Value Added Tax in the UAE - What you need to know

"The new law defines the fabric of UAE’s planned tax system, regulations, administration and the collection of taxes. It also defines the roles of the Federal Tax Authority (FTA)."
Dr Hadi Shahid, Alliott Hadi Shahid Chartered Accountants

The UAE's Ministry of Finance (and the wider Gulf Cooperation Council) will implement value added tax (VAT) at a rate of 5% from 1st January 2018. This marks the start of tax reform across the GCC region.

Main features of Federal Law No, 7 of 2017

• It is issued on 16 Ramadan 1438H or equivalent to 11 June 2017
• It is composed of six chapters and 54 articles.

The chapters have the following titles:
Chapter 1 - Definitions and Scope of Application of the Law
Chapter 2 - Tax Obligations
Chapter 3 - Tax Procedures
Chapter 4– Objections
Chapter 5 - Refund and Collection of Tax
Chapter 6 – General provisions

• It will be fully enforceable 30 days following publication in the Official Gazette
• It is anticipated that the law on VAT will follow publication of Federal Law No. 7 of 2017.

Main features of the Tax Procedure Law (TPL)

Article 3, objectives of the law

The law’s objectives are to achieve the regulation of the rights and obligations of the Federal Tax Authority (FTA) and of taxpayers and other persons dealing with the tax authorities. It also regulates the common procedure and rules applicable to tax laws in the State.

Article 4, record keeping

This provision suggests that any person conducting business must maintain proper books of accounts and the related supporting documents and records. Record keeping and maintaining proper books of accounts is obligatory, regardless of size and business complexity.

Article 5, language

Tax returns, data and information to be submitted to the FTA should be in Arabic. Other languages may be acceptable provided that authority is given and that Arabic translation is also available in accordance with the executive regulation of the law.

Article 8, tax return preparation and submission

All taxable persons are required to (a) prepare the returns within the time limit (monthly or quarterly, depending on the industry); (b) submit the returns and (c) settle any payable tax specified in the returns.
Businesses are responsible for the accuracy of the contents of their returns. Administrative penalties shall be settled by the tax payer within the period allowed by law.

Article 17, the right of the FTA to perform a Tax Audit

The FTA may perform a tax audit on any person to ascertain their compliance with the provisions of the Law. The FTA will provide notice of at least five (5) business days if it decides to conduct the tax audit at the tax payer’s business premises. The FTA has the right of entry to any place where the tax payer is conducting his or her business.

In the event of serious grounds for tax evasion, or the tax payer attempts to hinder the tax audit, the FTA may temporarily close the business for not more than 72 hours without prior notice subject to the approval of the Director General.

Article 18, the right of the FTA to access the original records or copies

The FTA has the right to obtain original records or copies of the same or even to take a sample of the stock, equipment or other assets in accordance with Executive Regulations of the Law. Executive Regulations are expected to be published following the release of the VAT Law in the 3rd or 4th quarter of 2017.

Article 22, the audited person’s rights

The audited person has the right to (a) request that the Tax Auditors show their job identification cards, (b) obtain a copy of the Tax Audit Notification, (c) attend the Tax Audit which take place outside the FTA, (d) obtain copies of any original papers or digital documents seized or obtained by the FTA.

Article 24, tax assessments

The FTA shall issue its tax assessment as a result of the Tax Audit within five (5) business days to the taxable person due to failure to register within the time frame (before 1st January 2018), unable to submit the required tax return, unable to pay the accrued tax, incorrect tax returns and failing to account the tax on behalf of another person and any shortfall in the payment in tax.

Article 26, tax evasion penalties

A prison sentence and monetary penalty not exceeding five (5) times the amount of evaded tax or either of the two, shall be imposed for the following reasons:

a. Deliberate failure to pay the tax due and its related penalties
b. Deliberate understatement of the actual value of the business and failure to consolidate the business with the intention of maintaining its business under the registration threshold
c. Person who charges and collects amounts from clients claiming them to be tax without being registered
d. Deliberate submission of false information and data to the FTA
e. Deliberate concealment or destruction of documents or other materials required by the FTA to be maintained and properly kept
f. Deliberate theft, misuse or destruction of documents or other materials that are in the possession of the FTA
g. Prevention of hindrance of FTA employees from performing their duties.
h. Deliberate decrease in the tax payable through tax evasion or conspiracy to evade tax.

Dr Hadi Shahid adds: "Companies are encouraged to comply with all of the provisions of the Law and to constantly be aware of any updates." 

Information on the changes and impact on different industry sectors

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VAT rates

The VAT rate remains at five percent (5%) across the UAE and the GCC region.

Implementation date

It is expected that VAT will be fully enforced on 1st January 2018 in the UAE, along with Saudi Arabia in the GCC region.

Registration threshold

All businesses must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. However, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

For assistance with tax and VAT in the UAE

Contact Dr Hadi Shahid for advice and assistance on all of your business' tax and VAT matters.