VAT Consultancy Services in UAE
New compliance requirements for VAT in UAE require that businesses be compliant and operate within these new guidelines. In order to help eliminate confusion Nadeem and Umendra can help you and your business by insuring total compliance with these new rules and work to educate staff in your business who might be affected by these new changes.
We have several approaches to aid your business in these changes by offering training and awareness programs that can be implemented to meet the needs of your business and specifically the industry you are working in.
To schedule immediate training for VAT implementation in UAE please complete the following form for a no cost consultation as to how we can help you with managing and following Value Added Tax requirements.
INTRODUCTION OF VAT IN THE UAE
All the Member States of the Gulf Cooperation Council (GCC) have signed the Value Added Tax (VAT) Framework Treaty. This means that all the six member states of the GCC including the UAE have agreed to introduce the formal VAT system in their respective countries.
The VAT Framework Treaty will act as the principle guideline for VAT legislation in the UAE and other member states. The treaty will form the basis of the rules and regulations regarding VAT in respective member states of the GCC.
It has been decided that value added tax in UAE will effectively be applied to businesses operating within the UAE on January 1, 2018. Other GCC countries may also implement VAT at the same time as the UAE or by January 1, 2019 at the latest.
HOW NADEEM AND UMENDRA CHARTERED ACCOUNTANTS CAN ASSIST YOU IN IMPLEMENTING VAT COMPLIANT SYSTEM?
VAT will come with various concepts, procedures, regulations and compliance requirements. Our approach is to first understand the VAT related rules and regulations and then assist our clients in making their systems and processes in accordance with the VAT regulations and requirements.
We have broken down our approach into following points:
- Assessment of existing business systems and processes and identifying critical areas that will be most impacted from implementation of VAT.
- Review of important documents like current contracts with customers/vendors and recommendations of VAT clauses to be included in existing and new contracts.
- Provide VAT training to client staff in order to create VAT awareness throughout the organization and to prepare the organization for VAT implementation.
- Advise and assist the client’s company in re-structuring processes, procedures and transactions in order to align the client company’s current systems with the VAT rules and regulations.
- Provide advice and render support for changes in the client company’s IT structure and system.
- Train staff members that are responsible for discharging activities that are impacted by the introduction of VAT in the UAE.
- Provide assistance to clients with regards to VAT registrations, VAT rollout, preparations and filing of VAT returns.
- Provide support and assistance post implementation of VAT.
OUR VAT IMPLEMENTATION TRAINING AND AWARENESS PROGRAMS
We organize awareness sessions in which important information is conveyed to the session participants regarding VAT implementation in the UAE and VAT treaty by our VAT Experts in the UAE. These sessions can be attended by anyone be it the owners of businesses, auditors, accountants, finance professionals and IT experts.
We also offer VAT training in the UAE as it is important for individuals and businesses to be well prepared with regards to implementation of VAT in the UAE. We have tax experts that provide training to staff members of our clients and other accounting, finance and IT professionals. The training provided to accounting, finance and IT personnel basically involves applying VAT concepts in real life scenarios and providing clarity on processes and procedures that are required to be performed in order to comply with VAT requirements.
OUR VAT IMPLEMENTATION APPROACH
Mentioned below are details about the approach our tax experts adopt for successful implementation of VAT in companies operating in the UAE:
i)Existing Business Processes and Systems
Our VAT professionals visit your premises to have an understanding of your business model and existing systems in order to design a plan regarding implementation of VAT which is not only in compliance with VAT rules in the UAE but also is suitable for your business.
ii) Impact of VAT on Business
We also analyze the impact of VAT requirements on the company’s operations and systems as it is necessary for the business to know about areas that will be most affected after VAT implementation. This provides the business with an opportunity to have knowledge about critical areas on which to put focus on during VAT implementation process.
iii) Registering for VAT
In order to comply with laws and regulations with reference to VAT in the UAE, we advise our clients as to how to complete the formalities and processes in relation to registering for VAT and the date by which registration should be made by the company.
iv) Selecting a VAT Implementation Team in your Organization
In order for a business to perform its operations and processes in accordance with the VAT regulations applicable in the UAE it is important for that business to allocate duties to its personnel with respect to VAT related activities. We will assist our clients in selecting suitable candidates for discharging VAT related activities. We will also aid our clients in selecting a team or person that will head the VAT implementation project.
