x Abu Dhabi, UAEFriday 24 November 2017

Being in denial is no way to prepare for VAT

Why do so many business people believe that the launch of the tax will be deferred?

VAT building in Beirut, Lebanon. Despite the naysayers, the UAE will get VAT on January 1, so preparation now is vital.  Mohamed Azakir/Reuters
VAT building in Beirut, Lebanon. Despite the naysayers, the UAE will get VAT on January 1, so preparation now is vital. Mohamed Azakir/Reuters

For VAT truthers, like myself, trying to convince readers that the new levy is launching here on January 1, 2018, my task is made more difficult by the dreary amounts of zeros involved.

I was asked recently what difference VAT would make economically. The Government has stated that these monies are needed to invest in public services. We do live in a country with undeniably high-quality infrastructure and ambition for more of the same.

At this stage in its economic development, the GCC is correctly beginning to seek a contribution from those who are utilising government services. Having leveraged their natural resources to reach the current level of economic development, government budgets, long hostage to the whims of global commodity prices, are seeking to diversify their revenue streams and set a floor to what they can expect to receive.

Currently, expectations predict VAT revenues of circa Dh13 billion in 2018. The published Federal budget for the same year is Dh48.7bn. This is 26.7 per cent of the total budget for the year 2018. As the late US senator Everett Dirksen said: “A billion here, a billion there, pretty soon it adds up to real money.”

Is there anyone reading this, any business person, who would voluntarily defer the opportunity to earn 26.7 per cent of their forecast spend for the upcoming financial year? No, there won’t be. This raises the question of why so many of the same people are firm in their belief that the launch of VAT will be deferred.

What about the cost to the Government? VAT is a self-declaration system. You the reader, a VAT registered entity, will manage your own VAT environment. You will implement and apply the VAT rules to the processes of your organisation. You will declare, mostly every three months, to the Federal Tax Authority [FTA] and pay any monies you owe. You will be responsible for proving, during an FTA audit, that you are compliant with VAT rules and that you have to hand all supporting paperwork.

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Read more:

Business Extra Podcast episode 33: Everything we know about VAT

VAT and small businesses - what are the implications?

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The FTA on behalf of the Government needs to register you for VAT, issue you a Tax Registration Number [TRN], facilitate your periodic online VAT return and accept a payment for the VAT you owe. Much more about this later.

The VAT rules are all but agreed. This is the VAT Law and the Executive Regulations. That’s it. On behalf of the Government of the UAE, the FTA is pretty much ready. Are you?

But it’s not just about VAT registered entities. Inherently suspicious, the FTA has the legal right to audit any entity. This allows it to confirm that an unregistered organisation is operating in an orderly manner. Critically this means that all entities, all of them, are effectively obliged to keep records in a manner that will pass a VAT audit.

This flows in to another key element of VAT. An entity that should be registered for VAT cannot legally trade unless it is so registered. This has the effect of compounding the deviation from legislated requirements.

An entity is in breach of FTA rules by not registering for VAT and in addition breaks Department of Economic Development [DED] rules by trading illegally. Two different Government departments, two different infringements, two different penalties for the same thing.

Last week, the Director-General of the FTA, Khalid Al Bustani, said registration should begin a month from then. September 17 would appear to be the date. If you believe you need to register your entity, in advance of that date, pay particular attention to the following.

Screenshots of the FTA’s website, which is not yet launched, that will capture registrations have been shared at its seminars and a verbal walk-through given. It’s intuitive and something almost all of us have, in one form or another, completed in the past. For example, if you discover that you are missing a required document mid registration, you can save everything you have done to that moment and come back and pick up at the same point later.

Let’s start with your Trade License, which has two purposes here. Firstly, the person named on it is a competent authority who should complete the process, albeit with support if required. A person who has a notarised power of attorney can step in. Secondly, the FTA want copies of various documents. Get good colour scans of these prepared in advance, starting with your Trade License.

A contact email address must be provided. This will need to be validated before you proceed. You might be choosing to register many legal entities as a VAT Group and there are options for this. A upcoming article will deal with VAT Groups in detail.

The authorised signatory’s passport and Emirates ID will be required, as will the entity’s Articles of Association and any amendments. All current Customs Authority Registrations should be to hand; one for each separate entry point where your entity is so registered.

As in Saudi Arabia, you will need to declare your sales for the previous 12 months and a forecast for the same going forward. Imports and exports must be split, as must GCC vs non GCC. It would appear that GCC means those GCC countries that are VAT live. As at January 1, 2018 this will just be the UAE and Saudi Arabia. Unlike Saudi Arabia you will need to provide your bank details - for any refunds you might be due.

Once completed, the FTA will revert within 20 working days and, assuming there are no queries with the documents provided, issue you with your TRN. For those considering registering VAT Groups, I would advise you to be ready to complete the registration on the first day it opens. If your grouping request is rejected, in part or full, you will then probably need to register each entity separately.

There is much work to be done. If I haven’t made myself clear throughout, VAT is all about you.

David Daly is a chartered accountant (Cima) who leads a consultancy practice in the UAE