new-FAQs-on-VAT | KPMG | AE

UAE Ministry of Finance releases new FAQs on VAT

UAE Ministry of Finance releases new FAQs on VAT

In light of the imminent release of the UAE VAT legislation, the UAE Ministry of Finance (MoF) has released new FAQs on VAT. These can be used as a training tool to help stakeholders get better acquainted with the VAT law and its various nuances.

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FAQs

By providing additional insights on VAT, the MoF seeks to address pertinent questions which businesses may have with regards to the VAT implementation in the UAE.

Please find below a selection of the most relevant FAQs for your reference:

  • Registration

The threshold for mandatory registration will be AED 375,000 and businesses may choose to register voluntarily if their threshold exceeds AED 187,500 but is less than AED 375,000. However, businesses may also register voluntarily if their expenses exceeds AED 187,500. This is important for new starting businesses and potentially holding companies which have no sale.

  • Invoices

VAT invoices (both issued and received) must be retained for a minimum period of 5 years. VAT invoices must be issued by all registered suppliers. In certain situations they may also issue simplified VAT invoices subject to the conditions mentioned in the legislation.

  • Set off against customs duty

Customs duty paid on importation of goods cannot be set off against VAT. VAT will be computed on the value that includes customs duty.

  • VAT grouping

Businesses will be allowed to do VAT grouping subject to the conditions covered under the VAT legislation.

  • Bad debt relief

Business will be allowed to reduce their output VAT liability in cases of bad debts. This will be subject to conditions covered under the VAT legislation.

  • Partial Exemption

Businesses making both taxable and exempt supplies (mixed suppliers) would be allowed to allocate input tax in the ratio of taxable supplies to total supplies in the first instance although there will be the ability to use other methods where they are fair and agreed with the Federal Tax Authority.

  • Penalties

Penalties will be imposed for non-compliance, which so far includes failing to:

- Register

- File return on time

- Maintain proper books of accounts

  • Transitional rules

Transitional rules will be applicable in respect of supplies that span the introduction of VAT.

Treatment of specific supplies

Details
Taxable Zero-rated Exempt
General insurance (vehicle, medical)

x

   
Life insurance
    x
Fee based Financial Services x    
Margin-based Financial Services   x  
Exports of goods and services   x  
International transportation   x  
Supplies of identified sea, air and land means of transportation   x  
Identified investment grade precious metals   x  
Newly constructed residential properties that are supplied for the first time (and within 3 years of their construction)*   x  
Identified education services   x  
Identified healthcare services      
Residential properties     x
Commercial properties x    
Bare land     x
Local passenger transport     x

*It is unclear if the treatment will be same if these properties are leased and then later on sold.

  • Import 

VAT will be applicable on importation of goods. In cases where the recipient in the UAE (importer) is VAT-registered, VAT will be applicable on a reverse charge mechanism. In case the recipient in the UAE is not registered for VAT, then VAT would be required to be paid before the goods are released to that recipient.

  • Government entities

No special treatment will be given to government entities. Furthermore, supplies made to and by government entities will typically be subject to VAT.

  • Emirate-wise reporting

Businesses will have to report revenues earned in each Emirate in their VAT return.


The complete list of the FAQs can be accessed by following this link.

Next steps

With the imminent release of the VAT legislation, businesses are encouraged to start the VAT readiness journey, which includes completing the following steps:

  • Map the current business transactions and over lay the VAT footprint to assess impact of new law
  • Take impact mitigation measures by restructuring transaction flows and / or supply chain
  • Redesign the processes in line with the above points
  • Evaluate IT readiness and take necessary steps to bring in functional modifications
  • Assess and implement registration and compliance requirements and
  • Identify steps to be taken so as to ensure smooth transition, including stakeholder communication and documentation requirements.

Please contact our VAT experts if you have any questions. 

© 2017 KPMG, KPMG LLP and KPMG Lower Gulf Limited, registered in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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