VAT in GCC
A stumbling block for governments in the GCC region is the administration of tax as they have to build the experience and infrastructure to collect and enforce compliance.
The governments will rely on tax registered companies to collect the tax and deposit the tax periodically as per the schedule for filing returns.
The governments will impose a Self-Assessment procedure. The onus will be on the registered company to compute the tax payable by proper accounting of the Output VAT collected and adjusting against the Input VAT paid. The registered companies will be required to maintain the records for a specified period and present the records for scrutiny. This period will be initially set for 5 years in UAE.
Penalties will be imposed for non-compliance. The Cabinet Resolution No. (40) Of 2017 on ‘Administrative Penalties for Violations of Tax Law in the UAE’ has been issued. The document outlines the penalties to be imposed on violations of the UAE VAT Law including registration, timeliness of filing returns and accuracy of computing tax payable. To view details, visit: http://goo.gl/gjsLaS
Examples of actions and omissions that may give rise to penalties include:
- A person failing to register when required to do so
- A person failing to submit a tax return or make a payment within the required perio
- A person failing to keep the records required under the issued tax legislation
- Tax evasion offenses where a person performs a deliberate act or omission with the intention of violating the provisions of the tax regulations
The entire compliance process will entail:
All business entities licensed by the various economic agencies such as the Department of Economic Development (DED), the Free Zone Authorities will be required to register and obtain a VAT Registration Number.
|Existing Companies||Sum of Turnover in last 11 months and current month|
|Compulsory||AED 375,000 and above|
|Voluntary||Between AED 375,000 and 187,500|
|Not Required||Less than AED 187,500|
Excludes the value of Exempt invoices.
|New Companies||VAT purchase till date in last 11 months and current month|
|Compulsory||AED 375000 and above|
A group of companies may register under a single VAT registration entity if they meet the eligibility requirements. Such a group is considered as a single taxable entity and allowed to balance the tax credit of member companies. Trade within group companies also does not attract tax.
Eligibility to form a VAT Group are yet to be announced but businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group.
Filing of Returns
Companies are required to file returns periodically. Initially companies will be expected to file returns every quarter or monthly depending on their turnover.
By the end of the each filing period business must compile the data on tax paid and tax collected and file the returns following the computation guidelines.
A tax liability can accrue as early as the date on which an order advance is received. If no advance is received then the date of delivery or invoice, whichever is earlier will be taken into consideration.
Companies will be allowed to reverse the tax paid on Sales returns.
The Law will have a provision to account for bad debts and recover the tax paid on such transactions.
Audit of Records
Government may directly or through its appointed agents demand to audit the tax returns of the companies. Companies are required to maintain physical records of all purchases and supplies as also maintain complete registration details of suppliers and customers.
Although a complete digital system for tax filing will be in place, the government may expect companies to furnish proof of returns.
The VAT will be based on Self-Assessment and the onus will be on the companies to accurately account for the output and input tax.