VAT in the UAE – A quick summary of what you need to know
The GCC states have adopted a common VAT regime by treaty, to be implemented under local law in each state and with potentially varying commencement dates. The UAE will introduce its VAT regime on 1 January 2018.
Is the turnover of your business likely to exceed AED375,000 for the year 2018? If so, you must register for VAT. If no but above AED187,500, then you should seriously consider registering voluntarily for VAT. If you do not register you cannot charge VAT, or reclaim it on related costs.
From 1 January 2018, the supply of goods or services within the UAE by a person who has registered for VAT, or who is liable to be registered, will generally be subject to a VAT charge of 5%. The supplier will account for this to the Federal Tax Authority (FTA). If the purchaser is registered for VAT then in all likelihood it will be able to reclaim the VAT paid.
There are a number of exempt supplies and a number of zero-rated supplies. If you think you may be a supplier of exempt or zero-rated supplies you will need to check the regulations closely. The broad headings of these include:
- Zero rated: exports outside the GCC, international transport, investment precious metals, the first supply of new build residential property within 3 years, crude oil and natural gas, education and preventive and basic healthcare services
- Exempt: financial services, residential property except as zero-rated, bare land, domestic passenger transport
If you sell services or goods outside of the GCC, such transactions will be zero-rated (except in relation to UAE real estate). For cross border supplies within the GCC, a VAT registered purchaser must "reverse-charge" VAT to itself and account to their local tax authority for the VAT due (once the relevant state has implemented its legislation).
Your VAT invoices must contain specified basic information. Your business must put systems in place to create VAT invoices and account online to the FTA. Basic information includes:
Date of invoice; your VAT registration number; description of goods or services provided; amount of invoice (after any discount) and amount of VAT in AED; and, if applicable, the VAT registration number of the purchaser as well as its name and address.
Do you supply real estate; either selling or leasing? That activity will be subject to VAT at 5% (there are some exceptions, for example a first supply of a new build residential building which will be zero-rated if within the first three years of construction).
How will your price be displayed? When dealing with consumers, prices must include VAT. When dealing with VAT registered entitles the assumption is that the price will include VAT unless clearly stated otherwise.
How will you deal with the transition at 31 December 2017? Are you ready?
This short briefing note is not intended to provide complete, or detailed advice. We can provide specific assistance in relation to the application of VAT and drafting of relevant terms and conditions. Please do not hesitate to contact us.
