Dos and Don ts for businesses to stay VAT compliant in the UAE Jigar Doshi Partner Indirect Taxation SKP Business Consulting Shiraz Khan Senior Adviser (Taxation) Al Tamimi & Co.
Coverage An Overview Basic Concepts Dos and Don'ts Our Story 2
An Overview 3
UAE VAT Legislative Framework GCC VAT Agreement UAE Legislation/Decree Objective Unified framework agreement to implement VAT UAE VAT law (which is build on basis of GCC VAT Agreement) to govern the applicability of VAT in UAE Contents Broad framework/provisions of proposed VAT legislation such as place of supply, tax treatment on intra- GCC supplies, etc. Detailed VAT Executive Regulations to expand on the areas covered within the UAE VAT Law Mutual Agreement a. Standard VAT rate @ 5% b. Standard threshold (SAR 375,000) for registration and VAT applicability Law to govern the general rules and procedures relating to all taxes within the UAE Discretion To choose treatment such as VAT grouping provisions, application of zero rate or exemption on certain sectors, etc. Publications and notices issued by the Federal Tax Authority 4
UAE VAT Developments *The timeline depicted above is based on the information available in public domain 5
Basic Concepts 6
Basic VAT Principles Who? What? When? Where? Supplier/Recipient Scope of Tax/Supply Date of Supply Place of Supply What Value? How to Compute? Rate of Tax? Compliances? Valuation Inclusions and Exclusions Output Tax (-) Input Tax 5% Tax Invoice, Returns and Registration 7
Key Milestones Propositions Under UAE VAT Tax Scope Covers following Taxable supplies of goods and services Deemed supplies supply without consideration; transfer of business assets; etc. Import of goods Tax Rate Single rate of tax @ 5% Zero supplies: exports; healthcare; supply of crude; education; etc. Exempt supplies: financial services; specified leases; etc. Not a Supply: issuance of voucher; transfer of business Recoverable Input Tax Tax paid for goods/services used or intended to be used for Taxable supplies Supplies outside the state (which would have been taxable if made within UAE) Supplies specified in executive regulations made outside the state (which would have been exempt if made within UAE) Valuation Monetary + non-monetary consideration Market value: For related parties and reverse charge services Discount allowed to be deducted Customs valuation for imports Tax Returns Filed by the taxable person for a particular tax period To be filed online Due date is 28 days from the end of tax period Minimum one month tax period Penalties for Non-submission or late filing * Based on the English version of The GCC VAT Agreement for the Cooperation Council of the Arab States of the Gulf available on www.mof.gov.ae 8
Key Milestones Propositions Under UAE VAT Registration Conditions Has a place of residence in the UAE Threshold AED 375,000 Option for non-registration if exclusively engaged in zero-rated supplies Tax Group Registration as a Tax Group if conditions satisfied (Key conditions : Place of establishment in UAE; related parties and control on other entity/ entities) FTA is empowered to assess and if deem fit grant registration to two or more related persons as Tax Group on its own Tax Invoice Tax Invoice to be issued within 14 days as of the date of supply in AED Supply in foreign currency other than AED use conversion rate of Central Bank Executive regulations to specify aspects such as data to be included, instances where not required to issue tax invoice, etc. Designated Zone Cabinet to decide any area as Designated Zone subsequently at the suggestion of the Minister Goods may be transferred from one Designated Zone to another Designated Zone without any tax Penalties Unavailability of recoverable input tax Administrative penalty (ranging from AED 500 up to 3 times of tax default) Prosecution and monetary penalty in case of tax evasion (up to 5 times of tax evaded) * Based on the English version of The GCC VAT Agreement for the Cooperation Council of the Arab States of the Gulf available on www.mof.gov.ae 9
Place of Supply Place of supply rules will determine whether a supply is made in the UAE or outside the UAE for VAT 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 Basic rule: the place of supply is the location of goods when the supply takes place Special rules: Cross-border supplies that is supplies which involve parties in different countries Water and energy Services Basic rule: the place of supply is where the supplier has the place of residence Special rules: Cross-border supplies of services between businesses Electronically supplies services where services are used or enjoyed 10
Date of Supply When liability accrues Particulars Earliest of the following : Transfer was under supervision of supplier Transfer was not under supervision of supplier Goods involving assembly or installation Import of goods Date of Supply Date on which goods were transferred Date on which the recipient of goods took possession of the goods Date of completion of assembly or installation Date on which goods are imported under customs legislation Supply was on returnable basis Date on which the recipient of goods accepted the supply, or a date no later than (12) months after the date on which the goods were transferred or placed under the Recipient of goods for disposal The date on which the services were completed The date of receipt of payment The date on which the tax invoice was issued 11
Dos and Don ts 12
