January 1st is that time of the year when your first New Year’s resolutions are put to the test, but something else might actually challenge your lifestyle in 2018; and we are talking here about VAT. If you live in the UAE or Saudi, you will be part of the only two countries of the GCC’s 6-nation group that will apply the levy, which will serve to create a new source of income as part of these countries’ economic diversiﬁcation strategy.
More than 150 countries have implemented VAT, but what is it and how will it impact your pockets?
Give me five
While the Excise Tax, which the UAE and Saudi federal tax authorities have already implemented, levies a 100 per cent tax on energy drinks and tobacco and 50 per cent on carbonated beverages, VAT is a breeze by comparison.
Simply said, most of what you consume or use as a service is subject to a five per cent duty, a sum that companies collect, pay and reclaim upon filing returns.
The good news is that if you are renting or buying a new home, there are no property taxes, so it might be a good idea to invest in property before federal authorities change their minds. Managing the property is not VAT exempt, as it falls under services rendered.
The zero tax rate will also apply to health and education services, bare land as well as to the supply of investment gold and the supply of international transport of passengers and goods, but other gods or services could be added to the list when VAT comes into effect.
On the other hand, Forbes said in a recent article that commercial tenants with business leases would be compelled to pay VAT.
“For most commercial tenants, this will not be a material issue as they will be able to set off this input VAT against output VAT that they are collecting on their supplies,” Forbes said.
If you’re a business, pay attention
A potential inclusion of income tax to the UAE, as part of future taxation strategies suggested recently by the IMF, is seriously worrying employees and complicating things for businesses, but the latter’s immediate concern is VAT.
A business must register for VAT, if they make taxable supplies or imports that exceed the mandatory registration threshold of AED 375,000 (more than $100,000).
To register, the UAE Federal Tax Authority (FTA) said that businesses must provide the following information: applicant details, including entity and activity details, trade licenses and manager’s details.
Contact information is also required, as well as the documents of the authorized signatory, including scanned copies of his/her Emirates ID and passport.
Under the new rules, the penalty incurred for those who fail to pay the tax is no less than Dh500 and no more than triple the value of the tax on the transaction in question.
“Should the company or person settle the fine, they must also pay the tax owed. However, they can appeal any administrative penalties incurred,” said the FTA in a statement.
The FTA also announced a list of what businesses must know before registering for VAT, some of which are included below.
“All businesses must submit an application for registration as soon as possible, in order to avoid the risk of non-registration by January 1, 2018, which would entail fines as stipulated in Cabinet Decision No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE,” it said.
Tax registration can be carried out through the Federal Tax Authority’s website. The registration portal is available 24 hours a day, 7 days a week.
It said that, for some businesses, tax grouping would be a useful tool that would simplify accounting for VAT, but all businesses “must retain records such as Balance Sheet, Profit and Loss, and records pertaining to fixed assets, payroll, inventory and stock levels, as well as accounting records (payments, receipts, purchases, sales, revenues and expenses).”