v) VAT Compliant Accounting Systems
The current accounting systems employed by client’s company will be analyzed first by our tax and accounting professionals after which chart of accounts with proper classification suitable for VAT regime will be recommended. Guidance will also be provided to the client’s accounts and IT department regarding invoicing under VAT compliant processes and systems.
vi) Change in IT Structure and System
For a business to make changes to its accounting, billing and other processes in order to comply with VAT procedures and requirements it is important to convey necessary information and guidelines to your IT department to implement the changes that are required to comply with VAT. We will provide our client’s IT department with all the guidance they require to implement the recommended changes within the company’s documented systems and processes.
vii) Filing VAT Return
We will provide our customers with full support regarding preparation and filing of the VAT return by assisting in taking the accurate input VAT claim against total VAT payable. We will also assist our clients in addressing their VAT related cash flow problems, in case, if they have any.
What IS VAT?
VAT is basically an indirect tax but it is also referred to as a type of consumption tax. It is applicable to supply of various kinds of goods and services. It is levied by businesses that are registered for VAT, on supplies of goods/services to their customers in the normal course of their business operations.
VAT is charged by businesses at each phase in the supply chain. In most cases the ultimate consumers bear the cost of VAT while Businesses collect VAT on behalf of the tax authorities.
HOW VAT WORKS?
The businesses charge VAT to their customers by adding VAT to the value of the goods and services that are supplied to the customers. These types of businesses are also entitled to reclaim VAT which they have paid to their suppliers on purchase of goods or services in the normal course of business.
In case of Imports, VAT is levied at the point when the goods first enter into the country in which it will ultimately be consumed.
|Steps in the supply chain||Sale price without VAT||VAT charged on sales||VAT reclaimed on purchases||Net VAT payable|
|Farmer sells Wool to manufacturer||AED 150||AED 7.5||AED 0||AED 7.5|
|Manufacturer makes sweaters and sells to wholesaler||AED 300||AED 15||AED 7.5||AED 7.5|
|Wholesaler sells to Retailers||AED 400||AED 20||AED 15||AED 5|
|Retailer sells to the customers||AED 500||AED 25||AED 20||AED 5|
DEFINITIONS OF IMPORTANT TERMS
Definitions of some important terms in context of VAT are mentioned below:
- Taxable supply: All supplies in a country will be taxable unless specifically exempt or falls outside the scope of VAT.
- Goods: All types of material or products used for business purposes.
- Services: Transactions involving supply of anything other than supply of goods.
- Taxable Person: One who meets the conditions of registration.
- Output VAT: Payable on sale of goods/services to customers.
- Input VAT: Paid to supplier on purchase of goods/services.
- Exempt supply: Supply of goods /services that are exempt from VAT.
BASICS OF VAT
VAT is charged on supply of any taxable goods or services by a registered business in the normal course of its business activities.
The point of taxation in context of VAT basically means the point at which a business becomes liable to pay VAT on supply of goods or services it has acquired to further its business operations. The tax point can basically be defined as earlier of the following:
- Goods made available to customers/services are performed;
- Tax invoice is issued by the supplier of goods or services;
- Supplier receives consideration from the customer either in full or partially.
Place of Supply – Goods
In case of goods that are supplied to customers without being transported to another place then in such a scenario the place of supply will be the place at which the goods are made available to customers after being produced by the supplier.
If the goods are supplied to customers after being transported to another place then the place of supply for goods like these will be the place where goods are sent after being produced by the manufacturer.
Place of Supply – Services
In case of business to business transactions the place of supply would be from where the recipient of the service belongs.
For business to consumer transactions the place of supply would be from where the supplier of the service belongs.
WHAT IS THE RATE AT WHICH VAT WILL BE CHARGED IN UAE?
VAT will be levied at the standard rate of 5% on supply of all kinds of goods and services in the UAE baring supplies that are:
- Exempt from VAT
- Zero rated
- Out of the scope of VAT in UAE
The following supplies are exempt from VAT:
- Bare Land
- Interest received
- Life Insurance
- Local Transportation
- Lease of residential property
- Second Sale of residential property
Zero rated supplies are those supplies on which VAT is charged at rate of 0% by businesses. Following are the supplies that are considered to be zero rated in the UAE:
- Exports of goods/services outside the GCC
- International Transportation
- First sale of residential property
- Investment in specific precious metals.
