VAT AWARENESS SESSION Accounting and Finance Perspective 11/10/2017
AGENDA Overview of VAT Registration requirements and process Individual or Group Registration Deadlines Different VAT Rates Sample calculation of Output and Input Tax Examples of Zero Rated and Exempt Transactions Importation of Goods and the Reverse Charge Mechanism Non recoverable Input tax Accounting for VAT and Presentation Tax Invoice and Tax Credit Notes When is Tax Due VAT implementation plan - Critical Areas Tax Penalties Archiving Reference Materials 11/10/2017
How Taxes Works 11/10/2017 3
Overview of VAT Tax on the consumption of goods and services Tax is paid/collected in different stages in supply chain on behalf of the government Different VAT rates and treatment Not all supplies/services/business will be subject to VAT VAT implementation date is on January 1, 2018 11/10/2017 4
Registration Requirements MANDATORY REGISTRATION: Business will be required to register if you have a business that is resident in the GCC and you are making supplies of goods or services in the UAE and meets either: 1.Business TURNOVER was more than AED 375k in the last 12 months; or 2. Expected turnover to be more than AED 375k in the next 30 days VOLUNTARY REGISTRATION (Eligible to apply) 1.Business TURNOVER or EXPENSES which were subject to VAT was more than AED 187.5k in the last 12 months; or 2. Expected turnover or expenses which were subject to VAT will be more than AED 187.5k in the next 30 days 11/10/2017 5
Registration Deadlines > 150M (must apply not later than 10/31/17) >10m (not later than 30/11/17) >375K (not later than 4/12/17 11/10/2017 6
Registration Process Individual or Group https://tax.gov.ae/index.aspx Register all entities including the parent within the group individually The representative/con trolling /parent will apply for TAX Group 11/10/2017 7
Registration Process cont d 11/10/2017 8
Registration Process cont d 11/10/2017 9 9
Registration Process cont d There are 8 sections that must be completed on the VAT registration form Different Status of Application: -Drafted -Pending -Issued (TIN) -Rejected -Approved 11/10/2017 10
Registration Requirement Tax Group Tax group submission can be registered between two or more legal persons (each of which must be resident in the UAE) that are associated and which meet specific control criteria. 11/10/2017 11
Registration Requirement - Individual Copy of trade license(s) Copy of certificate of incorporation or articles of association or similar documents showing ownership Copy of owner s trade license (legal person) or passport copy and emirates ID copy (natural person) Authorized person s passport copy, emirates ID copy and proof of authorization power of attorney or similar Letter from bank with details of company s account Turn-over for the last 12 months (Standard rated, Zero-rated and deemed supplies) Copy of audit report, audited or non-audited financial statements, selfprepared calculation sheet, revenue forecast Details of Dubai Customs registration, if applicable 11/10/2017 12
Registration Conditions /Requirement Tax Group Tax group can be created/registered between two or more legal persons (each of which must be resident in the UAE) that are associated and which met the Tax Group control conditions and the group members are related parties. i)a voting interest in those companies of at least 50% when added together; or ii) a market value interest in each of those companies of at least 50% when added together; or iii) control by any other means Group structure including details of shareholdings in subsidiary companies (usually submit the consolidated financial statements) Only a representative member / Group Controller can apply for the creation of a Tax group. 11/10/2017 13
unregistered REGISTERED Difference between Registered vs. Unregistered entities Invoiced taxable goods at rate of 5% Can apply the VAT paid to its suppliers as tax credit in accordance with tax laws. Cannot raised an invoice to its customers with VAT absorbs all VAT / Tax paid. Tax paid on its purchases cannot be availed as tax credit 11/10/2017 14
Different VAT rates and treatment Supply and Services Subject to VAT Exempt Standard Rate - 5% Zero Rated Only taxable goods or services which are delivered/consumed/used/ performed in the UAE shall be subject to VAT Anything that were not mentioned as zero rated or exempt transactions in the Executive Regulation will be subject to 5% standard rate 11/10/2017 15
Output and Input Tax example 1 Taken from FTA presentation 11/10/2017 16
Output and Input Tax example 2 VAT Registered Distributor VAT Reg. Retailer Final Consumer Wholesaler import taxable goods and sell to retailer Sell the same product to end consumer End consumer of the goods bears the VAT Input Tax 5% Output Tax 5% Input Tax 5% Output Tax 5% VAT @ 5% PP: 9,000 VAT: 450 SP: 10,000 VAT: 500 PP: 10,000 VAT: 500 PP: 12,000 VAT: 600 Bought the goods for 12.6K Tax Pay: 50 Tax Pay: 100 Tax Pay: 600 450+50+100=600 11/10/2017 17
