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UAE FTA opens VAT registration portal

UAE FTA opens VAT registration portal

20171002 by Aurifer
On September 29, 2017 the Federal Tax Authority (“FTA”) of the United Arab Emirates (“UAE”) opened its VAT registration portal to allow businesses to register for VAT. The portal is accessible via www.tax.gov.ae.

UAE FTA opens VAT registration portal

Three months before the actual implementation the FTA opens the VAT registration portal

UAE FTA opens VAT registration portal
20171002 by Aurifer
With January 1, 2018 rapidly approaching, companies now have a mere three months to get registered for VAT. We advise businesses operating in the UAE to already start applying for a Tax Registration Number (TRN) well ahead of the implementation date. Doing so will allow them to fully prepare for the launch of VAT and avoid any technical difficulties which may occur as the year-end (and thus the implementation date) approaches.

Aurifer's tax advisors have already familiarised themselves with the registration process and are ready to assist your company in obtaining its VAT number. Hereafter we will discuss certain aspects of the UAE VAT registration process.

Which businesses can / must apply for a VAT registration?

It is important to know whether or not you are required or eligible to register for VAT. As a basic principle, every person operating a business is obligated to register for VAT. A person can be an individual (i.e. when an individual is operating as a sole trader) or a legal person. The term person also covers other entities (e.g. an unincorporated body such as a charity or club, a partnership or trust).

Businesses established in the GCC (‘Resident Businesses') whose turnover exceeds the mandatory VAT registration threshold must register for VAT. Where the turnover of a business is below the mandatory VAT registration (AED 375.000 / USD 100.000) threshold, that business may still opt to register, provided that its turnover exceeds the  optional VAT registration threshold (AED 187.500 / USD 50.000).

Both the mandatory and the optional threshold must be assessed in two different ways. The thresholds must be evaluated, both in terms of effective turnover in the last 12 months as in terms of the expected turnover in the next 30 days.

It should be noted that there is no threshold in place for businesses which are established outside the GCC (‘Non-resident Businesses'). These businesses are required to register as from the first supply of goods or services in the UAE where they are liable to account for the VAT.

A side effect of the optional threshold is that recently incorporated businesses and micro-businesses will not be capable of registering for VAT. In most cases these businesses do not meet the minimum turnover requirement during the 12-month period, let alone the 30-day period. As a result, the optional threshold works as a de facto minimal threshold.

UAE VAT law provides for the possibility to form a Tax group between related parties,. Forming a Tax group can be an interesting opportunity for corporate groups as it allows them to organise their business activities as a whole. Provided that all members of the Tax group are UAE residents and carry out an economic activity, a Tax group can be established through a single VAT registration. This entails a significant administrative simplification for large groups of companies.

Businesses that only make zero-rated supplies (e.g. exports, international transport of passengers and goods), can apply to be exempted from registering for VAT. These businesses will still have to go through the VAT registration process, but will at a certain point have to indicate that they would like to apply for the exemption.

Why should you register?

Businesses not registered for VAT cannot charge VAT on their sales and cannot claim any VAT incurred on their inputs. Furthermore, the FTA may impose an administrative fine of AED 20.000 on every business that fails to comply with the obligation to register within the timeframe specified in the VAT law.

How to get registered?

Businesses can register through the online VAT registration portal (link). Throughout the registration process, you are required to upload copies of various documents. Accepted file types are PDF, JPG, PNG and JPEG. The individual file size limit is 2 MB.

Note that a number of information needs to be communicated in Arabic, such as trade name and authorised signatory. These must be manually entered.

What can Aurifer do for your business?

Aurifer can advise you on whether or not your business is obligated to register for VAT purposes. In addition, Aurifer provides VAT registration services where our tax advisors manage your VAT registration from A to Z. This includes assistance with collecting the necessary documents and information, completing the registration procedure and communicating with the FTA on your behalf.

