UAE VAT and Its Implication - IRCOCA & ASIL VAT EVENT Presentation

VALUE-ADDED TAX
(VAT)
ANALYSIS OF VAT & ITS IMPLEMENTATION IN UAE
ISHTIAQ RANA COMPANY &
ASIL & Company Chartered Accountants

Introduction
Ishtiaq Rana & Company was established in 2004. It has developed a strong professional team
capable of offering integrated consultancy services in management, software development and
finance to public, private and NGOs sectors under Its the consultancy wing. ASIL & Company
Chartered Accountants is the sister company of IRCOCA.
ASIL & Company Chartered Accountants’ mission is to achieve a leadership position in UAE and
international markets by providing services to our clients for their business needs with the highest
standards of integrity, quality and efficiency. We strive to create an environment to promote group spirit
and commitment to excellence amongst our partners and staff, thereby providing opportunity for growth of
individual members.

Portfolio Of Services
Audit and Assurance Services
•Statutory Audit
•Internal Audit
•Quality Audit
•Information System Audit
•Management Audit
•Forensic Accounting and Investigations
•Industrial Audit
Accounting Services
•Book Keeping and Accounting Consultancy
•Accounts Supervision
•Financial Reporting
Management Services
•Tax Planning (Income Tax, Sales Tax, Value
Added Tax, Etc.)
•Human Resource Development
•Business Consultancy
•ISO Consultancy & Services
•MIS Set-up & Reporting
•Marketing Consultancy
•Management Training
Corporate and Secretarial Practices
Specific Industry ERP Solutions
•Spinning Industry
•Weaving Industry
•Knitting & Stitching Industry
•Engineering Concerns
•Pharmaceuticals Industry
•Sugar Industry Modules
•Dairy System Model

Portfolio Of Services
General Software
Solutions
•Integrated General Ledger
•Inventory Management Module
•Supply Chain Management Module
•Local & Import Purchase Module
•Production Module
•Costing & Budgeting Module
•HR, Payroll & Advances Module
•Receivable & Payable Modules
•Fixed Assets Module
•Toll Manufacturing Control Module
•MIS & Documentation System
•Government Accounting System.
VAT Services
•Registration
•Tax Planning
•Documentation
•VAT Record Keeping
•VAT Filing
•VAT Audit
•VAT Adjudication
•VAT De-Registration

IR VAT Portfolio
•Across Pakistan IRCOCA has conducted 104 Training sessions with the collaboration of IMF
& World Bank
•Training Given to High Rank Officials,
• Strategic training for executives to understand the commercial impact of VAT on their
organization, how VAT will impact pricing, margins, systems and resources
•Tactical training for finance managers to understand how to administer and control VAT within
their business
•Operational training for staff working on a transactional level dealing with the processing of
VAT on a daily basis

OVERVIEW Of VAT
VAT impacts every phase of the tax life cycle. The Organization for Economic Cooperation
and Development (OECD) has recognized it as the third most important source of global
tax revenue for governments — the one that accounts for approximately 20% of total tax
collected.
Currently, more than 160 countries have VAT or goods and services tax (GST) regime in
place and the number continues to grow. Governments in the GCC region have confirmed
their commitment to introducing VAT. With this in mind, businesses in the region will
need to focus on developing a holistic VAT strategy to manage the associated costs and
demands on internal resources.

• Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to
as a type of general consumption tax. In a country which has a VAT, it is imposed on most
supplies of goods and services that are bought and sold.
• VAT is one of the most common types of consumption tax found around the world. Over
150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including
all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and
Malaysia.
• VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the
VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector
on behalf of the government.
• A business pays the government the tax that it collects from the customers while it may
also receive a refund from the government on tax that it has paid to its suppliers. The net
result is that tax receipts to government reflect the ‘value add’ throughout the supply
chain. To explain how VAT works we have provided a simple, illustrative example below
(based on aVAT rate of 5%)
WHAT IS VAT?

Illustrative example
Sales 5% charge on the sales VAT recovered on the
purchases
NetVAT payable
Manufacturer 20,000 1,000 1,000
Retailer 30,000 1,500 1,000 5,000
TotalVAT Paid by end consumer* 1,500
Manufacturer CustomerRetailer
Tax authority
Sells goods Sells goods
AED 20,000
+ 1,000VAT
AED 30,000
+ 1,500VATRepayment
(credit) of AED
1,000VAT
Payment of
AED 1,500
VAT

How Does VAT Work?
• VAT is a tax on business transactions that potentially affects all purchases and
sales. It is not a tax on profits.
• Any VAT paid by businesses on their purchases is called ‘Input VAT’.
• The VAT charged by VAT-registered businesses is called ‘Output VAT’
Input
VAT
Output
VAT
VAT
Payable

Compliance requirements under VAT
Other requirements of the VAT will include:
• Mandatory registration for VAT for all businesses exceeding the mandatory VAT
registration threshold.
• Filing of periodic VAT returns with the tax authorities (either monthly or
quarterly).
• Remitting any VAT payable by a specified date.
• Record keeping in respect of all business transactions:
 – Tax invoices
 – Debit or credit notes
 – Import and export records
 – Records of goods/services provided for free or allocated for private use
 – Zero rated or VAT exempt supplies and purchases

Registering for VAT
• VAT registration is mandatory for businesses with an annual turnover of AED
375,000 (or its equivalent from any other GCC member state currency).
• Nevertheless, businesses that generate 50% (187,500) of this threshold
annually can voluntarily register for VAT.
• 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.

