United Arab Emirates: Keeping It Simple: Federal Law Number (8) Of 2017 On Value Added Tax

Last Updated: 13 September 2017
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, November 2017

The UAE's new governing law regarding VAT is the Federal Decree-Law Number (8) of 2017 (the Law). According to Article (1) of the Law defines Value Added Tax as 'tax levied on import and/ or supply of goods and/ or services at every stage of production and distribution, including the Deemed Supply.'

The Law addresses the importance of understanding VAT and the impact it may have on a person, such as increase in the Value Added Tax, compulsory and voluntary registration, methods of payment, the required amount of payment, items that which is not subject to VAT, as well as many other regulations. Due to sudden transformation to the Value Added Tax system, it is essential that tax payers in the UAE review the new tax scheme in connection with their dealings. An interpretation of the Law defines a Taxable Person as an individual who is registered or should register for tax under the provisions of the Law.

Under Article 3 of the Law, a standard tax rate of five percent (5%) on import and supply and goods and services. Supply of goods includes but is not limited to transfer of a contract for the exchange of goods and services. The article covers all possible goods transferred and traded in the UAE, including products supplied from an agent of a person.

A government entity also falls within the ambit of law on the basis that it distributes goods or services (PROVIDED HOWEVER THAT the entity's conduct is in the non-sovereign capacity or if they are in competition with the private sector). However, a cabinet decision will be issued in the future to determine their entities, activities, and the possibility of a company falling under that expressed within article 10 of the Law.

The VAT regulations also apply to service providers, therefore will impact and influence the interest of investors and entrepreneurs who desire to or consider future company formation in Dubai and the UAE. Authorities (such as free zones and Economic Department) in the UAE issue service licenses in several broad categories. In the past and till date, investors applied for business setup in Dubai and UAE with the ambition of servicing domestic as well as international clientele. Every person that comes under the scope mentioned above of the goods and services supply must register for the new tax system when they exceed the threshold level provided as per the Law. According to the threshold level, registration divides into two categories, namely, mandatory and voluntary registration.

Article 13 mandates that every (natural or legal) person who resides in the UAE is required to make mandatory registration for the new tax scheme when his total value of all supply exceeds the amount of AED 375,000. Similarly, a person is obliged to take the same above action when the anticipated total value of supply exceeds the compulsory registration threshold in the next thirty (30) days.

Payment of VAT will only arise in the above situations, however, to avoid liability of VAT from the new regulations, tax payers must calculate the tax due on their accounts up to 31st December 2017. The Executive Regulation which is to be published by the cabinet will specify the time limit that a person must inform the authority of his liability to register the tax.

Voluntary registration applies to persons who are not mandatorily required to register for taxes under article (13). Article (19) mandates that from a previous twelve (12) months period, a person whose total value of supply exceeds AED 187,500 can voluntarily register under the new regulations. A person may also register if they anticipate that the total amount of supplies will exceed the voluntary threshold within the next thirty (30) days.

The Law defines a set of guidelines on how to determine whether a person exceeds the mandatory or voluntary threshold. The following factors below must be taken into consideration:

       I.          The value of the taxable good(s) and service(s)

     II.          The value of Concerned Good(s) and Service(s) obtained by a person – 'Concerned Goods and Services' are those that have been imported and would not be exempt from tax if supplied within the UAE;

   III.     The gross (total) value of the whole or relevant part of taxable supplies that are owned by a person if he has wholly or partly acquired a business from another person who provided or sold those goods;

    IV.     The value of taxable supply made by Related Parties according to the cases stated in the Executive Regulation – 'Regulated Parties' two (2) or more parties that are considered as the same or not separated in an economic, financial and regulated perspective. The parties that can control the other(s) under the law of the land or through shares or voting rights.

It is pertinent to note that the supply of transfer of capital assets should not be taken into consideration while calculating the mandatory or voluntary threshold to determine tax registration obligations of the parties.

To register as Related Parties, each person must have fixed establishment in the UAE, and the person(s) undertaking the business in a partnership should have control over the other entities. The Executive Regulation will state the circumstances when a person may not be permitted to register under a tax group. Any person(s) undertaking business in the UAE should have one (1) tax registration number.