Example of Zero Rated transactions - 1/3 Article (40) of the ER EDUCATION SERVICES Zero Rated if ALL conditions are met The curriculum and supplier of the educational services is recognised by the MOE, Ministry of Higher Education or competent gov t entity regulating the educational services Either owned by Federal or Local Gov t or receives more than 50% of its annual funding directly from Federal or Local Gov t Standard Rate Private Schools fees and other services Other examples at Standard Rates Uniforms whether public or private schools Any goods other than education materials 11/10/2017 18
Example of Zero Rated transactions - 2/3 Article (41) of the ER HEALTHCARE SERVICES Zero Rated Services by a doctor or medical professional licensed by Ministry of Health or any other competent authority for treating or preventing of medical condition or relate to the wellbeing of human being. Any goods that are necessary such zero related healthcare services are also zero rated. Pharmaceutical and medical equipment identified in a decision issued by the Cabinet (list not yet out) Standard Rate Any elective treatment for cosmetic reasons 11/10/2017 19
Example of Zero Rated transactions - 3/3 Export of Goods and services subject to certain conditions of art. 30 /31 Facilitation of outbound and tour packages outside the implementing state, including but not limited to services such as accommodation, meals, transport (Art 31) International transport services for Passengers and Goods (inbound/outbound or import / export) in or out of the UAE by sea, air or land. (Art 33) Any related goods or services related to supply for international transport including arranging insurance, consumption or sale by or on an aircraft or a ship. (Art 33) The supply of means of transport (supplying) of aircraft, ship, boat, bus, train adapted for use for commercial purposes and note for recreation, pleasure or sports (Art 34) Services related to operating, maintaining, or converting means of transport referred to in Art. 34 Gold, silver and platinum in tradable form in global bullion market with purity of 99% or more. (Art 36) Residential accommodation for students for school pupils, armed forces, police, orphanages, nursing homes, charities (Art 37/38) 11/10/2017 20
Example of Exempt Transactions Local Passenger Transport ( taxi, bus, railway train, tram, mono-rail, ferry, abra or any means of transport adopted to transport passengers. Transport of passengers for pleasure trip, sightseeing or other forms of entertainment will be charged at standard rate. (Art 45) Supply of residential buildings through sale or lease, other than that which is zero-rated where the lease is more than 6 mos or the tenant of the property is a holder of an EID (Art 43) Supply of bare land (Art 44) Financial services that are specified in the Executive Regulation of this Decree-Law (Art 42) 11/10/2017 21
Importation of Goods 1/2 Goods shall not be considered imported to the UAE under the following conditions (Art 47): Under temporary submission, custom warehouses, goods in transit, imported goods to be re-exported and imported to the Designated Zone from outside the state. Tax shall not be due on any import of goods of personal effects and gifts accompanied by travelers. Used personal effect and household items transported by expats moving to live in the UAE for first time. 11/10/2017 22
Importation of Goods 2/2 Calculation of Tax under the Reverse Charge Mechanism on import of Concerned Goods (Taxable Import Goods) (Art 48) For VAT registered with Custom Registration Number: Account the tax on its Tax Return using the reverse charge mechanism at rate of 5% of the value of the concerned goods For unregistered person, tax will be paid before the goods are released from Customs (Art 50) 11/10/2017 23
Non-recoverable Input Tax If not Government Entity, provision for Entertainment to anyone not employed by the Person/Company, including customers, officials or shareholders, or other owners of investors of the Person/Company Motor vehicles (excluding truck, forklift and other similar vehicles) use in business and is available for personal use by any person Refer to articles 53-56 of the Executive Regulation for the comprehensive guidance on the application of input tax recovery 11/10/2017 24
Accounting Treatment for VAT for Registered entities Net Output Tax payable Net Input Tax (Tax Credit) Note: Not all input tax are deductible 11/10/2017 25
Presentation for VAT in the Financial Statements STATEMENT OF FINANCIAL POSITION CURRENT ASSETS Input tax CURRENT LIABILTIES Output tax payable At the end of every accounting period, the lower value should be netted off against the higher value to reflect a net current assets or liability position Any unrecoverable input tax as per the ER will be reclassified to PL account as under Non-recoverable Input Tax account or simply under taxes or maybe under the expense where the input tax originates depending how you would like to record / monitor the tax impact in your books 11/10/2017 26
