Customs Connect
VAT in UAE and KSA

What is happening?

The introduction of VAT in the GCC is imminent.  The KSA and the UAE are well on their way to the implementation of VAT as of 1 January 2018.  VAT law is now available and the registration application process will commence soon.

The remaining four GCC Member states – Bahrain, Kuwait, Oman, and Qatar – are still committed to implement VAT by January 2019.

Businesses in the UAE and KSA are being briefed on their obligations and qualifying businesses will need to complete the VAT registration process prior to VAT coming into force.

What are the key considerations for businesses in the GCC member states?

  • The VAT rate implemented will be 5%
  • A business in the UAE or KSA must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED/SAR 375,000 before 1st January 2018
  • Electronic VAT registrations for the UAE will be open on a compulsory basis from the final quarter of 2017
  • A pre-registration process for businesses in the KSA has commenced and businesses will be notified of their VAT number. The next stage of the registration process will commence from September 2017 onwards
  • The VAT liability of supplies – what VAT liability should be applied to your supplies?
  • The right to recovery of VAT on purchases – will all VAT incurred be eligible for recovery?
  • Cashflow – will the business be a net payer of VAT or be entitled to a refund of VAT?
  • What will be the impact of VAT on your profit margins and clients?
  • The VAT compliance process and who will be responsible for this?

What will be subject to VAT?

The standard rate of VAT, 5%, will be applied to all goods and services, unless specifically identified as liable to VAT at the zero rate or as exempt from VAT.  Whilst both the standard and the zero rate should allow VAT recovery of input tax incurred on purchases, VAT exempt supplies will restrict VAT recovery.  Below is a summary of the major zero-rate and exemption as defined in law so far.

UAEKSA
Financial ServicesFee based services: taxable
Margin based services: exempt
Fee based services: taxable
Margin based services: exempt
InsuranceAll non-life insurance: taxable
Life insurance: exempt
All non-life insurance: taxable
Life insurance: exempt
FoodAll taxableAll taxable
EducationSpecified services: zero-ratedTaxable
HealthSpecified services: zero-ratedTaxable
Real EstateResidential rental: exempt
Bare land: exempt
New housing: zero rated
All other real estate: taxable
Residential rental: exempt
All other real estate: taxable
Local TransportExemptTaxable

How are Customs Connect helping businesses?

If you haven’t already, we would recommend setting up an “implementation team” to project manage the various stages set out below.  Customs Connect’s VAT experts can work in partnership with the implementation team to ensure a smooth transition.

Stage 1 – Evaluation

  • Understand the VAT impact on cashflow
  • Mapping and managing supply chains and associated VAT liabilities
  • Understand implications for your clients and on your contractual obligations
  • Identify costs that may generate irrecoverable VAT
  • Review of staffing needs, resource constraints and training requirements
  • Communication – internal and external
  • Configuration of your accounting systems to manage the required VAT reporting

Stage 2 – VAT functionality design

  • VAT team – Who will complete and who will review/sign off
  • VAT compliance process document
  • VAT registration structure – individual registration or create a group VAT registration
  • VAT documentation and accounting reports, invoice format (sales and purchases) and working papers for the compilation of the VAT return

Stage 3 – Implementation

  • Sample testing of VAT accounting system
  • VAT team training
  • Update VAT compliance process document

Stage 4 – Go live

  • Complete VAT registration applications
  • Review of first VAT return

Stage 5 – Annual review

  • We can undertake a review of your VAT accounting to ensure the systems, processes and procedures are still performing as they should.
  • We can also review for any business operation changes that may impact upon the VAT accounting.

The Customs Connect Way – Funding VAT compliance through opportunity savings

To fund the cost of VAT implementation, we can conduct a Recovery Audit project in parallel. The resulting net revenues from the Audit will negate the need for large consultancy budgets, required when using traditional accountancy firms.

To find out more about our VAT and Recovery Audit Services, contact:

Gavin Tucker – Director of VAT (Tel: +44 (0) 7966 250 866)

Dan Dunford – Head of Recovery Audit (Tel: +971 (0) 55 544 1529)