Article (15) states that a taxable person could be exempted from mandatory tax registration in Article (13) if they file a request indicating that their supplies are subject to zero (0) rate, such as but not limited to international cargo or passenger transport that commence and arrive in the UAE; supply of land, sea and air transport for passengers and cargo, supply of aircraft and vessels; import of precious metals; firstly supply (sale or lease) of residential buildings in whole or part; supply of crude oil and natural gases.

Further, one of the main raising question among the UAE people is whether these VAT apply to free zone as well. Free Zones are one of the most used or simplified company formation systems in UAE. One of the main reason is that free zone entities are Tax-free and they provide sole ownership for the Non-UAE residences. Also, the free zones are accessible for having their dedicated laws and regulations that would apply to companies and individuals within the free zone. Most scholars argue that the application of these new VAT to the free zone entities and persons will create questions on the underlying concept of free zones are free to act within their limitations. In contrast, some scholars argue that it is best for the Tax regime of the country to apply the new laws to free zone with some exemptions. However, the UAE government has taken a balanced place in this matter with the final consideration.

Under Article 77, anyone committing Tax evasion is liable to the penalties provided under Federal Law Number 7 of 2017 on Tax Procedures. In addition to the aforementioned penalty, the person will be liable for an administrative penalty under the new Law if the person failed to display prices inclusive of Tax, if the taxable person failed to notify the authority of applying Tax, if the supply person failed to issue tax invoices or documents or tax credit note, and if a person failed to comply with the regulations related to electronic tax invoices. Moreover, it is important to understand that everything under the category of goods and services will not be taxed. Services such as education and healthcare exempted from this new law considering the value of such services to the country in general. Both the services were highly expected to be exempted before the establishment of the Law. Similarly, VAT is exempted in the supply of bare land, the supply of local passenger transport services, some of the financial services mentioned in the executive regulations, a direct or indirect export to outside implementing states, the supply of aircraft or vessels designated for rescue and assistance.

According to Article 15, the person who falls under the category of the exemption from VAT must request the authorities stating his supply is excepted from the new tax or in other words subject to zero rates. One can understand that the intention of lawmakers was to simplify the procedure to socially valued services such as education and health services. Further, the supply of residential properties will be exempt as well. Another type of supply which has taken into consideration of exemption is the supply of bare land. Also, financial services will be subject to a narrow exemption. However, free based financial services are not categorized as an exemption in the Law and therefore will be charged under the Law.

Praising the new Tax changes in recent years, the Deputy Ruler of Dubai said that the Tax procedure law is a significant milestone towards establishing the UAE's Tax system and diversifying the economy. Accordingly, UAE is shifting from the days where Tax laws were known as toothless laws or ineffective in practical to a strong regulation of Tax law. The FTA chairman has stated that the Law, issued by Shaikh Khalifa is an all- encompassing legislative framework which lays down the groundwork for the UAE's futuristic plan to enforce taxes as a method to ensure sustainability and diversify the government's revenue sources. The increased resources will enable the Government to maintain the momentum of its development and infrastructure for a better future." The government does not only provide legislation but also plan to provide administrative and all the required resources to increase the level of the system. The steps are taken such as a clear process for appeal when a person did not register to the Tax scheme in the first instance and providing FTA as transparent is international best practices. In overall, UAE government believe that this VAT system is designed to promote economic growth and plans for the country in a bigger picture. Now the UAE has Implemented the tax regulations, which is the most important revenue of a country. Now the government has to make sure Tax payers pay their Tax in practice. Implementing regulations and enforcement of the law is very important as well. The government will also have to focus on how to create Tax awareness among the people and what are the possible actions can be taken to get this into the practice. Once the country succeeds in making awareness of the persons on how they are part of the development of the country and how the Tax money is spent, the goal of Tax collecting will be completed. Different countries do it in different styles such as publishing magazines in newspaper, the internet or political websites and UAE has designed to promote a website to help Tax payers in every aspect as most of the UAE government departments are very successful in providing government services through online and its successfully designed websites which contain all the information, forms, and relevant Law for the user's perusal. The increase of taxes in other countries may aim at several objectives, but UAE aims at financing public expenditures. However, will these changes affect the investors of UAE and damage the long run reputation on tax related matters? Some scholars argue that new increase in tax may affect the overall business in UAE. Nevertheless, it can be analyzed to the effective date of the Law and how the suppliers of goods and services react on the matter.

Although the Law is extensive, the application and implementation are yet to be seen in the UAE. The new VAT regulations will come into effect 1 January, 2018 and allow companies to register up to three (3) months before the implementation date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions