VAT in UAE from Jan 2018: Here's How to Register

  •   Sun, Dec 10 2017
  •   By CA Colin O Rodrigues

December 10, 2017

Dubai is one of the seven states of the United Arab Emirates (UAE). It is renowned for attracting overseas businesses, corporate houses and tourists due to its tax-free structure. None of the emirates including Dubai levies a federal tax, though they have a legal right to do so.

Over the years expats in droves have flocked to the UAE in view of its famed status as a tax haven. However, that is set to change now from the beginning of next year. A Value Added Tax (VAT) of 5% is being introduced in the six countries of the Gulf Corporation Council (GCC), including the UAE, on January 1, 2018.

VAT is set to make its debut in the six-nation GCC block in 2018. This new tax will be another source of raising revenue for the governments in the GCC. For some time now governments in the region have been mulling on the need to diversify income sources. This is even more the case, given the recent developments of the government revenues being negatively affected due to reduced income from falling oil prices.

UAE residents under Article 13 are required to mandatorily register for VAT. This, provided the value of their goods and services supplied exceeds (or is expected to exceed) the registration threshold to be specified in the Executive Regulations. Persons without residency in a GCC Member State where VAT will be implemented will be required to register for VAT if they supply goods or services in the UAE and no other person is required to account for VAT in respect of those supplies.

An individual may apply to the tax authority for exemption from the VAT registration requirement if he only makes zero-rated supplies. Similarly an individual may voluntarily register for VAT under Article 17 if the voluntary registration threshold per the Executive Regulations is exceeded or is expected to exceed in a stipulated 12-month period. Two or more individuals conducting business in the UAE may register as a “Tax Group” provided the said parties are related, each entity has a place of establishment in the UAE and the parties are subject to common control.

In any taxation system, a business is identified by its registration number. Registration is the fundamental requirement for identifying the business for tax purpose and to verify whether compliances have been made by the said business concern. In the UAE new VAT there is provision for registration of business entities and also for obtaining tax registration number from the authority. This will enable business concerns to make the necessary tax compliances and the tax authorities, in turn, can obtain the relevant data pertaining to the business concern for verification and correlation.

UAE VAT provides for Mandatory registration, Voluntary registration and registration as a tax group. This article discusses about the mandatory and voluntary registration provision and exception from registration under UAE VAT.


Mandatory Registration

Article 13 of VAT – Decree Law No 8 of 2017 (in short ‘UAE VAT’) and Article 7 of Cabinet Decesion No 52 of 2017 (in short ‘Cabinet Decesion’) provides for Mandatory registration.

This registration is compulsory once the threshold limit has been crossed. The mandatory limit for the purpose of tax registration has been set at AED 375,000.

Any person having a place of residence in the State of UAE or any other implementing State shall be required to get registration if the total value of the supplies made by him exceeds or is expected to exceed the threshold limit of AED 375,000.

Place of establishment or any fixed establishment shall be construed as having a place of residence in the State or an Implementing State.

It is to be noted that the total value of all supplies made in the previous 12 months period and not the financial year. Therefore, establishments whose current 12 months turnover is below the threshold limit need to regularly monitor the moving-12 month turnover to ascertain if it has reached the threshold limit so that they can obtain registration, if required.

It is also provided that if the total value of all supplies is expected or anticipated to exceed the threshold limit in the next 30 days, the person needs to obtain mandatory registration. Besides he has to provide evidence to show that the supplies are expected to exceed the threshold limit in the next 30 days.

He must file an application for tax registration within 30 days from the date of liability to register.

In a case supplies made by a person exceeds the Mandatory Registration threshold during the previous 12-months period –

The Authority shall register the person with effect from the first day of the month following the month in which the person is required to register, whether or not he applies for Tax registration, or from such earlier date as agreed between the Authority and the Person.

In a case a person expects that his supplies will exceed the Mandatory Registration Threshold during the next (30) days –

The Authority shall register him with effect from the date on which there are reasonable grounds for believing the person will be required to register as specified in that Clause or from such earlier date as agreed between the Authority and the person. In this case the authority will exercise its judgement on the basis of evidences provided along with the registration application by the person.

The person who does not have a place of residence in the State or in any implementing State, will be required to take tax registration if he makes taxable supplies in the State and where no other person is obligated to pay such tax. The threshold limit for registration shall not apply in this case. This could cover instances where a non-resident person makes supply of goods or services to another consumer/unregistered person in the State in the course of his business

Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.

The authority shall register a person from the date on which the person is liable to be registered for tax, in the event of the person’s failure to file an application for tax registration and obtaining a registration. The authority shall also impose the necessary penalties in accordance with the Federal Law No. (7) of 2017 on Tax Procedures. The penalty is AED 20,000 for failure on part of the taxable person to submit a registration application within the stipulated time frame (as per Cabinet Decesion No 40 of 2017)


Voluntary Registration

Taxable supplies made by a person that do not cross the minimum threshold limit for mandatory registration but cross or is expected to cross voluntary threshold limit, he may apply for voluntary registration.

If the value of supplies has not exceeded but the expenses incurred by such person within this time has crossed voluntary threshold limit, the voluntary registration can be sought.

