"Without challenges, life is boring, governments are stagnant, and leaders are too relaxed." His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates, and ruler of the Emirate of Dubai.
The United Arab Emirates (UAE) introduced VAT on 1 January 2018 at the rate of 5 per cent. VAT will provide the UAE with a new source of income which will be utilized to provide high-quality public services and move towards government vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
This VAT introduction still pose questions for businesses in UAE on how to properly follow the tax legislation, which companies are eligible and which are not. My Best CFO Team decided to help businesses by answering major questions on VAT. All the answers provided are based on the current UAE legislation.
1. Thresholds for VAT Registration
As per UAE Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax:
If your taxable turnover - the value of the goods and services that you supply and any imports, but excluding any exempt supplies (e.g. certain financial services and life insurance, some property transactions and local passenger transport) – exceeds AED 375'000 in a 12 month period, or if you expect your taxable turnover to exceed AED 375'000 in the next 30 days, you are required to register for VAT.
If your taxable turnover, or expenses, which you incur, that are subject to VAT, is less than AED 375'000, but more than AED 187'500, you can register for VAT voluntarily.
2. Where to Register?
The VAT registration form and tax group registration form are available via the online portal on the FTA website.
3. VAT Mechanism
Once you have registered for VAT, you will have to charge VAT (output tax) on the supplies that you make, unless they are exempt or zero-rated, and account for the VAT you charge to your customers on tax returns made to the FTA. You will be able to reclaim the VAT you pay to your suppliers (input tax) on your tax returns, provided that you have a tax invoice or other evidence of the supply or import and have paid the VAT you wish to reclaim. You won’t be able to reclaim the VAT incurred on entertainment expenses, motor vehicles used for personal purposes and employee-related expenses.
4. Records to Keep
Records need to be kept for at least 5 years. You will have to keep:
Records of all supplies and imports of goods and services;
All tax invoices and tax credit notes and alternative documents received;
All tax invoices and tax credit notes and alternative documents issued;
Records of goods and services that have been disposed of or used for matters not related to the business, detailing the VAT paid on those goods and services;
Records of goods and services purchased for which the input tax was not deducted;
Records of exported goods and services;
Records of adjustments or corrections made to accounts or tax invoices.
In addition, you will need to keep a VAT record or account which shows:
Output tax due on taxable supplies;
Output tax due on taxable supplies accounted for via the reverse charge mechanism;
Output tax due after the correction of any errors or adjustments;
Input tax recoverable on supplies or imports;
Input tax recoverable after the correction of any errors or adjustments
Moreover, like all businesses, you will have to keep accounting records and documents that relate to your business activities. Such records and documents, include:
Balance sheet and profit and loss accounts;
Records of wages and salaries;
Records of fixed assets;
Inventory records and statements (including quantities and values) at the end of any relevant tax period and all records of stock-counts related to inventory statements.
Should you need any help or have questions, My Best CFO Team is always happy to help you.
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