The UAE will implement VAT on January 1, 2018. Chris Ratcliffe / Bloomberg
The UAE will implement VAT on January 1, 2018. Chris Ratcliffe / Bloomberg

VAT and small businesses - what are the implications?



On 1 January 2018, value-added tax (VAT) will come into effect for the first time in UAE. Here, Aaron White of Sage Middle East, offers some insights on the implications for small businesses.

Naturally, small businesses are concerned about the financial and operational impacts of VAT compliance, especially since they are used to operating in a low-tax business environment.

While there will be implications for systems, infrastructure, skills and training, there are a number of benefits to the new tax system on businesses and the economy.

Economic pressures

But first, let’s take a step back to understand why VAT is being implemented in the first place.

For decades, the economies of the GCC countries have benefited from high oil prices. However, a drop in demand, increased global competition, and a substantial decrease in the price of crude oil per barrel - from a peak of US$147 in 2008 to about $50 today - has forced GCC countries to look for other sources of revenue to diversify their economies and remain globally competitive.

VAT is one such revenue source, and because tax is an unfamiliar topic in the GCC, you might have some questions about how it will impact small and medium businesses.

What is VAT?

VAT is a tax on the consumption of goods and services and has been set at 5 per cent across GCC countries. This rate is among the lowest in the world, with some countries charging VAT of more than 20 per cent.

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VAT is levied at each stage of the supply chain, from the manufacturer, to the wholesaler, to the retailer, taxing the "value added" by businesses at each point in the chain. For example, raw cotton becomes more valuable as it moves along the supply chain to eventually be manufactured into a T-shirt, or the end-product.

Certain sectors will be exempt from paying VAT, such as health care, education, certain foods, some types of real estate transactions and local transport, but these may differ between member countries. Export of goods outside the GCC will be zero-rated, which means exporters can claim a tax refund.

What are the advantages of VAT?

VAT is an efficient and transparent way for governments to increase revenue - the IMF predicts that GCC states can boost GDP by 1.5 per cent with the implementation of VAT. This will help GCC states to diversify their economies away from oil and to continue delivering on their public service mandates.

How will VAT affect my business?

If your business has an annual turnover of Dhs 375,000 (or the equivalent in other GCC states), you will be obliged to register as a VAT vendor. If you generate 50 per cent of this threshold, you can voluntarily register for VAT, which has its own advantages and disadvantages.

The important thing to note is that VAT is not a business expense but a cost that is ultimately passed on to the end-consumer when they buy a product. Businesses act as the "collection agents", collecting the tax on behalf of the government. In this way, they are helping to make the economy more prosperous and efficient.

However, there will likely be indirect costs associated with becoming compliant, which will affect many areas of your business, including pricing, cashflow, financial reporting, tax accounting, supply chain and compliance processes.

The cost of non-compliance could be even greater. Penalties are set at a minimum of Dh500 up to five times the amount of VAT that would have been payable for the period in question. At 5 per cent VAT, this puts your maximum risk at 25 per cent of turnover.

How can I become VAT compliant?

If you haven’t already, now is a good time to invest in an accounting solution that streamlines the VAT collection, record-keeping and reporting processes, and that automates the production of VAT invoices in Arabic.

While you have until January 1, 2018 to be fully compliant, full transition can take between nine and 12 months so, if you haven’t yet, you should activate your VAT implementation plans as soon as possible.

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Businesses that need to be VAT compliant should work through a detailed impact assessment with a trusted business partner to guide them through the implementation and operations phases. We have already started engaging and educating our channel partners on VAT requirements so that they can help their customers to avoid penalties.

An effective VAT system relies on shared responsibility between governments, businesses and consumers. The additional revenue will go a long way to maintaining effective public services and positioning GCC countries as globally competitive nations with truly diversified economies.

While it may be daunting initially, preparing your systems for VAT collection and payment to governments needn’t be a huge or expensive undertaking. More than 150 countries have VAT systems in place - by partnering with a solution provider that has experience in these markets, you’ll be taking a smart first step to becoming compliant.

Aaron White is the regional director (Middle East) for the accounting, payroll and payment systems firm Sage

Your rights as an employee

The government has taken an increasingly tough line against companies that fail to pay employees on time. Three years ago, the Cabinet passed a decree allowing the government to halt the granting of work permits to companies with wage backlogs.

The new measures passed by the Cabinet in 2016 were an update to the Wage Protection System, which is in place to track whether a company pays its employees on time or not.

