We had such a great response to the VAT article posted on 1st October, thank you to those that took the time to email us.
What the response did bring to our attention that many of you are confused as to what VAT is, so we thought it would be a good idea to provide a layman’s overview to VAT, what it is and what we, as business owners, need to do.
This article is written with our Financial strategic partner expert, Caroline Thevenot of CTC Consultancy.
- What is VAT? VAT stands for Valued Added Tax. VAT will be introduced into the UAE from 1st January 2018. His Excellency Obaid Humaid Al Tayer, has stated that the UAE will implement VAT at the rate of 5%, whereas excise tax will be 100 % on tobacco and energy drinks and 50 % on soft drinks excluding sparkling water.
- Just the UAE? It is understood that all six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) have signed the agreement, paving the way for the introduction of VAT throughout the GCC in 2018. KSA and UAE will be the first countries to introduce VAT with the other countries following at a later date.
- Why introduce it? The new tax laws and procedures are expected to strengthen the UAE’s economic development and enable it to be a real competitor among the world’s advanced economies. It will help support the Government budgets for local hospitals, roads and parks.
- Should I add VAT to my invoices? Every taxable person whose value of annual turnover exceeds or is expected to exceed the mandatory registration threshold of AED375,000 need to add VAT to their invoices (Free Zones are potential exceptions, see below). Taxable persons with an annual turnover of over AED187,500 and under AED375,000 can volunteer to register.
- How do I know if I am a taxable person? Any person conducting an economic activity to generate income in a continuous and regular manner is called Taxable Person.
- My Company is in a FreeZone, do I need to comply? Outstanding clarity is pending. Currently Free Zone Companies do not need to charge VAT when providing services to other Free Zone Registered Companies.
- So how does it work? VAT has been set at 5%. Relevant Companies need to add VAT to their invoices issued from 1st January 2018. Every quarter, Companies need to complete a Tax Return for the FTA, declaring invoices issued (regardless if they have been paid or the service delivered, if an invoice has been issued then it needs to be included in the tax return), Companies also declare invoices that they have paid where they have been charged VAT. The difference between VAT collected on behalf of the FTA and VAT paid for is the total NET VAT PAYABLE owing to the FTA.
- Who are the FTA? FTA stands for Federal Tax Authority, they have been formed by the UAE Government to administer VAT and Excise Tax. They are responsible for collecting taxes and reviewing our tax returns. They are also responsible for conducting tax audit and penalties and making decisions for tax technical complexity. The FTA are our point of contact and provide guidance on any tax issues and questions we have.
- When do we register? Companies are able to register from October 2017 using the www.tax.gov.ae website.
- What do I need to do right now? The remaining weeks of 2017 are a time for acting, our main recommendations are to start reviewing your current invoices process, to make sure that the accounting system you are using is compliant to allow VAT charges and that you have an easy process that makes quarterly returns simple.
The steps we recommend are:
- Evaluate your accounting software – make sure you can add VAT into the software
- Update your chart of accounts by including several VAT accounts (VAT on sales and VAT on Purchase)
- Format your Tax Sales Invoices
- Train your staff (Admin, Finance, Sales, Procurement)
- Registration on FTA online portal
There are many VAT presentations taking place now, we would recommend you attend as many as you can. For those with Free Zone Registered Companies, more detail to their compliance will be released this month, we are hopeful the remaining questions surrounding VAT will be answered in this notification and we will dedicate another blog just for Free Zones as soon as we have the information available.
VAT does sound complicated, in reality, its very simple, however it does require you to be organised in your invoicing and receipts process. In the final weeks of 2017, take the time to get these processes in place to make life easier for you in 2018.
Caroline Thevenot: Founder & CEO, with a French Masters in Economics & Business Administration,specialising in Finance, with over 20 years experience in SME companies and 12 years in Dubai, Caroline is a Finance Manager and CFO who is continuously inspired to work with start-ups and facilitate growth. http://www.ctconsultancyuae.com