How will you be affected by the new UAE VAT Registration regime?

The Gulf Cooperation Council (GCC) VAT Registration Framework Agreement, unanimously endorsed by all six member nations, is poised to be unveiled pending final sanctioning. This agreement establishes comprehensive principles for VAT implementation across the GCC while allowing member states some flexibility in certain matters. Each nation will enact domestic legislation to execute VAT based on these shared principles.

Implementation Schedule:

All GCC countries have committed to implementing VAT by January 1, 2018, with a deadline set for January 1, 2019, at the latest. While the UAE has already announced its implementation for January 1, 2018, other member states face challenges in finalizing legislation, leading to staggered implementation schedules. Saudi Arabia anticipates VAT rollout in the first quarter of 2018, Bahrain by mid-2018, while Qatar, Oman, and Kuwait are yet to announce their timelines.

The UAE VAT Registration Administration and Legislative Framework:

The UAE has established a Federal Tax Authority (FTA) tasked with VAT management, collection, and enforcement. Legislative progress includes the recent approval of tax procedure law by the Federal National Council, expected before Ramadan (June 2017). This law will govern all taxes, including VAT, outlining procedures for registration, collection, audits, penalties, and appeals. Specific VAT regulations will be governed by a separate Federal VAT law, expected by mid-2017, with executive regulations to follow.

Understanding VAT Basics:

Value Added Tax (VAT) is a consumption tax levied on value added at each stage of the supply chain. VAT-registered businesses collect VAT on sales and pay VAT on purchases, with the difference remitted to the government. While businesses collect VAT, it is ultimately borne by the end consumer, unless goods or services are exempt or zero-rated. Distinction between zero-rated and exempt supplies is crucial, as only zero-rated businesses can recover VAT on purchases.

VAT in the UAE:

Under the GCC VAT Framework Agreement, VAT will be applied uniformly at a standard rate of 5% across GCC nations. Further details were revealed in the UAE Ministry of Finance's VAT awareness session. VAT will be charged based on the destination principle, applying where goods and services are consumed in the UAE, with exports taxed at a zero rate. Businesses exceeding an annual turnover of AED 375,000 must register for VAT, with an option for voluntary registration below this threshold, recently reduced from AED 3.75 million and AED 187,500 respectively, aiming to facilitate compliance and enable VAT recovery.

Conclusion:

The GCC VAT Framework Agreement signifies a significant step towards regional economic integration. The UAE's proactive approach to VAT implementation reflects its commitment to regulatory alignment and fiscal responsibility. As VAT becomes operational, businesses must adapt to ensure compliance and capitalize on available opportunities.