Providing the wrong documents or information during the registration process may delay your VAT registration and can in some cases lead to your application being rejected by the FTA. Having tax professionals assist you during this process can significantly reduce the headache for your business.


UAE releases VAT law

UAE releases VAT law

27 August 2017 by AURIFER
The UAE has now published its VAT law

UAE releases VAT law

UAE releases VAT law
27 August 2017 by AURIFER
The UAE Ministry of Finance published its VAT law on 27 August 2017. It constitutes the second piece of tax legislation that will be enforced in the UAE, after the publication of the legislation concerning excise taxes, which will enter into force on 1 October 2017. The VAT law constitutes the basis for the introduction of VAT as of 1 January 2018. This is a landmark law that will massively impact businesses and consumers in the UAE. The VAT law comes a little earlier than expected, the authorities having announced it would be published in September only. It will be followed by the implementing regulations, which will provide more detail on its application.

The UAE VAT law implements the GCC VAT Agreement, a treaty signed by all 6 Member States of the GCC. Drafting on the treaty has begun as far back as 2009. In its design, it is loosely based on the VAT directive. The VAT directive is the basis of VAT legislation throughout the countries of the European Union, where VAT originates from. The Member States have committed to introduce VAT throughout the GCC by at the latest 1 January 2019. The Kingdom of Saudi Arabia has already published its VAT law and is currently pending the publication of its implementing regulations.

Businesses have to register when they expect to meet the mandatory registration threshold of 375,000 AED. The possibility to register should open as of September through tax.gov.ae. The UAE expects around 350.000 businesses to register for VAT purposes. To calculate whether a business needs to register, there is a retrospective test and a so-called prospective test. For the retrospective test the past twelve months need to be analysed, but remarkably for the prospective test only the next 30 days. 

This prospective test is foreseen to be applied differently in the Kingdom of Saudi Arabia, where the next twelve months need to be taken into account, which is also the way it seems to apply under the treaty. If a business makes supplies or incurs expenses of half that mandatory registration threshold, it can also voluntarily register for VAT purposes.

Importantly the VAT law confirms the policy adopted by the UAE in terms of the exceptions it will make that all supplies in the UAE are subject to the standard 5% VAT rate. 

According to its law, it subjects certain supplies to a zero rate. This means that VAT is not calculated on the supply, but the supplier can still recover all input VAT. This applies for example for international passenger travel. Flights from Dubai to Riyadh or to a third country will not be subject to VAT. This is good news for the tourist sector, which already sees prices for hotels and restaurants increase with 5% VAT.

It also confirms that the first supply of residential buildings within 3 years of their completion is subject to a zero rate. This rule has been imported from the UK, but is not widely applied in other European jurisdictions. It is obviously beneficial for prospective buyers of a new home and good news for the UAE real estate sector. Crude oil and gas will also be subject to a zero rate, whereas the Kingdom of Saudi Arabia is not expected to do the same.

Very important to the wider public is the subjecting of the education and health care sector to a zero rate. Tuition fees will therefore not increase in price. The same holds for preventive and basic health care. This does not prevent that some of the supplies by educational institutions or health care institutions will still be subject to the standard rate of 5%.

Certain supplies are subject to the application of an exemption for VAT purposes. This means that the supplier cannot recover any input VAT. This is the case for certain financial services, the supply of bare land, the supply of real estate not subject to a zero rate and local passenger transport. This is on the face of it goods news for the RTA metro fees. However, importantly, this also means that the RTA will not be able to recover any input VAT charged to it for the extension of the metro in view of Dubai 2020 and therefore its costs will increase.

The VAT law sheds some tiny light on the VAT treatment of free zones, hinting at the application of a regime similar to that of the designated zones in the Excise Tax law. Detail on the application of this regime is however deferred to the Implementing Regulations, which are still yet to be published.

