VAT in GCC
Sector Impact > Construction
The construction industry will be included in the VAT regulations and will attract the Standard rate. Companies in the construction sector require to plan in advance due to the long tenure of their projects.
Existing contracts may not have factored in VAT and may have challenges charging their customers. Another challenge is the billing done in Pre-Vat period which may not have been charged VAT but the subsequent billing during the Post-VAT period may attract tax.
Constructions industry also employs a lot of smaller sub-contractors who may not be registered and hence may not be able to pass on the benefits of VAT credit to their main contractors. Smaller contractors may be forced to do voluntary registration even if it is not mandatory so that the main contractors can claim the input VAT credit from the smaller sub-contractors
Another critical aspect for the construction industry will be the input VAT paid on capital assets purchased at the initial stages for performing the contract activity. The initial indications are that they would be refunded for the input VAT paid on capital assets in the UAE. The details are awaited in the draft law.
Sector VAT News Update
Sector impact analysis is provisional based on the GCC Draft and may change when the country issues the relevant VAT laws.