Announcements The UAE Minister of State for Financial Affairs, His Excellency

Obaid Humaid Al Tayer was speaking in Dubai on 24 February 2016 after a joint press conference with Christine Lagarde, Managing Director of the International Monetary Fund (IMF).

On June 15, 2016, the Undersecretary of the UAE Ministry of Finance, Younis Al Khoury, announced that companies in the UAE that report annual revenues over Dh 3.75 million will be obliged to be registered under the GCC VAT system. Al Khoury also confirmed that companies whose revenues fall between Dh 1.87 million and Dh 3.75 million will have the option to register for VAT during the first phase of the VAT implementation.

VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.

What is VAT ? It is a Multi stage broad consumption tax. A business pays the government the tax that it collects from

the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.

Tax is borne by end users/consumers and not by the business VAT is not the cost of doing business unless he is in exempt

supplies. All the goods and services are expected to be taxable (5%,

0% or exempted). Expected implementation – 1st January 2018

How does it work•Assume that the goods are imported from India at $ 1000 and then are sold afterwards at the VAT of 5%,

Types of goods

VAT methodology in 5 % tax

Additional cash flow will be required as per the business model

VAT methodology in 0 % Tax

VAT methodology on exempted goods

Point of levy of tax

The VAT law does not clarify the consignment sales.

Custom Code

Place of VAT It will determine which country has the right to collect the

tax. Different rules for the transportation and non

transportation. If there is no transportation – the place where goods are

made available will be taxed. For example : Retail sale of diamonds at Dubai then it will be taxable in Dubai.

If there is transportation – the place where the transportation starts i.e. if the diamonds are transported through brinks to Belgium then the tax collecting state will be Dubai.

If there is inter GCC trade – the place where the transportation ends i.e. If the diamonds are transported from Dubai to Saudi, then it will be taxable in Saudi.

Place of supply

Situations

Place of Collection

Example: Three conditions1)Outside GCC: where the goods are sent to Belgium from Dubai2)In GCC: Where the goods are transported from Saudi to Dubai.3)Retail: Goods are hand carried to Dubai from Saudi

Registration To be taxable every company has to get registered. For registration the annual turnover and future

annual turnover. If turnover is between USD 500,000 to USD

1,000,000 there should be a voluntary registration. If the turnover is above USD 1,000,000 it is

mandatory to register within 11 months from the date the turnover crossed the limit.

Compliance for filing returns (Proposed) Typically the VAT returns should be filed monthly

or quarterly. Lodgement for month/quarter end by say, 21st of

the following month. An annual return may also be required to settle

down all the variances from the quarter if any.

VAT Exempt vs VAT Exempt with Credit (Zero Rated Supplies)

VAT systems often exempt certain banking, insurance, financial services, medical and education services This means no VAT is chargeable by suppliers of any such services nor is any related VAT incurred reclaimable .

The supply of certain basic foodstuffs (e.g. fruit, vegetables, meat, bread, milk, etc.) is sometimes zero rated/VAT exempt with credit and VAT is fully reclaimable by businesses making any such supplies.

Other points to consider Out of scope supply refers to the supplies which

are out of scope of UAE VAT Law. VAT does not need to be charged on out of scope

supplies and also not to be reported in the returns.

Services delivered to customers outside the UAE will be treated as the export and zero rated for VAT purposes.

Conclusion VAT systems are generally a very effective and

efficient means of collecting significant tax Revenue around the world

VAT compliance systems are now online in most countries

VAT is a Self-assessment system under which businesses are obliged to submit correct returns and pay liabilities in timely manner

VAT systems are policed through regular tax audits and the ongoing monitoring of exceptional trends by the Tax Authorities across the glob