UAE VAT Law - Highlights and key implications

1. UAE VAT Law: Executive Summary
On the 27th
August 2017, the much-awaited UAE
Value Added Tax (VAT) Law (Federal Decree Law
No 8 of 2017) was issued in preparation for the
introduction of VAT from 1 January 2018.
The law confirms the standard Tax rate will be fixed
at 5% on Goods and Services, which is on the lower
side compared to the rest of the world.
For taxable supplies, the advertised price shall be
assumed to include the Tax.
We still await the release of the Executive
Regulations, which will supplement and provide
details and clarifications to the Law. This Summary
will aim to provide highlights of the issued law:
Registration: Does every business have to
register?
Every person supplying taxable goods or services in
the State must register for VAT provided that the:
• value of taxable supplies and imports exceeds
the Mandatory Registration Threshold (to
be prescribed the Regulations) over the
previous 12-month period; OR
• the anticipated value of all taxable supplies
will exceed the threshold in the next 30 days
A lower threshold with the same criteria will be set
for those wanting to Register Voluntarily and for
those businesses not yet making taxable supplies will
include the total value of expenses which are subject
to Tax (so start-ups can take advantage of claiming
the input tax incurred).
Group Registration: Businesses may apply for
registration as a Tax Group provided they have met
the following conditions:
• Each business should have a Place or Fixed
Establishment in the State;
• They shall be Related Parties; and
• One or more persons conducting business in
a partnership shall control the others
Advantages will include less administrative burden as
the Group will only have to file one return for all the
businesses and intra-group transactions will not be
subject to VAT.
The Authority will assess the application and in
addition has the power to enforce Group registration
/ deregistration.
Input Tax recovery before registration:
Businesses should note that the input tax may be
recovered on goods or services used to make taxable
supplies provided the taxable supplies have not
moved to another implementing state and the services
were received less than 5 years prior to registration.
Supplies by Government entities: Are they
exempt?
Certain Government entities will be considered as
making taxable supplies in the following cases:
• Activities are conducted in a non-sovereign
capacity; OR
• Activities are in competition with the private
sector
A Cabinet decision is still to be issued on the criteria
/definition for these activities and entities.
Definitions:
State: United Arab Emirates
Authority: Federal Tax Authority
Implementing States: The GCC States that are
implementing a Tax Law pursuant to an issued
legislation
Tax Registration Number (TRN): A unique
number issued by the Authority for each
registered person

2. Record Keeping: What is required?
Taxable persons must keep records of all tax related
activities (including invoices for all supplies, imports,
exports, credit notes and adjustments). The Executive
Regulations will specify the conditions and time
limits for keeping such records.
Designated Zones: Are Free Zones included?
The Executive Regulations will specify the
conditions for certain areas to be classified as
‘Designated Zones’ and shall be treated as being
outside the State for the Purposes of VAT.
Goods being transferred from one Designated Zone to
another can be done so without any Tax becoming
due. There will be some exceptions specified in the
Regulations under which business conducted within
these zones will be regarded as being conducted in the
State.
Time of Supply: What is the Tax point?
Time of supply for goods or services will be the
earlier of:
• Date of receipt of payment; OR
• Date of issue of Tax invoice; OR
• Date goods transferred or services completed
Special Place of Supply Transitional Rules will
apply to supplies made after the effective date of VAT
implementation, whereby if delivered post the
effective date they will be subject to VAT even if
invoicing or payment has been done prior to the VAT
implementation date.
In addition, a business entering contracts which will
span over the implementation date should be aware of
whether the contract contains clauses related to Tax.
If there is no clause the consideration will be
considered as inclusive of tax thereby increasing the
cost for the supplier.
Imports: Are they subject to VAT?
Imports of goods and services by a registered
business shall be treated as making a taxable supply
to oneself and the importer shall be responsible for
applying the tax through the Reverse Charge
Mechanism (RCM), provided the importer is making
taxable supplies in the State. In the above scenario,
the RCM becomes purely an accounting entry without
any cash flow impact.
However, if the final destination of the goods is
another Implementing State, the Taxable person shall
pay the due tax on the import which may be claimed
from the implementing state.
A non-registered person shall pay tax on imports and
cannot claim the same.
Exports: Are they subject to VAT?
Exports to outside the implementing states will be
zero rated.
Discounts or Subsidies: What is the impact of
VAT?
When discounts are applied, the value of Tax shall be
calculated on the discounted price of the supply.
Bad Debt Relief: Can we reduce the output tax?
A taxable person may adjust the output tax on goods
and services supplied in a previous tax period,
provided all the following conditions are met:
• Goods and services have been supplied and
Tax has been charged and paid
• Consideration of the supply has been written
off as bad debt in the supplier’s accounts
• More than 6 months have passed from the
date of supply
• The supplier has notified the recipient that the
amount has been written off
Profit Margin Scheme
For specified second hand goods, the supplier may
calculate and charge Tax based on the profit margin
earned on the taxable supplies and not based on the
value of these supplies. The Executive Regulations
will specify the specific conditions for this scheme to
apply.

3. Some key sectors have been defined as having VAT relief:
Zero Rated Supplies
• Direct or indirect Export to outside the
Implementing states
• International transport of passengers or
goods which starts on ends in the State
• First Supply of residential buildings
(within 3 years of its completion)
• First Supply of buildings designed to be
used by Charities
• First Supply of buildings converted from
non-residential to residential
• Supply of crude oil and natural gas
• Supply of educational services and related
Goods and Services for nurseries, preschool,
elementary education and higher education
institutions owned or funded by Federal or
local Government
• Supply of basic and preventative health
care Services and related goods and services
• Supply or import of investment precious
metals classified as being for investment
purposes
• Supply of air, sea, and land means of
transport for the transportation of passengers
and goods
• Supply of goods or services related to the
supply of the means of transport mentioned
above
• Supply of aircrafts or vessels for rescue and
assistance by air or sea
Exempt Supplies
• Financial Services to be specified in the
Executive Regulation
• Residential buildings through sale or lease
(other than those that are zero rated)
• Bare Land
• Local passenger transport
Amit Chib, Managing Partner Anju Krishan, Partner Meera Kohli, Associate Director
amit.chib@haynespath.com anju.krishan@haynespath.com meera.kohli@haynespath.com
Office 1002, The Citadel, Business Bay P.O. Box 127616, Dubai, UAE
Haynes Path Management Consultancy is a Dubai, UAE based consulting firm specializing
in Value Added Tax (VAT), Mergers and Acquisitions (M&A) and Management Consulting.
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