We learnt much on Monday about the UAE’s value added tax (VAT) plan, but remember that these early details are likely to be refined. Let’s go through some key elements and their implications.
The biggest surprise for companies is that UAE revenue will be reported broken down by emirate. It is not clear whether this will need to be further broken out by exempt, zero-rated and standard rated sales. There is no indication that VAT will need to be similarly broken out. There are four takeaways here.
First, can your ERP/accounting system handle recording sales in this manner? Larger firms with mainstream, reasonably up to date version ERPs should find managing this a normal system enhancement exercise. SMEs are more likely to have older systems, much amended, that may mean sales will need to be tracked manually. How a system, open to abuse, will be viewed by VAT Inspectors we’ll find out by the end of 2018.
Second, what happens if a further or later decision is made that VAT should be reported by emirate? This contingent event should be prepared for in the above exercise.
Third, what is likelihood of the rest of the GCC carving out their countries in a similar manner? If they do, then there is an additional system change to be made, although once the UAE version is working it should just be a replication exercise. This presumes that other GCC countries don’t add vagaries of their own to requirements.
Fourth, the breaking down of reporting in this manner should support the collation of national economic statistics, aiding in the formulation of budgets and targeted central government support.
To date it has been left to the wonks to speculate as to the final structure of VAT. As its skeleton starts to flesh out and these knowledgeable specialists crawl over published details, they are almost certainly going to be replaced by unschooled dunces.
There was much excitement among my peers at the InterContinental at Festival City, where the federal government held its first VAT roadshow in which it began to give details on its workings. V day, January 1, 2018, despite all those who said it just wouldn’t happen, is coming.
Was the high level of attendance the early signs of anxiety? The Government had notified us as to who this initial roadshow was aimed at: VAT consultants. Many of the questions asked from the floor and afterwards demonstrated that some attendees had not read the notification or understood the audience being targeted.
Another important item that arose at the roadshow in Dubai was that new homes will not be taxed, and neither will residential tenants’ leases – but commercial tenants can expect to pay VAT.
Peter Whatley, the chief executive of Argent Gulf Consulting, who attended, said: “Today quashed many rumours regarding the impact of VAT on the real estate market. New residential builds by VAT-registered businesses will be subject to zero rate and secondary and further sellers of the same will be exempt. This is sensible as it eliminates the VAT cascade, ie, VAT on VAT.”
“All sales of commercial property by VAT payers will attract VAT at a standard rate. Residential leases will be exempt while commercial leases will be standard rated. Again this is standard practice in most established VAT environments and considered a sensible treatment.”
A secondary, lower banding has been created to give the option to businesses whether to voluntarily register for VAT. There is a fine line between balancing the complications that would come with registration to losing business from customers who decide only to trade with VAT-registered entities.
There is still no guidance as to whether smaller entities will be allowed to report on a cash rather than an accrual basis, although transitional arrangements for some businesses were intimated in offline conversations after the formal presentation.
Are business and trade bodies lobbying the Government for transitional support such as this? As a business, have you contacted your trade association to question what is being done on your behalf?
There is an interesting development in the area of imports and re-exports. As the GCC is a customs union, duties are only paid once at the point of entry to the area. As long as the goods are moved to their final destination within a defined period of time, duties are not payable.
Let’s take two examples. Say goods are imported into the UAE and designated for re-exportation to Oman and has supporting paperwork available to prove a secondary movement. In this case, the goods would attract customs duties in the UAE but only attract VAT in Oman.
However were the goods coming into the UAE, still uncertain as to their final destination, then VAT would be payable in the UAE. This would be reclaimable, but an adjustment needs to be made on re-export where VAT would now be payable in the country of final consumption. We don’t know whether there is a time bar, like custom duties, in this situation.
The greater takeaway from Monday’s roadshow is for GCC-wide trading entities. The information we are now poring over will be joined by five other versions – adding up to one per GCC member – which have exponential implications.
No cross-border trading entity can read each country’s presentations in their own right, but must understand how they interact with each other.
From these will come the changes required in operational protocols, as these must be all things to all VAT environments.
The deeper issue is those added finesses and additions that are likely to be dropped in through future presentations and roadshows. Vigilance is required to keep organisational understanding relevant and someone in your company needs to be appointed to take that lead. Don’t get caught planning for yesterday’s operation.
The VAT train has left the station and those on horses, those with no VAT background or experience, are beginning to chase after it.
David Daly is a chartered accountant (Cima) typically serving in chief financial officer or finance director roles.
More Value Added Tax coverage
Pawan Singh / The National
■ Analysis: Who should worry most about VAT in the UAE?
■ Comment: The basics of value added tax
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