Calculating and Reporting VAT
M/S ABC Trading LLC, a registered person under Federal Law No. (7) of 2017, has following data
available for Jan 2018 – March 2018 Quarter.
Value Tax
Purchases:
Domestic taxed 112,5005,625
Domestic exempt 15,000 -
Imported taxed 550,000 27,500
Sales 800,000 40,000
Assuming that there were no opening and closing stocks what will be the amount of output tax
chargeable to tax payable by ABC Trading LLC for quarter ending March , 2018.

VAT Implementation
Considerations
VAT is a tax on business transactions that potentially affects all purchases and sales. It is not a tax on profits.
VAT is going to be charged at 5% on most supplies, though some are taxed at either 0 or more.
Zero-rated supplies include most food, children’s clothing, construction of new houses, books, printed
matter and prescription drugs.
• A business that makes only zero-rated supplies can register for VAT and reclaim VAT paid on purchases
even though they do not charge their customers VAT. Exports to customers outside the EU and to VAT-
registered customers within the EU can also normally be zero-rated. Special rules and procedures apply.
Reduced-rated supplies include domestic fuel; residential conversions and certain refurbishments;
installing energy-saving materials in residential accommodation; and children’s car seats. Even though
VAT at 5% is charged on reduced-rated supplies, all associated VAT paid on business purchases,
regardless of the rate paid, should be reclaimable.

VAT Implementation
Considerations
Once registered for VAT, a business must issue VAT invoices — and retain a copy for its file — for every
sale to a VAT-registered customer. This does not apply to sales of exempt or zero-rated supplies unless
they are included in a sale with other VAT-able items — in which case the invoice should show separate
totals.
Full VAT invoices Information required in all cases
•Date of issue
•Unique sequential number identifying the invoice
•Customer’s VAT identification number (if the customer is liable for the tax on the transaction)
•Supplier’s full name & address
•Customer’s full name & address
•Description of quantity & type of goods supplied or type & extent of services rendered
•Date of transaction or payment (if different from invoice date)
•VAT rate applied
•VAT amount payable
•Breakdown of VAT amount payable by VAT rate or exemption
•Unit price of goods or services – exclusive of tax, discounts or rebates

VAT INVOICE TEMPLATE

Introduction To TAX Reform GCC Overview

Managing VAT Implementation
Framework
BUSINESS PLANNING FOR VAT IMPLEMENTATION
• Business strategic planning
• Operational planning for implementation
• Implementation and its impact on Budgeting
• Accounting system mapping for implementation
• Compliance

Managing VAT Implementation
Framework
Impact
Assessment
Design Implement Operate
Operations
Compliance
Finance
IT
• High level VAT impact
• Mapping of
transactions
• Identify compliance
requirements
• Review of business
functions
• Communication plan
• Review of IT changes
•VAT awareness training
• Implementation plan
•Review legislation
•VAT decision flag
• Business impact
modeling
•VAT add-on system
• IT design
•VAT compliance
function
• IT testing
• User training
•VAT manual and
procedures
• Registration
• Review of first
returns

The GCC VAT Framework
Agreement
• The Unified Agreement for VAT for the GCC Region includes the following key features:
• VAT will apply to goods and services at the standard rate of five percent (5%).
• Most VAT compliance requirements and procedures are left to the discretion of each member state under its
local legislation. For example,
1. the modalities and conditions to treat a group as one taxpayer (VAT grouping)
2. the tax period (but should not be less than one month),
3. the content of the VAT invoice and the deadline for its issuance.
4. Taxable persons will be allowed to deduct input VAT that is incurred for making taxable supplies of
goods and services.
• Input tax credit at the end of each tax period may be allowed as a refund or carried forward, depending on
each member state’s modalities.

• The VAT treatment of some sectors, namely, education, healthcare, real estate and local transport is left to
the discretion of each member state (i.e. whether these sectors are subject to tax at standard rate, zero rate
or exempt).
• The VAT treatment of financial services: The standard rule stipulated in the Treaty is to exempt these
services from VAT with a right to reclaim the input tax credit according to specific rates determined by each
member state. However, each member state may opt for a different VAT treatment for financial services.
• Food products shall be subject to the standard rate of VAT, however each member state will have the right
to apply zero rate on food as per the unified list of commodities (e.g. basic foods: bread, milk etc.).
• Medical equipment and medicines will be subject to zero rate.
• Oil and gas including oil derivatives sector may be subject to VAT at a standard rate or zero rate, at the
discretion of each member state and in accordance with the modalities and conditions they each set out.

