VAT has been introduced in the UAE – are you compliant?

VAT went live in the UAE with effect from 1 January 2018. So far, the economy hasn’t ground to a halt but many businesses are still confused about the impact on them.
 
In mature tax jurisdictions, where VAT has been a feature for many years, there is a raft of case law and guidance notes to supplement and explain the legislation. However, in the UAE, this hasn’t developed yet and the Federal Tax Authority (FTA) has yet to issue guidance notes on more complex areas; these are likely to be created over a prolonged period of time while the FTA gets up to speed.
 
This doesn’t mean that businesses can ignore the new tax. A number of recent press articles have indicated how seriously the FTA is dealing with non-compliant businesses.
 
For example, the FTA has advised that customers do not have to pay tax to merchants and sale points unless those merchants have a clear temporary or permanent tax registration number. The FTA has stated that collecting VAT without an invoice with a tax registration number is illegal and will lead to violators being questioned and fined.
 
The Authority’s General Manager, Khalid Albustani, has said that the submission of a registration form is not enough to enable merchants to collect tax – applicants will be treated as unregistered businesses. It is therefore important to obtain a registration number before making any VAT collections.
 
Note that unregistered businesses should still pay VAT, even though they are unable to collect the tax from customers until they get their own registration number.
 
Consumers have been urged to report suspicions about any illegal VAT collection to a call centre run by Abu Dhabi’s Economic Development Department. The Department has already investigated five illegal VAT claim complaints made directly through the call centre. The complaints and accompanying evidence were then transferred to the Department’s field inspection teams for investigation.

In addition, some of our clients have reported issues in respect of importing goods as the customs authorities have demanded payment of 5% VAT on importation rather than the importer accounting for the VAT on importation by way of a reverse charge. Businesses which import are advised to access their VAT account via the FTA portal and ensure that their VAT details, including the TRN number, are updated to show that they are importers.

Any new tax regime takes time to become embedded. Many businesses saw compliance with the 1 January 2018 implementation date as the end game, whereas in reality it was the start of a new era. It will be interesting to see how VAT, the FTA and UAE businesses evolve.
 
If you have any questions about VAT compliance or require any assistance with VAT implementation, please do not hesitate to contact our VAT team.
 

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