UAE corporate tax: Can you be charged VAT on top of the printed price?

Consumers need to be aware of the various ‘slippery slopes’ around the issue

While most firms have a January to December fiscal year, others have various combinations of months. Image: Nick Donaldson
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What gets monitored, gets done. The big failing of this maxim is not that a task is left unfinished, but that anything in the required protocol that is seen as inconvenient is discarded.

Today, those of us who work in the corporate tax arena are trying to comprehend the impact it will have on a variety of industries. Having lived through VAT’s implementation, I am very conscious of the scale of the task.

It will be years before any of us can confidently sit back and dispense advice with ease.

For most business owners, that moment of achieving an apparently casual relationship with the corporate tax framework will probably come earlier.

Whether it’s human nature subconsciously convincing them that it was a large fuss about nothing, or inevitable distractions refocusing efforts elsewhere, many will lose interest.

The fact that reporting is an annual task will only embed a sense of complacency. While the majority of firms have a January to December fiscal year, many have different combinations of months. This means you are always likely to know someone filing an annual corporate tax return.

Its closest regulatory relative, VAT, is almost universally a quarterly exercise. But VAT shows us why some business owners might veer off the path with corporate tax.

Let us look at how these slippery slopes can manifest themselves.

The law in the UAE states that the price displayed is the price paid. This means if a menu states that an item costs Dh100, you will be charged Dh100. Nothing can be added to it.

You might note various additional information at the bottom of a menu of services or goods: municipality charges, service charges, VAT. All perfectly normal. All included.

This is unlike the US, where a plethora of federal, state and local taxes quickly bump up the price for the consumer. It can leave a sour taste in the mouth of an unwary customer.

Given that all sellers of goods and services are subject to the same fees, it does not even make sense to do it. There is no competitive advantage.

For that reason, the UAE authorities took the view they did. The price you see is the price you pay. Certainty for the customer. Bravo, UAE.

In the past 12 months, I have twice been charged VAT on top of the price clearly printed for goods presented to me. Both times I challenged the seller. Proving my expert credentials did little to sway them. I was charged extra.

Although Khalid Ali Al Bustani, director general of the Federal Tax Authority, last year confirmed the rule, that was not enough to stop the last-minute unannounced price change.

Mr Al Bustani even highlighted the penalty for adding VAT to a displayed price.

Consumers are rarely served by someone who can quickly make an authoritative decision in such circumstances. They typically and unhappily stand looking at their shoes, or through you, hoping you will either pay or go away.

Here, it is incumbent on us as customers to be reasonable. What do you expect a powerless sales representative to do?

I let the matter go. Ultimately, I am guilty of not wanting to cause a fuss. Yet, my unhappiness today might be yours tomorrow.

The worst element of my experience was being told that many other businesses also followed this practice. Sadly, I feel they were telling the truth. VAT went live five years ago.

What might an equivalent experience be for corporate tax?

That slippery slope is likely to be driven by a broad interpretation of not what an allowable expense is, but in the documentation required to prove that an expense has been correctly deducted from taxable profits.

Waiting to invigilate those entities, not today, tomorrow, or potentially, even in a year’s time, will be fully empowered and knowledgeable inspection teams.

By then, there will be clarity on the particular nuances of treatment. My reticence to act will not be mirrored in these people.

During a festive period full of happy distractions, do not lose sight of conducting your business in a compliant manner – today, tomorrow and into the coming year.

David Daly is a partner at the Gulf Tax Accounting Group in the UAE

Updated: December 11, 2023, 4:39 AM