VAT is scheduled to be introduced across the UAE on January 1, 2018. The UAE and the Kingdom of Saudi Arabia are pioneering the introduction of VAT as the first two member countries of the Gulf Cooperation Council (GCC) to do so. Other GCC member countries, including Bahrain, Oman, Qatar, and Kuwait, are expected to follow suit in mid-2018 or early 2019.
A standard VAT rate of 5% will be applied to the supply of goods and services in the UAE. However, specific categories such as local passenger transportation, specified financial services, healthcare, and exports outside the GCC will either be zero-rated or exempt from VAT.
Clarity regarding the conditions and controls for exempting supplies mentioned in the UAE VAT law will be available once the executive regulations for VAT are released.
Preparing Businesses for VAT in the UAE
With the rapidly approaching January 1, 2018, deadline, businesses have a limited window of approximately two months to prepare for the new tax regime and become “VAT Ready.
First and foremost, it is crucial to ensure that all financial transactions are accurately recorded, and books of accounts are up to date. These records will serve as evidence for determining the minimum annual turnover threshold for registration, which will either mandate registration or allow for an exemption.
Being “VAT Ready” also involves charging VAT on taxable goods and services, accounting for the VAT paid on purchases to claim input tax deductions, and regularly filing online VAT returns to disclose VAT-related details.
Hence, the immediate first step toward VAT readiness should be to explore the best VAT software. Not only will it help businesses achieve VAT compliance once the tax is implemented but also facilitate a seamless transition into the new VAT era.
In addition to adopting suitable VAT software, it is imperative for businesses to grasp the fundamentals of VAT and its implications for their operations. It is anticipated that businesses may need to adjust their operational, financial, and accounting practices to align with VAT requirements. Some key tasks to prepare for VAT readiness include:
1. Adapt and align your business activities with the chosen VAT software.
2. Build organizational competency by educating your teams about VAT fundamentals and its impact on your business.
3. Review and adjust business processes, including pricing, procurement, invoicing, and logistics, in accordance with VAT requirements.
4. Ensure that your books of accounts are accurate and up to date.
5. Inform your vendors and customers about VAT and its potential impact on transactions.
As the UAE prepares for the introduction of VAT, businesses must make the necessary preparations to transition smoothly into this new tax system.”
You can also Register for VAT Registration on our website:
https://thevatconsultant.com/