WHO IS LIABLE TO PAY VAT?
In general, the person who issues a tax invoice containing VAT will be the one liable to pay VAT to the tax authorities.
In circumstances, where reverse charge mechanism is applicable and goods/services are being supplied in a GCC member state and supplier is not the resident of the particular member state, then the taxable customer will be the one responsible for paying VAT.
REVERSE CHARGE MECHANISM (RCM)
Normally the supplier charges VAT to customers and therefore are liable to pay VAT but in case of RCM it is the opposite as under this mechanism the customer becomes liable to pay VAT. In simple words the customer levies VAT to itself. This mechanism basically eliminates the requirement for supplier to be VAT registered in the country in which supply is made.
When a buyer using RCM makes a taxable supply, then that buyer is responsible for making declaration of purchases (Input VAT) and also sales (output VAT) in the same VAT return. In this way, both the entries cancel the effect of each other from a cash payment perspective in the same VAT return.
TREATMENT OF IMPORTS
If goods/services are being provided by a registered business in any GCC state to a VAT registered business in the UAE then the place of supply in the context of such a transaction would be the UAE as the goods/ services will be used in the UAE by a registered business for the furtherance of its business operations. In situations like these the right to tax will remain with the UAE government.
If goods/services are being provided by a supplier outside the GCC to a registered business in the UAE then the place of supply in such a transaction would be the UAE and the goods/services supplied will be subject to import VAT as the goods/services will be used by in the UAE.
Usually the supplier charges and collects VAT on behalf of the tax authorities but in both the cases mentioned above VAT will be charged through RCM which would see the buyer (business in the UAE) not only accounting for VAT but also paying it to the tax authorities.
TREATMENT OF EXPORTS
In the UAE, export of goods or services are classified as zero rated supplies which means VAT on export of goods or services will be charged at the rate of 0%.
The exporter is required to provide the following documents so that to provide evidence of the information regarding the export of goods:
- Purchase order
- Sales invoice to client
- Packing list/Delivery Note
- Evidence of consideration received from customers
- Insurance documents (Where applicable)
- Instructions from client regarding delivery of goods
- Bill of lading/Airway bill.
COMPLIANCE REQUIREMENTS UNDER VAT
One of the inherent features of VAT is its self-assessment nature, which means that every VAT registered business must account for and report its VAT entitlements and obligations in compliance with the relevant laws and regulations, to the tax authorities.
Some other requirements of VAT are as follows:
- Businesses exceeding VAT registration threshold to be registered for VAT
- Filing of VAT returns on a regularly either on monthly basis or quarterly
- Remitting VAT, if any, that is due to be paid to the tax authorities by a specific date
- Maintaining records with reference to all types of business transactions. Some of the records which a business is required to maintain for VAT tax purposes are as follows:
- Tax invoices received in case of purchases
- Tax invoices issued in sale transaction
- Export and import documents
- Evidences of Vendor payments
- Filed returns and back up data
- Inventory records
- Contracts with clients and vendors
- Evidence of payment of VAT
- Credit or Debit notes
- Reconciliation of figures in accounts with those mentioned in tax returns.
- Businesses are required to keep and maintain accounting and other records for a minimum of 5 years. The minimum time period in the Real Estate sector however is 15 years.
REGISTERING FOR VAT
Businesses operating in the UAE having annual taxable supplies exceeding the specified threshold of AED 375,000 (or equivalent) are required to register for VAT.
Businesses having annual taxable supplies between AED 187,500 and AED 375,000 can voluntarily register for VAT in the UAE.
Businesses that are not registered under VAT do not have the right to charge VAT on supply of goods/services to their clients and also cannot reclaim VAT paid on their purchases.
CALCULATION AND REPORTING OF VAT
After business gets registered for VAT then the business becomes responsible for charging VAT and also for remitting VAT collected from customers to the tax authority on timely basis. The total amount a business is liable to remit to the tax authority is determined by the VAT charged on sales less the figure of VAT that has already been paid on purchases.
In most jurisdictions and regions, the reporting process of VAT is completed when a VAT return is filed with the tax authority. VAT registered businesses are required to file VAT return either monthly or quarterly.
VAT IMPLEMENTATION CONSIDERATIONS
It is important for businesses to consider the various issues well in advance of VAT implementation in the UAE.
1) Identifying personnel that will be responsible for discharging duties with regards to VAT requirements.
