GCC VAT

VAT implementation in GCC

PROPOSED TAX REGIME IN U.A.E

                               To tide over the financial stringency owing to sharp decline in crude oil prices, the 6-nation GCC (Gulf Co-operation Council) countries have decided to go in for a new taxation regime (VAT) from January 2018.

                              As per UAE estimation, the roll out of VAT will generate over Dh 12 billion (average Dh 1 billion per month) additional revenue in the first year of implementation of VAT system.

                             As per the taxation proposals, 100 food items, health, education, bicycles and social services would be exempt from VAT, while electronics, smart phones, cars, jewelry, watches, eating out and entertainment will come under taxed category. GCC countries are also introducing excise duties on tobacco products and certain beverages that are deemed to be harmful to health including those with high sugar content.

 When VAT will be introduced…….

Once VAT will be introduced, companies / business establishments in U.A.E with reported revenue of over Dh 3.75 million (per year) will be obliged to be registered under the GCC VAT system. Companies, whose annual reported revenue is between Dh 1.87 million and Dh 3.75 million, will have the option to register or not to register for VAT during the first phase of VAT implementation. Anyhow, eventually it will become obligatory for all companies to be registered under the system in the second phase regardless of reported revenue.

Small and medium businesses

                         Small and medium businesses (SMB) establishments need not register for VAT as they do not meet the minimum turnover requirements. But, such business establishments will need to maintain necessary records in support of their actual annual turnover.

                                VAT being a tax on consumption will be levied on the prices charged to the consumers. As such, prices may increase by the tax amount of VAT.

                                When engaged in supply of goods or services that are subject to VAT (including those with zero tax) you will be entitled to reclaim VAT incurred on costs. Where companies are engaged in activities that are exempt from VAT and where VAT incurred could not be claimed, automatically VAT will be a cost to your business that cannot be claimed.

Cares to be taken

                                With the implementation of VAT system, strict vigil has to be exercised to ensure:-

(a)   Payment of due tax within the stipulated period

(b)   Filing of VAT returns in time providing relevant information required by the government ; and

(c)   Maintenance of proper stock, invoices, accounts, returns and relevant records in support of the tax paid.

  Rush for jobs

                           The above requirements demand more control over stocks, invoices and records, with proper filing system, modification / up gradation of software, compliance of due dates for collection / payment / remittance of tax and for meeting the requirement for deployment of smart accounts personnel will be essential. It has to be noted that failure of companies to maintain records as per VAT rules will invite fines ranging up to AED 50000.

                               The volume of the above work will depend and vary with the size and complexity of the business establishment / company. Hence, the companies / business houses in U.A.E have already started preparing themselves to transform their work setup to comply with the legal requirements of the new tax system coming into force from January 2018. No doubt, this would mean that there is bound to be heavy demand for Job profiles which alone can make the existing ERP (Enterprise Resource Planning) systems VAT compliant.  In other words, there would be large scale requirement of smart / professional accountants with multi skills of Information Technology (IT) and tax combined with the responsibility of bringing in new accounting standards. The employment opportunities for accounting professionals with indirect tax background will also increase as taxation is largely a new field of practice in U.A.E as most of the companies will come under the purview of VAT.

VAT reclaim…..

Once VAT is introduced, all companies’/ business houses in U.A.E will have to record financial transactions accurately and keep them up to date. Companies must normally submit the report of VAT they charge and VAT they have actually paid to government on a regular basis. Depending on the amount of VAT charged and paid, they can either reclaim from the government or pay the difference to government.