ADDING VALUE: Everything You Need to Know About VAT in the GCC.
Certainly, almost all residents of UAE know about the introduction of VAT in the nearest future and that this will result in higher cost of living in the country, but there is still very little information on things that are VAT applicable and VAT exempted. Here we explain what the application and exemption of VAT actually mean for people working in UAE.
Introducing VAT in the GCC region resulted from World Bank’s initiative to reduce the region’s dependence on oil and gas. From Expert Information source, we know that purpose of VAT is to increase national revenue and neutralize the existing decline in oil price. The implementation of VAT at a five percent rate from January 1, 2018, has been signed and agreed upon by all the GCC countries. The agreement also allows each GCC country the decision to exempt VAT on certain products and industry meaning that the application of VAT will differ in terms of the product and industry across the region.
How VAT works?
VAT is a consumption-based tax on goods and services, intended in such a way that only the final consumer bears the cost. Except for zero-rated and VAT exempts, VAT will be charged on goods and services and this will affect the budget and spending of everyone at varying degrees – “more spending, more VAT”.
Stated earlier, each GCC country can make a decision of VAT on different industry such as healthcare, education, residential real estate, some financial services, local and international transport.
What is exempted from VAT?
Zero-rating or exemption of VAT on most of the modules in the industries mentioned above, which add up the major monthly expenditures by residents in the UAE, will drastically reduce the impact of VAT on consumer’s wallet. This makes it evident that the UAE government at this juncture will not zero-rate or exempt VAT on non-fundamental edibles or petrol, and that VAT will apply on all other goods and services in the country, even those provided by the government themselves.
Small and Medium Business Operations
Businesses with Dhs375,000 or more annual return is expected to register as a ‘vendor’ and charge VAT on the provision of their goods and services, except if their goods and services these are categorized to exempt VAT. This puts difficult weight on small businesses that may lack the means or proficiency to handle these matters, and VAT may result in a substantial cost of doing business. It is important that small and medium business founders get help from skilled VAT consultants to elude the distress of penalizations of non-compliance with the UAE VAT regulation come January 1, 2018. They should also ensure to have complaint methods set up.
VAT charges will not apply to basic and preventive health care services and their associated products, however, cosmetic surgery and services will not be VAT free as they are not thought to be basic or preventive. Medical insurance provisions will attract VAT which will be billed on yearly payments.
VAT on a nursery, pre- and elementary schools and government-financed university fees will be zero-rated. On the other hand, non-government financed university fees will attract VAT, and so will private educational provisions such as school books, stationery, meals and extra-curricular activities. The soon-to-be-announced Executive Regulations will provide more explanation.
VAT will be zero-rated on first-time sale or rent of residential properties (by developers) within three years of completion, and VAT exempt on ensuing rentals from a first-time customer. Conversely, a tax will be paid on all commercial properties at the standard rate of five percent, for both leasing and buying. Importantly, VAT will be paid on charges linked to properties such as service charges, cleaning services, and utility bills, and the prices of renting or owning a property will, therefore, go up. Whether for rental or purchase, these should be accounted for in gauging the affordability of properties.
Financial services and Life insurance:
VAT will not apply on some financial services like loans, mortgages and life insurance, and Islamic banking will be regarded in an equal manner as standard banking. Although the upcoming Executive Regulations will explain more, a five percent standard rate VAT will apply to all charges by financial institutions.
Local and International Transportation:
While petrol will be VAT inclusive, there will be VAT exempt or zero-rated VAT on local transportation, like taxi, buses and the metro, and will not disrupt consumers transportation budget. International transport by air, sea or road, will also not attract VAT, however, looking at the set to rise fee in these services provided, it is certain that it will be offered to consumers in the form of an increase in cost.
What will it mean for Working Families?
Mentioned earlier, because the main monthly domestic expenditures are VAT exempt or zero-rated, the general effect of VAT on the average household should lesser than five percent of its total expenditure, but people ought to know that the cost of living will go up and budget meticulously. The saying that there are only two certainties in life, which are death and taxes, sure applies to the residents of UAE with the certainty of taxes drawing nearer.
What should I really be doing now in order to avoid hefty penalties?
Start registrations without further delay to
avoid fines & penalties AED 20,000 for non-compliance. Fines May even go upto AED 50,000 and Above depending on the type of offense.
Registration Deadline for turnover of AED 10M-150M is 30th Nov 2017
and turnover of AED 375K-10M is 04th Dec 2017
We strongly recommend starting registration asap! To know more what is applicable to you and to get things right please book a free VAT session with our expert through the following link https://www.adamglobal.com/vatregistration/
With our In-house Experts, you can totally sit back and relax while we ensure you are 100% VAT Compliant before the deadline!
Contributed by :
(Marketing & Research Assistant)