Tax Invoice and Credit Notes The 4 Important additions to the already existing details of the invoice/credit notes (Art 59): The words Tax Invoice clearly displayed on the invoice Tax Registration Number of the Registrant making the supply. Tax Registration Number of the Recipient The Tax amount payable expressed in AED together with the rate of exchange applied where the currency is converted from a currency other than the UAE dirham. A simplified tax invoice can be issued: If the recipient is not a registrant; or Registrant but value supply does not exceed AED 10K 11/10/2017 27
When is TAX due? Tax Return must be submitted no later than the 28 th day following the end of the period (monthly or quarterly) or by such other date as directed by the Authority (Art 64) Taxable period can be monthly or quarterly Over AED 150 million Monthly Less than AED 150m Quarterly (not in the ER but communicated in one of FTA sessions) 11/10/2017 28
Accounting and Finance / Tax Leader /Manager VAT Implementation Plan Critical Areas VAT Registration, how you would like to register Tax mapping review revenue/invoice and expenses lines to ensure proper treatment of VAT GL set up / accounting entries /PL and BS presentation Tax invoice / Credit Notes / Debit Notes amendment / format required Tax manual Policies and Procedures Tax Returns / Filing and payment Archiving requirements Communicate with Suppliers / Customers to address your VAT requirements, send emails or letters Assess the impact on cash flows Talk with your logistics provider on your import or export taxation requirements Assess add l manpower required, start the hiring process if required Conduct Internal VAT awareness sessions /programs within accounting and finance and other departments within your organization Print /share one page tax guidance within the organization as quick reference material to minimize chaos in the first year of implementation Assess requirement to involve lawyers / Legal Department e.g. amendments of contracts etc. Effect on 2018 budget 11/10/2017 29
VAT Implementation Plan Critical Areas Accounting and Finance / IT Tax Leader /Manager Discussion with ERP services provider, agree a timetable to complete the system integration process Assess impact in business in going manual operation mode in-case system is not ready by 1 January Tax invoice /cr.or dr. notes changes, do sample invoice and credit note prints with different level of complexity Schedule UAT Procurement /Logistic Support Understand VAT impact on Import / Export /Transportation Review supplier base, local or int l Impact on Pricing / Company Costing Insurance Contracts review Importing through Free Zone, onshore etc. 11/10/2017 30
VAT Implementation Plan Critical Areas Accountin g and Finance Sales, / Marketing, Pricing team Tax Leader /Manager HR Review long term sales contracts to include provision for VAT Review products which are subject to VAT or not, inform customers ahead of time the impact of VAT Review impact on pricing / GP Understand impact of VAT on employee benefits such as air ticket, accommodation, school fees, telex allowance, car service and other employee benefits Legal/ Insurance Review insurance clauses Impact on various general insurance such as PAR, PL, FFL, Marine, Haulage, Directors Liability etc. Effect on Medical / Life Insurance Review Contracts 11/10/2017 31
Tax Penalties Administrative Penalties Administrative penalties are intended to address non-compliance, and encourage compliance. Few examples of administrative violation: If the person conducting a business fails to keep the required records and other information; If the person conducting a business fails to submit the data, records and documents related to tax in Arabic language when requested by FTA; If the taxable person fails to submit a registration application within the period required. PENALTY - 11/10/2017 32
Tax Penalties Tax Evasion Penalties Tax evasion is where a person uses illegal means to either lower the tax or not pay the tax due, or to obtain a refund to which he is not entitled under law. The imposition of a penalty under tax law does not prevent other penalties being issued under other laws. Few examples of instances of tax evasion: Where a person deliberately provides false information and data and incorrect documents to the FTA; Where a person deliberately conceals or destroys documents or other material that he is required to maintain and provide to the FTA. Penalty 11/10/2017 33
Archiving requirements Taxable persons for VAT must in addition retain the following records for at least 5 years: All tax invoices and alternative documents related to receiving the goods or services All received tax credit notes and alternative documents received All tax invoices and alternative documents issued All tax credit notes and alternative documents issued VAT due on taxable supplies (incl. those pursuant the reverse charge mechanism) VAT due after error correction or adjustment VAT deductible after error correction or adjustment VAT deductible for supplies or imports 11/10/2017 34
VAT References Materials Federal Law No. (7) of 2017 on Tax Procedures VAT Decree-Law No. (8) of 2017 - English (27.08.17) Draft-Executive-Regulation-for-Federal-Decree-Law-on-VAT Registration-User-Guide-Tax-Groups-VATG113_English Registration-User-Guide-VAT-VATG102_English_1 All of the above will be available at PICPA Dubai Website 11/10/2017 35
END THANK YOU 11/10/2017