Tax has finally arrived on the shores of UAE and it’s sure time to study up!
Tax has been such a small, little unassuming word – but armed with the power to strike fear and anxiety amidst the hearts of all who hear it. But what’s the reason behind this unassuming madness? Many people unknowingly loathe and fear the ‘tax’ word just because they don’t understand it – or have never dared tried to. So we’re going to make the process easy for you.
The Tax Procedures Law issued in 2017 laid down the cornerstone foundation for the planned and regulated UAE tax system, deploying the collection of taxes and defining the role of the Federal Tax Authority. Or simply FTA, tax authority UAE.
It paved the way for tax collection, mainly VAT, which is applicable at a rate of 5 per cent along with excise taxes. The formal tax document and executive regulations set out exactly what’s taxable and exempted. The UAE introducing VAT (albeit very small increment) is a turning point in the country’s glorious years of completely tax-free living.
Value-added tax (also known in some countries as goods and services tax, or GST). Is a consumption tax imposed on a product at each stage of production, before the final sale. For instance the end user pays the VAT (while the tax had been liable for during the production process) as a percentage of total price. VAT is not usually an extra or add-on to its sale price. In UAE, the tax will be calculated as a percentage of the retail sale price of a product.
What’s excise tax?
Excise is for all intents and purposes, a levy. It’s imposed directly on the manufacturer, not the customer, during the production phase. It comes in the form of customs duties (if goods needed to produce the product are imported). In fact, it’s sometimes dubbed the “sin tax”, cause it’s generally placed on products deemed ‘non-essential’.
Who will be taxed?
All Companies and individual businesses: which provide taxable goods or services with annual revenue of more than Dh375,000 will be MANDATORILY required to register for VAT. Businesses with taxable supplies below Dh375,000 but over Dh187,500 will have the option to register for it. Companies that provide health and education services can reclaim VAT from the Government
UAE income tax ?
Not yet, at least there’s been no indication to income tax deployed in Dubai or the contrary either. There’s no reference made to personal income tax in Dubai or the UAE in the Tax Procedures Law, and government officials have previously said there are no plans to tax individuals on their earnings yet.
Why did the UAE bring in tax? Why at all?
The UAE, and the five Arabian Gulf states, agreed to deploy VAT and excise taxes GCC-wide as measures aimed at shoring up government income, diversifying revenues while economies adjust to lower oil prices ensuring more efficiency in the economy. The IMF said in October 2015 that the Gulf states would face a combined fiscal deficit of around 2015 and 2019 that exceeded US$700 billion if not undertaken reforms.
VAT yielded Dh12bn in the first year of its implementation and to Dh20bn during the second year.
How much more expensive did it make living here?
The director general of the country’s Federal Tax Authority, had told reporters in August 2017 that the levies increased overall consumer prices by an average one-off hike of 1.4 per cent.
What’s Tax Procedures Law?
Some pointers to keep
- Taking records: any individual conducting any business or trade must keep accounting records and log commercial books of their business.
- Learn Arabic Language (make friends with someone who does): any documents or material related to taxation must be submitted to the FTA in Arabic. It’s although not a catch all rule – the FTA can legally accept material in any language but they can always request for a translation.
- Know the definition for “taxable persons”: There’s no such specific definition yet, but this will be a crucial to learn. The same goes for Legal Representatives and Tax Agents. The latter must be enlisted in a Register and licensed for tax purposes.
- Be wary in Tax Audits: the Law allows FTA to perform an audit on anyone randomly to check how well they are complying with the Federal Tax Legislation. More details follows on what exactly this audit will entail, but you are expected to fully cooperate in the process.
- Penalties will be imposed: tax evasion, tax theft, tax evasion, or unentitled tax refunds are taken seriously. Expecting a prison sentence and monetary penalty not exceeding five times the amount of tax evaded.
- You can challenge the FTA decision(within good reason): You can request an internal FTA administrative review, and if unhappy, escalate it to a Tax Disputes Resolution Committee. However, you’ll have to first pay whatever tax amount you’re disputing, cause the Committee cannot accept an objection “if the Tax Penalties subject of the objection have not been settled”. And If the sum in dispute is less than Dh100,000 – it’s surely the end of the road. If it’s much more than that, you can challenge the decision before the federal court within the jurisdiction of the FTA’s head office or wherever a relevant branch is located. However, there are strict time-limits for requesting a tax review.
What’s GCC UVAT?
The Unified Agreement for Value Added Tax, is also known as GCC/UVAT, an agreement signed by the six GCC (Gulf Corporation Council) members to ensure VAT at a flat rate of five per cent in 2018.
For more information !
The Ministry of Finance (MoF) has a section on its official website explaining VAT providing practical guidance on its application. The MoF has also rolled out VAT and Excise Awareness Campaigns. Phase 1 of that campaign, had involved an extensive series of workshops which were erstwhile held.
Attending a VAT training course can help. However, they aren’t cheap – a couple of course days will set you back up to a sum of US$2,000.
UAE also published its draft VAT legislation and has set precedence.
Why do you need us?
We provide Vat registration service in Dubai
File Vat returns in Dubai
Financial Cube – has been guiding VAT registration in the UAE since its inception.
Financial cube is a responsibly competent finance based network offering accounting and taxation solutions, based in the UAE. With a service spectrum offered in filing taxations, auditing, accounting and bookkeeping.
Financial cube is a wholesome financial service provider offering high level VAT implementation and tax agent services for all your business and accounting needs in the Gulf region.
If you are interested in our services, please contact us.