VAT in GCC

VAT or Value Added Tax is soon to be enforceable in the 6 GCC countries including UAE, likely to be at a rate of 5%.

The effective date for the implementation of VAT is 1st January 2018.

It will be applicable to both locals and expatriates. And the rules and regulations for implementing VAT will be out before 3 (three) months from the date of its enforcement by October 1, 2017. So, it’s imperative for the company/organizations to plan the VAT implications before-hand.

What is VAT?

The VAT is a form of an indirect tax, which is only applied to the good and services and not to the income of the individual.

The sole objective behind the collection of VAT is to in large the government revenue in order to improve the public services, thereby creating a new source of income and reducing the dependence on oil.

As per the standards of the Ministry of Finance, approximately 100 goods and services will be removed from the scope of VAT, such as food items, medical, education, local transport, residential real estate including long term lease, gold, silver, platinum (if not in the jewelry form). On these goods and services, the VAT will not be applicable.

Terms used in VAT:

Input Tax (VAT paid on purchaser);

Output Tax (VAT charged on Supplier);

Input Tax Credit-ITC (VAT paid on purchases is typically ITC.);

Input Taxed Supplies (VAT paid purchases but cannot levy on sales/suppliers);

VAT Group (single registration for Related Entities);

Reverse Charge (VAT remitted by Purchaser/Sales receiver);

VAT registration (Eligible entities to register with Government to do the transaction in the country.);

Unrecoverable VAT (VAT paid on purchases but cannot claim refund or charge on suppliers.);

VAT remittance (Net Output and Input VAT to be remitted to the seller);

VAT reporting (Details of purchase and Sales of VAT to be reported to the Government);

Account-Based VAT (Revenue-Allowable Purchases);

Invoice-Based VAT (Levying VAT on Taxable Invoice Value);

What will be the Impact of VAT on the cost of living?

Eventually, because of the introduction of VAT, the cost of living here in UAE will rise. The things are already expensive as compared to the rest of the world because of the transportation and storage cost but what will be the total percentage of increase in the price is still uncertain as the rules are yet to be implemented.

Registration for VAT – A necessary mandate?

As per the awareness event held by the ministry of finance on 21st March 2017, it will be mandatory for a company having an annual turnover of above AED 375000 to register for VAT, whereas, the companies having annual turnover below this specified amount will have the voluntary option to register for VAT. Registration for VAT will start before 3 months from the date of its enforcement.

Each registered person will be given a Unique registration number.

Documents required: Address proof of business,(Certificate of Incorporation, etc),

Proof of identity promoters (ID Card, investor card etc) and Additional security deposit or surety(if required).

How VAT will be applied to export & import?

For the application of VAT on export and import, the rules of the place of supply shall be applied, that is to say, if the goods and services are being supplied outside UAE or GCC then VAT will not be applicable to such goods or services. But if the goods or services are imported within the UAE, then VAT will be applicable.

Any information contained in this Article is subject to change as per the rules and regulations to be introduced by the Ministry of Finance at a later stage…

Write a Reply or Comment