VAT introduction in the UAE/GCC

Transcription

1 VAT introduction in the UAE/GCC Impact on DMCC companies December 2017 Disclaimer: KPMG will not be responsible to any parties for any use of this presentation for any purposes whatsoever, as this is neither an advice nor a deliverable of any kind. 1

2 Agenda Key objectives of this session Why it is important to understand VAT Decoding VAT concepts VAT impact and issues for DMCC member companies

3 Key objectives of this session

4 Key objectives To raise VAT awareness To understand the potential impacts of VAT on your business To understand the VAT considerations/ issues related to DMCC companies To guide you to get VAT ready 4

5 Why understanding VAT is important 5

6 Why understanding VAT is important? VAT is a transaction tax - must be considered for every purchase and every sale. What are the risks? This is to help you: Failure to identify the impact of VAT Underpaid VAT VAT costs Penalties Reputation Damage to commercial relationships Understand how VAT works Make informed decisions on how VAT might affect your business Plan and Manage the business s VAT position Decisions relating to VAT are present in every aspect of business - everyone can get involved! 6

7 Current VAT Status in UAE 1 UAE Federal Tax Authority (FTA) established in January 2017 FTA website launched 2 UAE VAT Decree-Law published 3now on 28 August 2017 VAT Registration Portal open! 4released Final VAT Executive Regulations on 28 November 2017 GCC initiative Modelled on the EU s VAT regime Common GCC framework The GCC framework agreement will be the basis for national VAT laws across the GCC Optional VAT treatment for education, health, government sector, real estate, financial services, etc. VAT will be implemented in the UAE with effect from 1 January KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), 7

8 VAT Structure Multi-stage broad-based consumption tax invoice / credit system adopted Also known as Goods and Services Tax (GST) in many other countries (over 160 countries now have a VAT / GST) All supplies of goods and services in the course or furtherance of business in UAE are taxable (proposed 5% or 0%) unless exempt by law Importation of goods and services from outside UAE are subject to VAT VAT not likely to be a cost of doing business, unless providing exempt supplies Tax generally borne by final consumer and not businesses 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), 8

9 What is VAT? 9

10 What is VAT? VAT charged at each stage in the supply of goods and services Value Added Tax is a consumption tax and is collected on business transactions and imports VAT registered business that makes business use of the supply will receive a VAT credit unless making exempt supplies VAT is ultimately borne by the final consumer; therefore, VAT is not a cost to the business There are many exceptions and complexities! VAT (or GST) now applies in over 167 countries at varying rates 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE, member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), 10

11 What is a supply? VAT will be due where a taxable supply is being made by a taxable person For a consideration By any person In the course of conducting business In the UAE A supply of goods and services 11

12 Type of supply Input tax credit available? Taxable supply Standard-rated supply Proposed VAT rate 5% Zero-rated supply VAT rate 0% Yes Exempt supply under the VAT law No Non-taxable supply Outside the scope of VAT Not a supply or disregarded supply Cannot charge VAT on a non-taxable supply Depends 12

13 Types of supply Zero rated Exports of goods and services (outside GCC) International transportation and ancillary services Supplies of identified sea, air and land means of transportation Identified investment grade precious metals Specified education services Specified Healthcare, medicines and certain medical equipment Newly constructed residential properties that are supplied for the first time (and within 3 years of their construction) First lease of new residential First supply of charitable buildings and buildings converted from non-residential to residential Supplies of crude oil and natural gas Exempt Financial services (margin based) Sale of Bare land Local passenger transport Lease or purchase of existing residential properties Standard rated Everything else (incl. basic foodstuffs, commercial property, water, commercial leasing, property management fees, engineering services, imported goods and services) 13

14 Deemed Supply Supply of goods and services without consideration Goods partially used for non business purpose Supply of goods to implementing state or taxable person s business from implementing state to his business in state Goods and services owned on the date of tax de-registration 14

