A call for UAE VAT compliance

For companies, the new UAE VAT law will mean maintaining proper accounting standards, filing proper returns like world economies and timely reporting to government authorities.

Companies and individuals submitting late, incomplete or incorrect filings under the final value-added tax (VAT) regulations will face penalties and other hefty fines, according to legal experts.
"Existing and new investors will have to be fully updated with compliance requirements to avoid penalties and other fines due to late, incomplete and or incorrect filings. If necessary they can appoint advisory firms as tax agents and or legal representatives by outsourcing tax compliance obligations by engaging with them unless they decide to internalise the processes," said Nimish Makvana, partner at Crowe Horwath UAE.
"There are very strict provisions for non-compliance including prison terms and hefty fines especially for deliberate tax avoidance, incomplete and incorrect filings by any taxable person which must be avoided at all costs," he adds.
The final VAT regulations announced last month helped clear the air for investors and companies in the UAE as a whole. Set to be introduced across the Gulf countries, VAT has been set at five per cent on a host of products, but certain segments have been exempted, such as basic consumer goods, healthcare and education, among others.
Federal Law No. 7 of 2017 for Tax Procedures sets the foundation for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA).
Makvana explains that the new law fixes responsibilities to the eligible resident taxable persons, including non-residents and investors as well as their agents and nominated representatives, who will have to register and ensure specified compliances, provided these businesses meet the turnover criteria of $100,000 (Dh367,300) per annum in any GCC country.
Chirag Vora, managing director of Bafleh Jewellery, says for companies, it will mean maintaining proper accounting standards, filing proper returns like world economies and timely reporting to government authorities. Companies now will have to invest in proper accounting set up to manage the new tax policies.
"The new law will definitely streamline the way of doing business in the region with companies required to follow stricter accounting polices and proper due diligences, however the move will further strengthen the UAE's position in the world economy," he adds.
 
UAE VAT system simpler
The upcoming VAT system in the UAE is quite simpler in terms of consumers and companies perspective and lower as compared to many other countries, says K.V. Vaitheeswaran, an advocate and tax consultant. He pointed out that the VAT system in the UAE is very simple compared to multi-rate systems elsewhere.
"I think VAT the UAE contemplates and proposes is very simple compared to what India has implemented. India has implemented a complex system because for the people in the business or commodity segment multiple rates are always a problem. When you have a multiple rates of taxation you will have classification disputes. I think the UAE has straightway addressed that problem by keeping it at one simple rate and then there is a list of exemptions. That will be a great achievement because simplicity in rates will take the system way forward," he added.
 
MNCs to be treated like local firms
David Stevens, VAT implementation partner at EY Middle East, explains that the Tax Procedures Law will provide the administrative basis for the enactment and enforcement of future tax laws in the UAE by the Federal Government.
"Multinationals would be treated just like local companies in terms of the requirements of this law and the proposed excise tax and VAT laws. There will not be any distinction drawn between the two. Most multinationals are used to complying with record-keeping, tax compliance and possible audits in other jurisdictions, so the introduction of them in the UAE should not come as either a surprise or major change from international practices," he noted.
 
Relief for startups, SMEs?
Makvana pointed out that the law requires "'all taxable entities'' with turnover higher than revenue threshold as above (mandatory registration) and other eligible persons as stipulated (also those who may opt for) who register are required to keep all relevant accounting records (e.g., purchase and sales invoices and commercial books; inventory and customs records for imports and exports, contracts, etc) for at least five years, as well as any tax-related information, (e.g., formal templates and returns, tax receipts, etc), as determined by the law.
Currently, there is no separate relief specified for startups, small and medium enterprises and/or large corporates, if one refers to all Ministry of Finance workshops and updates, he said, adding that thus tax returns, data, information, records and documents must be submitted in Arabic by all entities. The FTA may accept documents in any other language, as long as the taxable person provides a translated copy into Arabic at their expense and responsibility if so requested by the authority.
In addition, every person who is obliged to register or is eligible for registration must comply within the timelines as stipulated under the law. Saudi Arabia-based entities have recently been given 30 days to register from the date of notification of the law. Similar timelines are expected to be laid down for UAE taxable persons as well.
 
TRN must in all transactions
The new law, according to Makvana, says that registered persons/entities must include their tax registration number (TRN) in all correspondences and transactions with the authority and or with other businesses, i.e., between suppliers for good and services and with customers.
The TRN will be a unique number issued by the FTA for each person registered for tax purposes. Around half-a-million companies including some free zone entities are likely to register under the new laws. But final confirmation is still awaited from the FTA.
 
Initial costs
Businesses, though, may have to bear some initial costs, Makvana adds.
"There may be some initial and one-off set-up costs during this business transition [initial advisory] and new systems software or upgrades and then routine compliance costs on a quarterly basis once the new laws take effect on January 1, 2018. This should be seen as an investment by businesses and investors to streamline operations, upgrade or replace systems to ensure compliance with new VAT and excise laws," he added.
David Clifton, regional development director at Faithful+Gould, says the Ministry of Finance has clari?ed the VAT exemptions and as expected the majority of goods and services in construction are included in the non-exempt items.
Further, residential real estate is con?rmed as exempt. This may yet pose a point of dif?culty for real estate developers as the point at which the VAT "chain" stops is with them and the five per cent levy on construction cannot be passed on. Given the downward pressure on sales prices, this could cause certain scheme feasibility issues which may require replanning.
On a positive note, with the expected revenue of Dh12 billion in 2018 from VAT, the federal government will have further ?exibility to invest in social infrastructure - such as schools, hospitals and roads - which should act as a boost to the market.
- waheedabbas@khaleejtimes.com