Need Of VAT
- GCC members Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) are looking to generate a higher proportion of revenue internally in order to maintain current levels of economic growth.
- Gulf Cooperation Council (GCC) has agreed that its member states will introduce VAT from 1 January 2018 .
Rate Of VAT
- The standard VAT rate of 5% has been agreed by all Member States of the GCC, and will be applied on goods and services that are not VAT exempt or zero-rated.
- The expected Federal VAT Law will subject a number of specific transactions to the zero rate or designate them as exempt from VAT.
Recovery Of VAT
- Any business will be able to recover VAT on purchases of goods and services, to the extent that those purchases are used for business purposes, and subject to certain conditions
- Input tax can be fully recovered if it relates to a taxable supply made (5% or zero-rated supply)
- Input tax may not be recoverable if it relates to a non-taxable supply made (exempt supply) or if it is incurred for private purposes
- In the event an expense relates to both taxable and non-taxable supplies made by a business, it will be expected to apportion input tax between the taxable and nontaxable supplies
Registration Under GCC VAT
The Government is intending to open VAT registrations from the third quarter of 2017 on a voluntary basis and from the final
quarter of 2017 on a compulsory basis for those that choose not to register earlier.
- VAT registration threshold for all UAE-resident businesses
- Businesses that make taxable supplies or imports that exceed the threshold of AED375,000 – Must Register
- Businesses that make taxable supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED187,500. May Choose to Register
- A person may register voluntarily if their expenses exceed the voluntary registration threshold (e.g. start-up businesses with no turnover).
- Exempt supplies and supplies outside the scope of VAT are not used in calculating the VAT registration thresholds.
- No threshold applies to non-resident businesses but if they make taxable supplies within the UAE, they will be required to register for VAT.
- However, in circumstances where any other UAE resident business is responsible for accounting for VAT on that supply (e.g. self-assess VAT under the reverse charge mechanism), the VAT registration shall not be required.
- Businesses that satisfy certain conditions (such as being resident in the UAE, being related/associated parties and at least one business being VAT registered) will be able to register as a VAT group.