15 Deemed Supply Exceptions Input tax not recovered on supply of said goods / services supplied Such supply is exempted Input tax recovered has been adjusted pursuant to Capital Goods Scheme Samples and commercial gifts upto AED 500 per person within 12 month period Total Output tax payable on all deemed supplies is less than AED 2,000 per person for 12 month period 15

16 Decoding VAT concepts 16

17 VAT technical areas Registration threshold Time of supply GCC regulations Place of supply Compliance (VAT accounting/collection) VAT recovery (Tax invoices) Scope (Goods & services) Types of supplies (VAT rates) Taxable person 17

18 Place of supply Place of supply rules will determine whether a supply is made in the UAE or outside the UAE for VAT purposes: If the supply is treated as made outside the UAE: no UAE VAT will be charged If the supply is treated as made in the UAE: VAT may be charged Goods Services Basic rule: the place of supply is the location of goods when the supply takes place Special rules, for example Cross-border supplies that is supplies which involve parties in different countries Water and energy Real estate Basic rule: the place of supply is where the supplier has the place of residence Special rules, for business to business supplies of services In general, the place of supply is where the recipient is based 18

19 Examples of supply of goods Abu Dhabi Domestic Supplies UAE Exports to outside the GCC B2B Import into UAE from outside GCC EUROPE Dubai EUROPE UAE - No movement of goods outside the UAE - Subject to the applicable VAT rate in the UAE standard or zero-rated - Export of goods: place of supply is still UAE - Import of goods: place of supply is the UAE - The recipient accounts for VAT under the reverse charge mechanism except where goods will be re-exported to another GCC State 19

20 Time of supply Determines when your liability to pay the VAT arises Liability for VAT arises at the earlier of: when goods are removed/made available/services are performed; when tax invoice is issued; or when payment is received (in part or full) For a contract with periodic payments or consecutive invoices, liability for VAT arises at the earlier of the following: Issuance date of the tax Invoice Payment date shown on tax Invoice Date of Payment Provided the above take place within one year of the supply 20

21 Recovery of Input Tax Recovery of tax credit shall be allowed where goods and services are used or intended to be used for the following: Taxable supplies Supplies made outside the state which would have been taxable if made within the state Exempt services rendered outside the state (recipient is outside the state at the time of performance) First supply of residential building VAT paid in Implementing state on goods acquired / imported and later on brought into UAE Supplies to employees under legal or contractual obligation or as a deemed supply Must be in possession of the tax invoice / relevant document which includes details of supply Consideration to be paid or intention to pay within 6 months from agreed date of payment 21

22 Non Recoverable Input Tax Business Entertainment Motor vehicle purchased or leased for business and available for private use as well Goods / services purchased for personal benefit of employee Import of goods in UAE where intended final destination of goods is in another Implementing State Entertainment Hospitality of any kind including accommodation, food and drinks which are not provided in normal course of meeting, access to shows or events or trips provided for pleasure or entertainment Exception for catering and accommodation service when provided by transportation service operator Motor vehicle Road vehicle for conveyance of max. 10 people including driver excludes truck, forklift, hoist or similar vehicle Exception to motor vehicle being available for private use in case of licensed taxi, emergency vehicle, vehicle rental business 22

23 VAT treatment on imported goods Cost of goods $10,000 Insurance and freight $2,000 CIF Value $12,000 Customs 5% $600 Value of import $12,600 VAT is charged on imported goods at the same rate as goods supplied from UAE. The value on which VAT is charged: Excise Tax (if 100% (on RSP, assumed $20,000 for this example) Value of good (incl. customs and excise tax) $20,000 $32,600 Full Landed cost of goods (incl. freight, insurance, or any other charges); plus Customs Duty as determined according to customs rules for valuation; plus Excise Tax as determined by local rules. 5% $1,630 Selling price $34,230 23

24 Reverse charge mechanism what is it and why? Purpose is to avoid distortion of competition It is a mechanism to self account for VAT Shifts the place of supply and responsibility to account for VAT from the seller to the buyer Reverse charge on imported services is required (e.g. importation from third parties etc.) where business is registered for VAT Should not be a cost to a business that makes taxable (5% or 0%) supplies as VAT is reported and recovered on same VAT return; no actual payment made Cost result for a business making exempt supplies (VAT to be reported but not recoverable) Difficult compliance requirements need to capture, report and recover UAE Company Import of services Overseas Company 24