Governments will remain out of scope for VAT purposes, unless they are not acting as a government or enter into competition with the private sector. A list will be established on the basis of which this distinction will be made and a cabinet decision will be made which governmental entities need to register for VAT. This additional information will be very important as government entities may enter into competition with private actors and the fact that they are not subject to VAT can provide them with a substantial advantage over the private sector. Any subsidies provided by governments can also be deducted from the taxable base on which to calculate VAT. This is the exact opposite of what is applicable in the European Union. Additionally, government entities put on a specific list will be able to reclaim VAT from the Federal Tax Authorities which they paid to their suppliers.

In its technical wording, the UAE VAT law deviates substantially from the Agreement and from the legislation published in the Kingdom of Saudi Arabia. Businesses with operations in both the UAE and the Kingdom of Saudi Arabia will therefore have to read both legislations closely as different terms may mean the same in both legislations. Businesses with operations in both the UAE and the Kingdom of Saudi Arabia will incur substantial administrative costs due to the different laws, VAT returns and procedures. Whereas in the European Union the European Commission pushes towards harmonisation of the laws and obligations, the GCC Member States have not harmonised their laws and obligations.

Time is now really crucial for businesses, as 4 months until 1 January 2018 is a very short implementation period for businesses wanting to being compliant for VAT purposes.   
KSA releases VAT law

KSA releases VAT law

9 August 2017 by AURIFER
The Kingdom of Saudi Arabia has now published its VAT law in its Official Gazette

KSA releases VAT law

KSA releases VAT law
9 August 2017 by AURIFER
On Friday 29 July 2017 the Kingdom of Saudi Arabia released its VAT law. It is the first piece of VAT legislation published in the GCC and therefore sets the tone for the other Member States.

The law follows the unique structure of the previous draft law. Although likely not compliant with the Saudi Basic Law, the VAT law refers to a great extent to the VAT Agreement concluded between the GCC Member States.

The level of detail in the VAT law is therefore quite limited. It does contain a number of the penalty provisions since these had to be included in the law, and not in the implementing regulations. The same thing holds for the appeal provisions. 
       
According to the law, VAT will apply on all imports and supplies of goods and services as of 1 January 2018. The extent of the exemptions and zero rates will be determined in the implementing regulations. Tax payers who register late will incur a penalty of 10,000 SAR.

The issuance of invoices or payments before 1 January 2018 will be disregarded if the supply is made after 1 January 2018.
KSA draft VAT implementing regs

KSA draft VAT implementing regs

9 August 2017 by AURIFER
As with its VAT law, the Kingdom of Saudi Arabia has published the bilingual draft VAT Implementing Regulations for consultation (see https://www.gazt.gov.sa/dzit_logon/MenuItems.jsp?menu_id=regvatform&portalapp=x&ume.logon.locale=en). The public consultation is ongoing until 19 August 2017.

KSA draft VAT implementing regs

KSA draft VAT implementing regs
9 August 2017 by AURIFER
The Implementing Regulations provide much more detail on how VAT will actually apply in the KSA. The draft VAT law was unique in its design as it referred back to the VAT Agreement concluded between the six Member States of the Gulf Cooperation Council. It did not provide the basis for domestic taxation, deviating in its design from international standards around the design of tax laws and potentially even deviating from its own Constitution, the Saudi Basic Law. 
 
The detail in the Implementing Regulations is important for businesses preparing for the implementation of VAT. They now at least have a sense of the direction the KSA is choosing in implementing VAT. For example, more details are given with respect to how tax payers can register, what kind of documentation is required for GCC supplies, but also how tax payers who have exempt supplies can deduct input VAT and to what extent expenses with respect to vehicles can be deducted. The Implementing Regulations are still subject to final amendments after the public consultation process. 
 
The publication of the Implementing Regulations is another step in the process towards the implementation of VAT in the KSA on 1 January 2018. Insofar as Saudi businesses have not started preparing for the introduction of VAT, it has now become high time to do so, as preparations are time consuming.