Key Action Points Conduct Impact Study on Business Operations Update ERP Systems Ensure Vendor- Customer Communication Re-visit Supply Chain Model Record Keeping and Other Compliance Management Revisit Contractual Obligations and Pricing Policies Transition Management Human Resource Planning and Training Will Reduce Adversities And Ensure Continuity 13
Sales and Procurement Do s Understand the implications of VAT on each item of the revenue stream and expense Transaction mapping for VAT impact analysis Revisit pricing policies and carry out necessary changes Ensure timely vendor-customer communication to meet VAT requirement Formulate strategies for tax effective supply chain Ensure correct documentation and maintenance thereof Don ts Ignore any function for VAT impact assessment study to ensure completeness of project Ignore transactions undertaken free-of-cost, if any Forget to discuss company positions on open POs and SOs Failing to communicate with vendors and customers for undertaking VAT compliance Forget to calculate the impact of VAT on expenses for which input tax credit is not available Miss out on any field while booking the order, customer master updating, raising invoices, etc. 14
Legal Do s Understand the impact of VAT on different contractual arrangements entered into by the company Revisit contractual liabilities Incorporate tax and appropriate indemnity clauses Taking sound tax positions for the company basis the impact of VAT on operations Amending or incorporating billing and documentation requirement under contracts Don ts Ignore tax implications on the different contractual arrangements Continuing with earlier contractual arrangements Forget to review open contracts for any tax implications Rely on generic assumptions or public notions for taking tax positions Not complying with VAT requirement 15
Accounts and Information Technology Do s Understand recording and documentation requirement under VAT Updating chart of accounts under VAT scenarios Changes in accounting process due to the impact of VAT Circulate standard formats of invoices and checklist for invoice verification Ensure input tax recoverable is properly deducted Ensure creation of proper tax codes in system Don ts Ignoring VAT requirement for documentation and recording Miss out on system integration and configurations required to record transactions with VAT as per time of supply Allow entries of invoices which are not in proper format of VAT Law Delay in issuing and receiving tax invoices Claim input tax for goods and services which are used for exempted supplies or for non- business use Consider User Acceptance Testing as a function of IT team only 16
Finance Do s Understand the impact of VAT on transactions of the company Assess the impact of VAT on cash flows Determine additional working capital requirement Strategies for working capital management Don ts Not undertaking an impact study on the business operations of the company Ignoring or wrongly calculating additional working capital requirement 17
Human Resources Do s Resource planning Recruiting personnel with VAT knowledge Revisiting HR manuals and offer letters Training the human resource team and staff to implement and understand the context of VAT Constitute a committee or task force for VAT implementation Don ts Wait for the last minute to update employees Fail to ascertain new recruitments Not taking adequate measures for training staff for VAT preparedness 18
Our Story 19
SKP Today 20
Al Tamimi Today Largest and most dynamic non-affiliated law firm in the Middle East with 17 offices across 9 countries and comprising 330 Fee Earners (partners included) Arbitration Banking and Finance Commercial Advisory Construction and Infrastructure Corporate Governance Corporate Structuring DIFC Corporate Services Education Employment Equity Capital Markets Family Business Financial Crime Financial Services Regulation and Enforcement Healthcare Hotels and Leisure Insurance Intellectual Property Litigation Legislative Drafting Mergers and Acquisitions Regulatory Senior Partner's Office Sports Law and Events Management Tax Transport Technology, Media and Telecoms Managing IP Stars 2017 - Law Firm of the Year IP Stars - Tier I Firm 2017, 2016, 2015 World Trademark Review (WTR) Gold Tier Firm in UAE - 2017, 2016, 2015, 2014. 2013, 2012, 2011 The Middle East Legal Awards 2017: Regional Law Firm of the Year Large Practice United Arab Emirates Firm of the Year 2017 Who s Who Legal Lawyers World Global Awards 2017: Capital Markets Law Firm of the Year I UAE Litigation Law Firm of the Year (Qatar) - 2017 LawyerIssue Awards Bahrain Egypt Iraq Jordan Kuwait Qatar Oman Saudi Arabia United Arab Emirates 21
Upcoming Webinars 22
GCC VAT Sessions 27 November 2017 11am to 12pm GST Procedural and Reporting Requirement under VAT in UAE 11 December 2017 11am to 12pm GST Clarifications under the Executive Regulations on UAE VAT Law 23
www.skpgroup.com www.tamimi.com Disclaimer The contents of this presentation are intended for general marketing and informative purposes only and should not be construed to be complete. This presentation may contain information other than our services and credentials. Such information should neither be considered as an opinion or advice nor be relied upon as being comprehensive and accurate. We accept no liability or responsibility to any person for any loss or damage incurred by relying on such information. This presentation may contain proprietary, confidential or legally privileged information and any unauthorised reproduction, misuse or disclosure of its contents is strictly prohibited and will be unlawful. Icons designed by Freepik 24