25 Registration and Compliance

26 Registration requirements Based on legal entity To be a taxable person you must be, or required to be, registered for VAT Below AED 187,500 AED 187, ,000 AED 375,000 and Above Cannot register Voluntary registration Mandatory registration 26

27 VAT compliance Valid invoicing Maintain books of account Typically Monthly/quarterly filing - VAT returns Minimum 5 years - VAT records maintained Penalties have been defined Quarterly/ monthly returns due by say, 28 th of the following month 27

28 Emirates Reporting There is a requirement to keep records for supply made in each Emirate based on the following rules; Emirates in which the Fixed Establishment related to this supply is located (Location of the supplier) Exception to above if the taxable person does not have fixed establishment in the state, it must keep records of the transaction to prove the Emirate in which the supply is received. Return format is not yet released. It is expected to be a summary level return requiring Emirate level reporting 28

29 Specimen of Tax Invoice Supply of Goods TRN Name & Address Invoice No Date of Invoice Details of Recipient (Billed To) Name Address TRN Sl.No. Description of Goods Qty. Unit TAX Invoice (Reference to Article 59 of Executive Regulations) Rate (per item) Date of Supply Details of Consignee (Shipped to) Name Address TRN Amount Payable Discount Gross Amount Payable 1 2 Freight Insurance Packing and Forwarding Charges Total Amount (AED) Invoice Currency: AED Rate of Exchange from AED to USD - Total Amount payable in USD - This Invoice is prepared in terms of Article 48 of the Decree law to account for tax under reverse charge : Yes / No Rate VAT Amount Total Amount Payable Terms & Conditions Signature Name of the Authorized Signatory Designation / Status 29

30 Specimen of Simplified Tax Invoice TRN Name & Address Invoice No Date of Invoice TAX Invoice (Reference to Clause 2 of Article 59 of Executive Regulations) Sl.No. 1 2 Description of Goods Invoice Currency: AED Rate of Exchange from AED to USD - Total Amount payable in USD - Qty. Unit Rate (per item) Total Amount (AED) Amount Payable Discount Gross Amount Payable Rate VAT Amount Total Amount Payable Terms & Conditions Signature Name of the Authorized Signatory Designation / Status 30

31 Article 60 of the Executive Regulations Tax Credit Note TAX CREDIT NOTE YOUR COMPANY NAME Name and address of the supplier TRN: CN Serial No: Date of Credit Note: Details of Receiver / (Recipient) (Billed to) Name: Address : Transportation Mode: Original Invoice Number: Original Invoice Date: TRN: Liability for VAT arises at the earlier of: when goods are removed/made VAT available/services Total are Difference performed; Value of Supply as Description of Goods Correct Amount of per Original S.No / Services Value of Supply Invoice Rate Amount Amount when tax invoice is issued; or when payment is received (in part or full) Total Reasons for Issuing Credit Note For a contract with periodic payments or consecutive invoices, liability for VAT arises at the earlier of the following: Issuance date of the tax Invoice Payment date shown on tax Invoice YOUR COMPANY NAME Date of Payment Provided the above take place within one year of the supply Signature: Authorised Signatory 31

32 Transitional provisions

33 Taxable event under VAT regime 1 Jan 2018 No VAT With VAT 1 12 Feb June March Sept 2018 Company orders goods/services Goods delivered/ services performed but no payment received Tax invoice issued by Vendor Payment in full Special rules for retentions/advance payments/continuous supply of services 33

34 Transitional provisions 1 Jan 2018 No VAT With VAT 1 1 Nov Jan Dec Feb 2018 Company orders goods/services Tax invoice issued by Vendor Goods delivered/ services performed but no payment received Payment in full Special rules for retentions/advance payments/continuous supply of services 34

