United Arab Emirates implemented indirect taxes on 01/01/2018 (VAT) and 01/10/2017 (Excise Tax). It is for the first time ever that the taxes in the form of Value Added Tax (VAT) on supply of goods and services has been levied.
The key priorities for companies includes a robust accrual accounting and reporting framework; documentation; audit trails; and a tax control & compliance framework. Companies should ensure that Reverse Charge Mechanism (‘RCM’) is correctly applied and accounted for.
It is equally important to adequately train its finance personnel to understand and identify VAT issues.
The operations in a Designated Zones require special consideration to ensure VAT is correctly charged wherever applicable and the input tax credit is correctly accounted for. It will also be important that the VAT readiness of the whole ecosystem especially suppliers and customers is assessed to ensure optimum VAT costs to the business.
Amongst other VAT considerations, it is important that VAT impact on current and future pricing schemes are correctly captured. The structuring of discount schemes, marketing expenses, will determine optimum VAT costs.
To remain cost efficient in a VAT environment, it is important for you to ensure that all input tax credit is correctly accounted for. The transactions between group companies also needs to be reviewed from time to time to ensure VAT compliances are duly completed.
Since the implementation of VAT with effect from 01/01/2018, the Federal Tax Authority (FTA) has issued numerous clarifications, guides and orders on the VAT implications on business transactions.
As VAT is a tax on transaction, the clarifications issued by FTA for one industry could impact similar transactions in other industries.
The penalty for non-compliance has been rationalised to promote tax compliance and correction of past errors. This initiative is coupled with increased tax audits and consequent penalties by FTA.
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