2) Analysis of existing procedure, processes and systems like IT system, supply chain, legal structure and many others to assess what is required to align these in accordance with the requirements of VAT.
3) The businesses also need to consider about how they should go about with regards to preparing for VAT filing requirements. This could include considering whether to have in-house experts or using external tax consultants for preparation and filing of the VAT return.
4) Identifying areas that will be most affected from the implementation of VAT in the UAE.
5) Providing training to staff members so that to make them familiar with the VAT laws and regulations.
CASH FLOW MANAGEMENT
A business registering for VAT also needs to focus on managing its VAT cash flow. The businesses will have to consider different ways to manage their cash flow like deferring VAT payments or improving the timing of collection of VAT on purchases and expenditure, or both.
Plans with regards to managing VAT cash flow should be implemented all across the organization so that to make the business well prepared with regards to managing the flow of cash in relation to VAT.
INDUSTRY SPESIFIC CONSIDERATIONS
We have selected some industries to show the impact of VAT in these specific industries and also what businesses operating in these industries need to consider when VAT implementation takes place:
FINANCIAL SERVICES SECTOR
There are a number of VAT exemptions that are applicable to financial services sector like that to life insurance services and Islamic financing. This may lead to issues with regards to classification of taxable supplies and the need to have flexible processes, procedures and systems for managing VAT implementation and compliance with VAT requirements.
The businesses operating in the financial service sector needs to consider the following:
- The correct treatment assigned with regards to accounting for VAT in relation to services provided.
- The correct classification of claims regarding VAT paid on purchases including VAT charged through RCM.
- The methods to be adopted to recover VAT charged on services supplied to customers.
- The decision as to whether the business will bear the cost of VAT or potentially be passed on to the recipient of the services.
- Assessing the option of outsourcing activities that are now needed to be performed so that to comply with the requirements of VAT.
The businesses operating within this sector will need to focus on implementing VAT compliant processes and systems. The major concern for businesses in this sector will be the cash flow implications in relation to VAT.
Some other factors that businesses should consider are as follows:
- The impact of pricing on the consumer.
- Transactions with businesses operating in other GCC countries and the related documentation and reporting requirements.
- The requirements related to invoicing in accordance with VAT requirements.
The important factor for business operating within the Telecommunication sector is to consider that how to account for VAT as the business may be providing services to both individuals and companies that are located in the UAE as well as outside the UAE.
Other aspects that the businesses in the Telecommunication sector needs to consider are as follows:
- The terms and conditions of contracts for pre-paid and post-paid plans needs to be reviewed and should be amended where necessary to make the contracts in accordance with the VAT requirements.
- Assessing the treatment of VAT with regards to data roaming services and hubbing services to foreign telecommunication companies.
- Determining the impact of VAT on prepaid plans that remain unused or partly used credit.
- Determining the impact and treatment of VAT for services sold through third party platform or arrangements.
For businesses operating within the retail industry, the pricing and invoicing of supplies to customers along with classification of sales in accordance with VAT requirements will be critical. The schemes launched for business promotion purposes like voucher arrangements can have complex implications in relation to VAT treatment.
Some other factors the businesses needs to consider in relation to VAT implementation:
- Reviewing terms of payments with your vendors and customers in order to manage cash flow efficiently and effectively.
- Reviewing the process of pricing in order to ensure that the company is not perceived or found to be overcharging its clients with the introduction of VAT.
- The treatment of deposits and advance payments with reference to VAT regulations.
There some other aspects to consider for businesses operating in different industries in the UAE:
- Treatment of income from franchises
- Invoicing and record keeping requirements
- Treatment of security deposit
- Price display rules
- Miscellaneous income from other sources
- Buy back arrangements
- Stock transfers
- Rounding offs
- Sale with discounts
- Supply of accessories as part of sale of main product/item
- Sale of extended warranty and service contract
- Cross charges from related party
- Arrangements involving exchange of products
- Rebate received
- Capital expenditure for setting up outlets or shops for distributing the product.
ABOUT NADEEM AND UMENDRA CHARTERED ACCOUNTANTS
Nadeem & Umendra Chartered Accountants is a well reputed and recognized audit & accountancy firm in the UAE. We have a plethora of qualified accounting and tax professionals to serve the needs of our clients. In addition to providing VAT services in Dubai and the UAE we also provide auditing, accounting and consultancy services.