OVERVIEW

VAT is a type of an indirect tax that is applicable in more than 180 countries of the world today, on all the consumption of goods or services imposed at the time of sale.

It has also been made mandatory in the UAE region and thus, all businesses in the area need to submit their respective application to register for VAT before the impending deadline. The rate of VAT will be levied at 5% with an idea that the VAT will facilitate a new income source for the UAE that will further be utilized and help in providing eminent public services.

With the implementation of VAT in the UAE market, things are definitely expected to change for the good. This shall provide the UAE with a new income source, which will be continued to be utilized to provide high-quality public services. It will also help the government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue. Just as is the case with any taxation, in case of VAT as well, the benefit will ultimately get back to the people of the region in terms of enhanced growth of the nation and increased opportunities. And though, there have been several speculations on the expenses being increased for people due to inflation, experts believe that VAT will prove to be beneficial in the long run.

Alankit MANAGEMENT Consultancy

“Alankit Management Consultancy” is a Sole Establishment legal type, duly registered and licensed on October 17, 2006 under the rules & regulations of Dubai. Alankit, having a substantial market standing with a team of professionals which possesses sufficient experience in the field of e-Governance, helps to provide superior, swift and hassle-free services for everything related to VAT for your businesses. The company ensures prompt service help with regard to the VAT, ensuring a certain level of transparency and convenience in the process.

We contribute to your growth by ensuring personalized accounting practices, using technology to improve compliance quality while reducing your cost.

Our VAT Services include
  • VAT registration
  • VAT return filling
  • VAT consultancy
  • VAT impact studies
  • VAT accounting
  • VAT training
  • VAT implementation
  • IT migration for VAT compliance
Our excise tax services include
  • Excise tax registration
  • Excise tax return filling
  • Excise tax consultancy
  • Excise training
Advantages with Alankit
  • Alankit banks upon its team of qualified Chartered Accountants with professional experience in diverse industries’ international tax experience.
  • Alankit assists its clients efficiently to manage their VAT transactions by complying with the VAT laws and advising on transactions. The TAX Experts ensure compliance with the latest rules and regulations.
  • Relevant Tax Advisory Services, designed in accordance to the specific needs of a business to cater apt solutions.
  • Strong and widespread network as Alankit provides VAT Advisory Services in Dubai, Abu Dhabi, Sharjah, Ajman, Fujairah, Ras Al Khaimah & Umm Al Quwain, offering a wide range of services.
Management consultancy
Business and Financial Advisory

We provide all VAT related consulting services to both start-ups as well as established of all sizes. The market intelligence based consulting that the company offers serves as a unique support for our clients’ strategic planning and operative decisions. All businesses, small and large, require sound financial management and controls systems in place. Our strategic financial management helps in:

  • Financial management consultancy
  • Operation management consultancy
  • Implementation of Cost Control and Cost Reduction Policies
  • Guidance on Working Capital Management
CFO services

CFO plays a very important and strategic role in creating the optimal capital structure, driving the strategy of the company all across by linking it systematically with the budgets, business processes, performance of the team etc. And also, the creating information system, which can be analyzed strategically so as to provide key insights to the top management on key business drivers, business performance and which helps to achieve strategic goals, thereby maximizing the wealth of shareholders. Most SMEs owner/managers recognize the need for this expertise but cannot afford to have full time CFO. Alankit has ample experience in the domain and is able to cater to all related services effectively.

Vat FAQs

Who can or will be able to register for VAT?

A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, 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.

Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

What are the VAT-related responsibilities of businesses?

All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.

VAT-registered businesses generally:

  • must charge VAT on taxable goods or services they supply;
  • may reclaim any VAT they’ve paid on business-related goods or services;
  • keep a range of business records which will allow the government to check that they have got things right

If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.

If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.

What does a business need to do to prepare for VAT?