35 Transitional provisions 1 Jan 2018 No VAT With VAT 1 1 Nov Jan Jan Feb 2018 Company orders goods/services Goods delivered/ services performed but no payment received Tax invoice issued by Vendor Payment in full Special rules for retentions/advance payments/continuous supply of services 35

36 Transitional provisions 1 Jan 2018 No VAT With VAT 1 1 Nov Jan Dec Feb 2018 Company orders goods/services Goods delivered/ services performed but no payment received Invoice issued by Vendor Payment in full Special rules for retentions/advance payments/continuous supply of services 36

37 VAT impact on DMCC member companies 37

38 Possible VAT impact on commodity trading companies PURCHASE ORDER2 PURCHASE ORDER1 Manufacturers/ Suppliers (Overseas) INVOICE 1 INVOICE 2 Commodity Trading company Out of scope supply Buyer (Overseas) Distribution centre (Overseas) Supply of goods by way of drop shipment (re-invoicing) Out of scope supply 38

39 Possible VAT impact on commodity trading companies (contd) PURCHASE ORDER PURCHASE ORDER Customers (Overseas) INVOICE Zero-rated Commodity trading company INVOICE Standard rated Customers (DMCC) Supply of goods to overseas countries Zero-rated Supply of services to DMCC Customers Taxable Standard Rated 39

40 Possible VAT impact on gold and diamond polishing companies SERVICE ORDER SERVICE ORDER INVOICE INVOICE Customers (Overseas) Zero-rated DMCC gold/ polishing company Standard rated Customers (DMCC) SERVICE ORDER INVOICE Standard rated Customers (mainland UAE) Supply of services to overseas likely to be treated as an export Zero-rated Supply of services to DMCC Customers Taxable Standard Rated 40

41 Possible VAT impact on gold and diamond polishing companies (contd) SERVICE ORDER SERVICE ORDER INVOICE INVOICE Customers (GCC countries which have NOT implemented VAT Law) Zero-rated DMCC gold/ diamond polishing company Reverse charge mechanism (RCM) Customers (GCC countries which have implemented VAT Law) Supply of services to GCC countries which have not implemented VAT Law Zero-rated Supply of services to GCC countries which have implemented VAT Law Taxable in the receiving country RCM 41

42 Possible VAT impact on diamond trading companies PURCHASE ORDER2 PURCHASE ORDER1 Manufacturers/ Suppliers (Overseas) INVOICE 1 INVOICE 2 DMCC diamond trading company Out of scope supply Buyer (Overseas) Distribution centre (Overseas) Supply of goods by way of drop shipment (re-invoicing) Out of scope supply 42

43 Possible VAT impact on diamond trading companies (contd) PURCHASE ORDER PURCHASE ORDER Customers (Overseas) INVOICE Zero-rated DMCC diamond trading company INVOICE Standard rated Customers (DMCC) Supply of goods to overseas countries Zero-rated Supply of services to DMCC Customers Taxable Standard Rated 43

44 Possible VAT impact on gold trading companies PURCHASE ORDER (Raw Gold) PURCHASE ORDER INVOICE INVOICE Manufacturers (Overseas) RCM DMCC gold trading company Zero-rated (if at least 99% pure and in a form tradeable in global bullion markets) Retailer (UAE/ Overseas) INVOICE 3 Standard rated Manufacturers (UAE) PURCHASE ORDER (Raw Gold) INVOICE Standard rated Customers (UAE) 44

45 Q&A 45

46 Thank you Your KPMG VAT Contacts: Clare Mccoll Partner Head of Indirect Tax KPMG Lower Gulf Ltd Ankur Jain Senior Manager VAT KPMG Lower Gulf Ltd Ankita Khivasara Senior Associate VAT KPMG Lower Gulf Ltd Anika Goel Senior Associate VAT KPMG Lower Gulf Ltd T: M: E: cmccoll1@kpmg.com T: M: E: ajain23@kpmg.com T: M: E: akhivasara@kpmg.com T: M: E: agoel2@kpmg.com kpmg.com/socialmedia kpmg.com/app The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), The KPMG name and logo are registered trademarks or trademarks of KPMG International.