10-step guide for UAE businesses to be VAT-ready

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From January 1, 2018, the proposed introduction of five per cent VAT on most supplies of goods and services in the UAE will present a number of challenges for businesses operating in the region as the new tax will impact all parts of business.

For businesses unfamiliar with VAT, Deloitte Middle East in one of its recent reports said implementation can require a significant change to business operations, and will include:

1. Understanding the likely impact of VAT on demand for goods and services and competitors' responses
2. Understanding VAT registration obligations and going through the process of applying for VAT registration number
3. Ensuring that the relevant books and records are maintained in the appropriate manner
4. Revising terms of business with customers to ensure that VAT becomes a cost to customers not to suppliers
5. Ensuring that the accounts payable function evidences that VAT paid and is recovered as quickly as possible
6. Ensuring that the account receivable function understands when VAT should and should not be charged, and it is accurately accounted for
7. Revising enterprise resource planning (ERP) systems to ensure that they can cope with the charging and recovery of VAT
8. Implementing manual VAT accounting processes if no central ERP system is used
9. Charging invoice templates to ensure that new fields relevant for VAT accounting are included
10. Ensuring that business is structured in such a manner as to avoid unnecessary cash flow or absolute VAT costs arising, particularly on intercompany transactions

Companies in the UAE that report annual revenues of over Dh375,000 will be obliged to be registered under the GCC VAT system. The companies whose revenues fall between Dh187,000 and Dh375,000 will have the option to register for VAT during the first phase of VAT implementation.

Businesses not registered for VAT cannot charge VAT on their sales and cannot claim any VAT incurred on their inputs.

The transition to a VAT will likely require significant resources and it is recommended that businesses start planning now for the introduction of VAT, as the expected changes required to comply with the tax will require significant lead time to design and implement.

- business@khaleejtimes.com