Concerned businesses have time to prepare before VAT will come into effect in January 2018. Businesses will need to meet requirements to fulfil their tax obligations. Businesses should have started so that they will be ready later. To fully comply with VAT, we believe that businesses may need to make some changes to their core operations, their financial management and book-keeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT now and once the legislation is issued make every effort to align their business model to government reporting and compliance requirements. We will provide businesses with guidance on how to fully comply with VAT once the legislation is issued. The final responsibility and accountability to comply with law is on the business.

When are businesses supposed to start registering for VAT?

VAT registration has opened in October 2017 for businesses that need to be registered by 1 January 2018. Any business that is required to be registered for VAT and charge VAT from 1 January 2018 must be registered prior to that date.

According to the Federal Law No. (7) on Tax Procedures, the Authority has 20 business days to review and respond on registration applications.

Registration applications shall be submitted via the E-Services Portal on the FTA website www.tax.gov.ae

When are registered businesses required to file VAT returns?

Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be:

  • Quarterly for businesses with an annual turnover below AED150m
  • Monthly for businesses with an annual turnover of AED150m or more.

The Tax returns shall be filed online using eServices.

What kind of records are businesses required to maintain, and for how long?

Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them is clarified in Federal Law no. (7) of 2017 on Federal Tax procedures and the Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No (7) of 2017 on Tax Procedures.

How long must a taxable person retain VAT invoices for?

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

How should a business determine the place of supply?

The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.

For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).

For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).

Can businesses offset customs duty against VAT payments?

VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.

How will real estate be treated?

The VAT treatment of real estate will depend on whether it is a commercial or residential property.

Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).

On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.

What sectors will be zero rated?

VAT will be charged at 0% in respect of the following main categories of supplies:

  • Exports of goods and services to outside the GCC;
  • International transportation, and related supplies;
  • Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
  • Supply of certain education services, and supply of relevant goods and services;
  • Supply of certain Healthcare services, and supply of relevant goods and services.

What sectors will be exempt?

The following categories of supplies will be exempt from VAT:

  • The supply of some financial services (clarified in VAT legislation);
  • Residential properties;
  • Bare land; and
  • Local passenger transport

Will there be VAT grouping?

Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool that would simplify accounting for VAT.

Will there be bad debt relief?

VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business. The legislation will include the conditions and limitations concerning the use of this relief.

Will there be a margin scheme?

To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No.(8) of 2017 on Value Added Tax.

How will partial exemption work?

Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.

In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.

Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.

What are the cases that would lead to the imposition of penalties?

Penalties will be imposed for non-compliance.

Examples of actions and omissions that may give raise to penalties include:

  • A person failing to register when required to do so;
  • A person failing to submit a tax return or make a payment within the required period;
  • A person failing to keep the records required under the issued tax legislation;
  • Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

Will there be any special schemes for SMEs?

No special rules are planned for small or medium sized enterprises. However, the FTA is providing through its website materials and resources for these entities to assist them in their enquiries.

Will there be transitional rules?

Special rules will be provided to deal with various situations that may arise in respect of supplies that span the introduction of VAT. For example:

  • Where a payment is received in respect of a supply of goods before the introduction of VAT but the goods are actually delivered after the introduction of VAT, this means that VAT will have to be charged on such supplies. Likewise, special rules will apply with regards to supplies of services spanning the introduction of VAT.
  • Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT. There will, however, be special provisions to allow suppliers to charge VAT in situations where their recipient is able to recover their VAT but where there is no VAT clause.

How will insurance be treated?

Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.

How will financial services be treated?

It is expected that fee based financial services will be taxed but margin based products are likely to be exempt.

How will Islamic finance be treated?

Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products will be aligned with the treatment of similar standard financial services.

Can UAE nationals claim VAT?

A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family. This will allow the recovery of VAT on such expenses as contractor’s services and building materials.

How quickly will refunds be released?

Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

Will FTA issue rulings or provide tax advice?