Consideration for Specific Industry
• Real Estate
In particular, consideration should be given to the following:
• The complexities in determining the VAT treatment in joint
venture arrangements with local government authority and
other developers and investors.
• Whether sale and purchase agreements enable the
property developer to either recover or pass on the increased
VAT costs to the purchaser, to ensure margins are not
impacted.
• Whether property developers who have entered into long
term build-and-sell contracts with purchasers have taken VAT
into consideration when pricing their properties.
• VAT provisions in construction contracts, since they
typically span a number of years, to prevent any adverse VAT
impacts.
• Free Zones
• The VAT position of free zones gives rise to a range of
complex questions in terms of the implementation of VAT
and consideration should be given to the following:
• The VAT classification and treatment of goods and
services obtained inside the free zone, brought from
outside the free zone, and from overseas.
• The VAT treatment of supplies from one free zone
to another.
• The VAT treatment of entities operating in free zones
(fenced) and free trade zones (unfenced) and whether this
will be different.
• Any organizational and structural changes required to
optimize competitiveness.

Consideration for Specific Industry
• Manufacturing
In particular consideration should be given to the
following:
• Pricing impact on end consumers.
• Cash flow efficiencies.
• Cross border transactions within the GCC and
the associated reporting and documentation
requirements (including imports and exports).
• Invoicing requirements.
• Retail
• For retailers, VAT compliant invoicing and
pricing as well as correct VAT classification of
sales will be critical. Business promotion
schemes, such as loyalty programs and
voucher arrangements, can offer technically
complex VAT scenarios and implications.
• Additional consideration should be given to the
following:
• The timing of any significant capital
expenditure near to the VAT start date to avoid
cash flow implications due to VAT refunds stuck
with the tax authorities.
• Reviewing payment terms with your customers
and vendors to manage cash flow and allow
the claiming of input tax at the earliest
opportunity.

Example VAT Case 1
CASE 1:
Star Enterprises has submitted the following data for the Quarter ended June 2018.
AED
Total Sales registered 6,000,000
Export Sales 2,500,000
Exempt Supplies 500,000
Gross Purchases from Registered suppliers 6,500,000
Gross Purchases from Unregistered suppliers 500,000
Purchase Return to Registered suppliers 650,000
Required:
You are required to compute the sales tax liability of Star Enterprises for the Quarter ended June 2018.
Show proper workings for VAT return.

Example VAT Case 2
CASE 2:
• Following is the pertinent data relating to VAT Record of the company
• Company has a policy to sell goods on 30% profit of purchase price with a trade discount of 8% and sometime a
special discount. In the quarters above the company has provided discount in the following manner
• In Quarter ending March 2018 trade discount was provided on the 20% of the sales and special discount was
provided on 5 % of the sales @ of 15%.
• In Quarter ending June 2018 trade discount was provided on the 30% of the sales and no special discount was
provided.
• In Quarter ending September 2018 trade discount was provided on the 12% of the sales and no special
discount was provided.
You are required to compute the VAT payable along with the Quarterly VAT tax return for the Quarter
Ending March, June and September 2018 with brief explanatory notes, where relevant. Also compute
Input Tax Stock on each Quarter Ending.
Quarter Ended Purchases Closing Stock
AMOUNT (AED)
March 2018 12,890,800 245,890
June 2018 16,867,980 567,600
September 2018 9,890,767 85,000

Example VAT Case 3
CASE 3:Goods imported to Dubai warehouses are:
• Sold in local market
• When the goods are sold in the local market, 5%VAT will be collected and paid to the authority. No inputVAT
can be claimed once again. It was claimed under reverse charge mechanism.
• Sold to customers in Muscat (GCC country)
• Sold to customer in Muscat. Until VAT is implemented inOman (Muscat) it will be treated as a country outside
GCC forVAT purpose. Hence, the treatment will be similar to sales to the case given below.
• If the customer is registered under the respective VAT Law of the country (Oman), no tax will be collected
from the customer.The place of business will be the place where transportation terminates; i.e. Muscat.
HenceTax liability will be as per the provisions of the Law in the Land of Oman.
• In case, the customer in the Muscat is a nonregistered customer, the company ABC LLC can supply the
materials by paying 5% tax to the UAETaxAuthority (till such sales reach to AED 375,000/ for a particular
year).
• Sold to customers in Malaysia.
• Sold to customer in Malaysia. It is an export and hence tax rate will be zero%.

How can ASIL HELP you?
Finance &TAX
Consulting
Planning &
Advice
Implementation
& Monitoring
ASIL can provide a complete range of services to address all elements ofVAT implementation and ongoing
compliance.
Reporting and
compliance

Our Team of Consultants
Ishtiaq Ahmed Rana
MD & Partner
Tax and Corporate Services
T: +971558918372
E: ishtiaqrana@ircoca.com
LaeeqAhmad Rana
Partner
IndirectTaxes
T: +971558161946
E: laeeqrana@ircoca.com
MohammedZeeshan Malik
Senior Manager
ManagementConsulting
T: +971559658884
E: zeeshan@ircoca.com

UAE VAT and Its Implication - IRCOCA & ASIL VAT EVENT Presentation

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UAE VAT and Its Implication - IRCOCA & ASIL VAT EVENT Presentation