The United Arab Emirates (UAE) and Saudi Arabia is all set to welcome the New Value Added Tax (VAT) regime from 1st January, 2018. Other Gulf Cooperation Council (GCC) Countries, VAT may be implemented from January 2019.
The President, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, has issued the Federal Decree-Law No. 8 of 2017 for VAT on 23rd August 2017.
Key Takeaways:
Every taxable person resident of a member state whose value of annual supplies in the member state exceeds or is expected to exceed the mandatory registration threshold.
The definition of business embraces most forms of activity and includes any activity conducted regularly or on an ongoing basis, e.g. industrial, commercial, professional, trade, etc.
Mandatory Registration
A business must register if:
- The total value of taxable supplies* made within the UAE exceeds the mandatory registration threshold over the previous 12 month period, or
- Anticipated taxable supplies with a value exceeding the mandatory registration threshold in the next 30 days.
- The mandatory registration threshold will be AED 375,000 (INR . 65,28,220.37)
Voluntary Registration
A business may apply to register if they do not meet the mandatory registration criteria and:
- The total value of their taxable supplies or taxable expenditure in the previous 12 months exceeds the voluntary registration threshold, or
- They anticipate that the total value of their taxable supplies or taxable expenditure will exceed the voluntary registration threshold in the next 30 days.
- The voluntary registration threshold will be AED 187,500 (INR 32,64,620.68)
* Taxable Supplies Include:
Standard rated supplies,
Reverse charged services received (provided the taxable person is responsible for accounting for the tax); and
Imported goods (provided the taxable person is responsible for accounting for the tax)
VAT Rate
5 Percent is set to be imposed on the import and supply of goods and services at each stage of production and distribution, including what is deemed to be a supply.
Record-keeping
The following records are required to be kept to ensure accurate tax compliance:
Books of account and any information necessary to verify entries, including, but not limited to:
- Annual accounts;
- General ledger;
- Purchase day book;
- Invoices issued or received;
- Credit notes and debit notes.
Additional records required for specific taxes
- Different taxes may require different records to be kept in order for taxpayers to be compliant, for example, a VAT account.
Any other Information
- As directed by the FTA that may be required in order to confirm, the person’s liability to tax, including any liability to register.
Taxable persons for VAT must, in addition, retain the following records for at least 5 years:
Invoices, credit/debit notes
- All tax invoices and alternative documents related to receiving the goods or services
- All received tax credit notes and alternative documents received
- All tax invoices and alternative documents issued
- All tax credit notes and alternative documents issued
Records of
- All supplies and imports of goods and services
- Exported goods and services
- Goods and services that have been disposed of or used for matters not related to business
- Goods and services purchased for which the input tax was not deducted.
VAT account
- VAT due on taxable supplies (incl. those related to the reverse charge mechanism)
- VAT due after error correction or adjustment
- VAT deductible after error correction or adjustment
- VAT deductible for supplies or imports
Penalties
- The Federal Tax Authorities or FTA has the power to waive or reduce penalties at its discretion (e.g. taxable person has a reasonable excuse for the error).
- The FTA can issue penalties for tax evasion.
- Tax evasion is where a person uses illegal means to either lower the tax or not pay the tax due, or to obtain a refund to which he is not entitled under law.
- The imposition of a penalty under tax law does not prevent other penalties being issued under other laws.
Audits
The FTA can visit businesses to inspect records and make sure persons are paying or reclaiming the right amount of tax, and are able to check whether businesses are liable to be registered where they are not.
- FTA will apply risk based selection criteria to determine whom to audit
- FTA will usually conduct the audit at the person’s place of business or at the FTA offices
- If audit at the person’s place, must be informed at least 5 business days prior to the audit
- FTA can close the place of business for up to 72 hours (e.g. suspect tax evasion)
- FTA officer may request original records, take samples of merchandise, mark assets to indicate they have been inspected.
- The FTA may also remove records, documents, and samples
- The audited person should be notified of the results of the tax audit within 10 business days of the end of the audit
Source: https://www.tax.gov.ae/legislation.aspx
The Author is a budding Tax Law Professional & can be reached @ [email protected]
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