In the course of its interaction with taxpayers, the FTA may provide its views on various matters in the law. Taxpayers may choose to challenge these views. It should be noted that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.

Will it be possible to issue cash receipts instead of VAT invoices?

A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.

Will there be any VAT that businesses are not allowed to claim?

VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.

Under which conditions will businesses be allowed to claim VAT incurred on expenses?

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • The business must be a taxable person (the end consumer cannot claim any input tax refund).
  • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
  • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
  • The goods or services acquired are used or intended to be used for making taxable supplies.
  • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

Will non-residents be required to register for VAT?

Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.

Will VAT be paid on imports?

VAT is due on the goods and services purchased from abroad.

In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.

How will Government Entities be treated for VAT purposes?

Supplies made by government entities will typically be subject to VAT. This will ensure that government entities are not unfairly advantaged as compared to private businesses.

Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely certain government entities will be entitled to VAT refunds – this is designed to avoid budgeting issues and provide a level playing field between outsourced and insourced activities.

For the supplies provided for government entities, the treatment of such supplies shall depend on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment would remain the same even if it is provided to a government entity.

Will Businesses have to report on their business in each of the Emirates?

Businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate.

Further detail on this can be found in the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.

Will the goods exempt from customs duties also be exempt from VAT?

Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.

VAT FOR TOURISTS and Visitors

Will tourists also pay VAT?

Yes, tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale. Nevertheless, we have set the VAT rate deliberately low so that VAT is a limited burden on all consumers.

Will visiting businesses be able to reclaim VAT?

It is intended that we will allow foreign businesses to recover the VAT they incur when visiting the UAE. This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries (where the rates are a lot higher).

How can someone access UAE Tax Law?

All Federal Tax Laws, Executive Regulations and Cabinet Decisions are published under the “Legislation” section on the FTA website.

What other taxes is the UAE considering?

As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes, however.

OTHER Questions

What is Tax?

Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for things such public hospitals, schools and universities, defence and other important aspects of daily life.

There are many different types of taxes:

  • A direct tax is collected by government from the person on whom it is imposed (e.g., income tax, corporate tax).
  • An indirect tax is collected for government by an intermediary (e.g. a retail store) from the person that ultimately pays the tax (e.g., VAT, Sales Tax).

What other taxes are the UAE considering?

As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes, however.

Will this impact economic growth of the UAE?

Our analysis suggests that it will help the country strengthen its economy by diversifying revenues away from oil and will allow us to fund many public services. This is a sign of a maturing economy.

Where can I learn more about the UAE VAT?

The government has launched an awareness and education campaigns to educate UAE residents, businesses, and other impacted groups.

As part of its awareness campaign, the Ministry of Finance has launched the first phase of the awareness sessions during the period from March till May 2017. The Federal Tax Authority has run the second phase of awareness sessions during the period from August to November 2017. These sessions were held in the different Emirates.

All presentations of these sessions as well as guides and videos explaining VAT are published on the FTA website.

A telephone hotline has been set up so that you can call and speak to one of our employees directly on 600599994.

Changing my business systems for VAT reporting will cost money. Can the government help?

When VAT is introduced, the government will provide information and education to businesses to help them make the transition. The government will not pay for businesses to buy new technologies or hire tax specialists and accountants. That is the responsibility of each business. We will, however, provide guidance and information to assist you and we are giving businesses time to prepare.

What are the penalties for not complying with a business’s VAT responsibilities?

Everyone is urged to fully comply with their VAT responsibilities. The government is currently in the process of defining the exact fees and penalties for non-compliance.

Administrative penalties for violations have been issued by Cabinet Decision No. (40) of 2017 and can be found under the Legislation section on the FTA website.

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In case the service facility is not delivered/provided as committed at the time of Payment acceptance, you may ask for a refund of the payment made. The request for refund is to be submitted along with the reasons, the same will be forwarded for review of the Management. The management will take an appropriate decision after looking into your request.

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