The Voluntary registration enables the person to obtain a registration when the total supplies are less than the mandatory threshold limit and he is willing to register. The voluntary registration can be obtained when the total supplies made by the person are below mandatory threshold limit and all the vendors are registered persons and charging VAT. This will enable the person to claim the input tax credit and the cascading effect of taxes too can be avoided.

Article 17 of VAT – Decree Law No 8 of 2017 (in short ‘UAE VAT’) and Article 8 of Cabinet Decesion No 52 of 2017 (in short ‘Cabinet Decesion’) provides for Voluntary registration.

It is to be noted that the total value of all supplies or taxable expenses of previous 12 months period exceeds the voluntary registration threshold, a person can obtain registration voluntarily. Further, if the total value of all supplies or taxable expenses is anticipated to exceed the threshold limit in the next 30 days, the person can also obtain voluntary registration. The person has to provide evidence to show that the supplies are expected to exceed or incur expenditure more than the threshold limit in the next 30 days.

Taxable expenses’ means the expenses which are liable for taxes under the UAE VAT. In other words, the expenses which are not liable for VAT are not to be counted for computing the voluntary registration threshold.

There may be instances where business start-ups incur expenditure and does not generate supplies more than the mandatory registration threshold. In that event the tax element in the expenses incurred by the person will be added to the cost of the product as the person cannot recover the input tax. The Voluntary registration will help that person to recover the input tax credit incurred during the period in which there is no supply generated or supply is below the mandatory threshold limit.

Once a person has applied for voluntary registration and a certificate of registration is granted as such, the person shall be treated as a taxable person and all the provisions of the new VAT law that are applicable to a taxable person shall be applicable to such a person.


Computation of Registration Threshold

The provisions for the mandatory registration and voluntary registration refer Article 19 of the Decree Law No. 8 of 2017 and Article 19 of Decree Law No. 8 of 2017.

What are the supply values to be considered while computing the mandatory registration threshold or voluntary registration threshold? It basically explains the supplies to be included for computing AED 375,000 or 187,500. Further, it is also worthwhile to note provisions of Article 20 Decree Law No. 8 of 2017 while computing the aforesaid limit as it mentions that the value of supply of Capital Assets shall not be taken into account for the computation of Mandatory registration threshold or Voluntary registration threshold.

For the computation of total value of supplies, only the value of taxable supplies is to be included. Taxable supplies shall also include zero rated supplies but exclude, exempt supplies made by a person. Zero rate supplies means supplies which are mentioned Article 45 Decree Law No. 8 of 2017on which VAT is not payable nevertheless the business can recover the input tax credit.

The value of concerned goods or concerned services shall be included in the value of taxable supplies unless covered by Sub-article (1) of this Article. Concerned goods or concerned services are those goods or services which are imported into the State and would otherwise be taxable if supply is made within the State.

The value of supply as mentioned under Article 7(2) Decree Law No. 8 of 2017 shall be taken in the hands of the acquirer for the purpose of determining the threshold limit. Therefore the value of the whole or relevant part of Taxable Supplies that belong to person who has, wholly or partly, acquired a business from another person shall be included.

Any supplies between related parties shall be included in the value of taxable supplies based on the instances mentioned in the Executive Regulation of this VAT Law.

Further, as per Article 20 Decree Law No 8 of 2017 the value of supply of capital assets made by a taxable person shall not be included in the registration threshold limit, whether voluntary or mandatory.


Registration Exceptions

UAE Law provides certain supplies which are to be charged with VAT of 0% called as “zero rated supplies” which essentially means that Output liability will be ZERO for making supply of such goods/ services. However, any VAT which would have been paid on purchases/ expenses for making such supplies can be considered for refund or to pay any other VAT liability. Supplies mentioned in Article 45 of the Decree Law No.8 of 2017 are zero rated.

As per Article 15 of the Decree Law No.8 of 2017 and Article 16 Cabinet Decision No 52 of 2017 if any taxable person engaged in exclusively zero rated supplies, as mentioned in Article 45 of Decree Law No. 8 of 2017, he shall apply to the authority for exception from Tax Registration in the manner and means specified by the authority. It is to be noted that, exception from registration is not automatic. The taxable person has to apply to the authority and only after approval from the authority, he is exempted from registration.

The UAE - Federal Tax Authority (FTA) has announced the deadlines for VAT registration in the UAE which has been summarized below:

• Businesses with a turnover exceeding AED 150m should apply for registration before October 31, 2017.
• Businesses with a turnover exceeding AED 10m should apply for registration before November 30, 2017.
• All other business entities should submit their application before December 04, 2017 so as to minimize the risk of not being registered in time for VAT go-live.

It is understood that VAT or indirect tax is a new era in the taxation structure of UAE business community. In order to start with greater compliance under the new tax regime, its registration should be the first step.

 

 
By CA Colin O Rodrigues
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Comment on this article

  • Vincent Rodrigues, Bengaluru/Katapadi

    Thu, Dec 21 2017

    This really helps the government to raise more revenue to ensure better administration and development


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Title: VAT in UAE from Jan 2018: Here's How to Register



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