If wages are 10 days late, the new measures kick in and the company is alerted it is in breach of labour rules. If wages remain unpaid for a total of 16 days, the authorities can cancel work permits, effectively shutting off operations. Fines of up to Dh5,000 per unpaid employee follow after 60 days.

Despite those measures, late payments remain an issue, particularly in the construction sector. Smaller contractors, such as electrical, plumbing and fit-out businesses, often blame the bigger companies that hire them for wages being late.

The authorities have urged employees to report their companies at the labour ministry or Tawafuq service centres — there are 15 in Abu Dhabi.

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Developer: SCE Studio Cambridge
Publisher: Sony Computer Entertainment
Console: PlayStation, PlayStation 4 and 5
Rating: 3.5/5

Vikram Vedha

Directors: Gayatri, Pushkar

Stars: Hrithik Roshan, Saif Ali Khan, Radhika Apte

Rating: 3.5/5

The BIO:

He became the first Emirati to climb Mount Everest in 2011, from the south section in Nepal

He ascended Mount Everest the next year from the more treacherous north Tibetan side

By 2015, he had completed the Explorers Grand Slam

Last year, he conquered K2, the world’s second-highest mountain located on the Pakistan-Chinese border

He carries dried camel meat, dried dates and a wheat mixture for the final summit push

His new goal is to climb 14 peaks that are more than 8,000 metres above sea level

If you go

The flights

There are direct flights from Dubai to Sofia with FlyDubai (www.flydubai.com) and Wizz Air (www.wizzair.com), from Dh1,164 and Dh822 return including taxes, respectively.

The trip

Plovdiv is 150km from Sofia, with an hourly bus service taking around 2 hours and costing $16 (Dh58). The Rhodopes can be reached from Sofia in between 2-4hours.

The trip was organised by Bulguides (www.bulguides.com), which organises guided trips throughout Bulgaria. Guiding, accommodation, food and transfers from Plovdiv to the mountains and back costs around 170 USD for a four-day, three-night trip.

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Founder: Ivan Kroshnyi
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Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside

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Stars: Tim Blake Nelson, Sebastian Roche, Elpidia Carrillo
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The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.

Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.

However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.

Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.

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Founders: Mohammad Raafi Hossain, Daniel Ahmed
Based: Dubai
Sector: FinTech
Initial investment: $2.45 million
Current number of staff: 86
Investment stage: Pre-series B
Investors: Investcorp, Liberty City Ventures, Fatima Gobi Ventures, Primal Capital, Wealthwell Ventures, FHS Capital, VN2 Capital, local family offices

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Major trophies: 6 (Premier League x 1, Champions League x 1, FA Cup x 1, League Cup x 2, Fifa Club World Cup x1)

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Northern Warriors 92-1 (10 ovs)

Russell 37 no, Billings 35 no

Team Abu Dhabi 93-4 (8.3 ovs)

Wright 48, Moeen 30, Green 2-22

Team Abu Dhabi win by six wickets

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Honeymoonish

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Company name: Revibe
Started: 2022
Founders: Hamza Iraqui and Abdessamad Ben Zakour
Based: UAE
Industry: Refurbished electronics
Funds raised so far: $10m
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  • Technology expert in robotics and automation: Dh20,000 to Dh40,000 
  • Energy engineer: Dh25,000 to Dh30,000 
  • Production engineer: Dh30,000 to Dh40,000 
  • Data-driven supply chain management professional: Dh30,000 to Dh50,000 
  • HR leader: Dh40,000 to Dh60,000 
  • Engineering leader: Dh30,000 to Dh55,000 
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  • Senior process engineer: Dh28,000 to Dh38,000 
  • Senior maintenance engineer: Dh22,000 to Dh34,000 
  • Field engineer: Dh6,500 to Dh7,500
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Company name: Tuhoon
Year started: June 2021
Co-founders: Fares Ghandour, Dr Naif Almutawa, Aymane Sennoussi
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Sector: health care
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Investment stage: seed
Investors: Wamda Capital, Nuwa Capital, angel investors

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The fielding side shall be ready to start each over within 60 seconds of the previous over being completed.
An electronic clock will be displayed at the ground that counts down seconds from 60 to zero.
The clock is not required or, if already started, can be cancelled if:
• A new batter comes to the wicket between overs.
• An official drinks interval has been called.
• The umpires have approved the on field treatment of an injury to a batter or fielder.
• The time lost is for any circumstances beyond the control of the fielding side.
• The third umpire starts the clock either when the ball has become dead at the end of the previous over, or a review has been completed.
• The team gets two warnings if they are not ready to start overs after the clock reaches zero.
• On the third and any subsequent occasion in an innings, the bowler’s end umpire awards five runs.

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