Sheikh Khalifa issues Tax Procedures Law for UAE

President His Highness Shaikh Khalifa Bin Zayed Al Nahyan has issued the landmark Federal Law No. 7 of 2017 for Tax Procedures, which sets the foundations for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA).

The Federal National Council (FNC) approved the draft law in March this year and with the presidential approval to the tax law, the country now has a legal framework for taxation, implementation and administration.

“The Tax Procedures Law is a significant milestone towards establishing the UAE’s tax system and diversifying the economy,” said Shaikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai, UAE Minister of Finance and FTA Chairman.

“The Law, issued by Shaikh Khalifa is an all-encompassing legislative framework that lays the groundwork for the UAE’s plan to implement taxes as a means to ensure sustainability and diversify the government’s revenue streams. The increased resources will enable the Government to maintain the momentum of its development and infrastructure for a better future.”

The Law defines a clear set of common procedures and rules to be applied to all tax laws in the UAE, namely, value added tax (VAT) and excise tax laws, and clearly states the respective rights and obligations of the FTA and the taxpayer.

The law covers tax procedures, audits, objections, refunds, collection, and obligations, which include tax registration, tax-return preparation, submissions, payment and voluntary disclosure rules – in addition to tax evasion and general provisions.

When the Tax Procedures Law goes into effect, all UAE-based businesses will be required to keep accurate records for five years.

The law also sets penalties for non-compliance, as well as clear processes for appeals which align with international best practices and establishes a fair and transparent environment for the FTA to carry out its mandate.

“The UAE is committed to meeting the most stringent international standards,” Shaikh Hamdan said.

“We are working to establish an optimal legislative and executive environment to ease the nation into the VAT and excise tax systems. Implementing these taxes gives the UAE further leverage when it comes to international competitiveness and brings us one step closer towards building the future envisioned by our wise leaders, who have called on all those in charge to innovate and strive to spread happiness among citizens and residents.”

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U.A.E Ministry sets minimum turnover requirement for VAT registration

Those that offer services or sell goods that are non-taxable will also not need to get bothered by the extensive paperwork and reporting that the new tax system will require.The Ministry of Finance issued an announcement on Tuesday that effectively sets Dh375,000 as the minimum annual turnover requirement for companies that are required to register for value-added tax (VAT) which will be implemented in the UAE on January 1st, 2018.

Businesses in the UAE that barely make money every year - be they a streetside eatery, a shawarma vendor or a barber shop - may not need to go through the tedious process of registering for the value-added tax.

“Businesses with taxable suppliers over Dh375,000 will be required to register for VAT,” the announcement on Twitter reads. Those with net sales “below Dh375,000 but over Dh187,500,” will have the option to register starting October this year.There were no further details issued regarding the new policy, but one tax expert said that small businesses who may opt out of tax registration don’t have to charge VAT to their customers.

“The ministry has announced that those with revenue below 375K but over 187K will have an option to register. Which means that they may if they like, register under VAT. But if they don't then they do not have to collect VAT from their customers,” said Rakesh Pardasani, partner at audit and tax advisory firm RSM.

The ministry had earlier said that not all businesses, especially small companies, will need to register for the new tax policy. “In simple terms, only businesses that meet a certain minimum annual turnover requirement will have to register for VAT,” it said.

“We have made this decision to safeguard small businesses from the extensive documentation and reporting that a system like VAT requires.”

Pardasani, however, said that the revenue requirement set by the Ministry of Finance would mean that many small business owners will still be obliged to collect VAT.

“This number, however, if it is an annual number, appears to be very small and it may bring a lot of small businesses within the scope of VAT.”

He also pointed out that companies who make less turnover are still given an option to register for the new tax system. “Some may prefer [to register even if they are exempt] because if they don’t, they may not be able to claim back the VAT paid on their purchases.”

Starting next year, a 5 per cent levy will be charged on all supplies of goods and services, unless specifically exempted or zero-rated, in the UAE.  The levy will be implemented across the Gulf Cooperation Council (GCC) region, with some states given an option to join in on January 1st, 2019.

The ministry had earlier announced the start of its country-wide awareness campaign to educate various stakeholders on the collection of VAT. A VAT law has yet to be enacted, but the Federal National Council on Wednesday passed a draft legislation, the Tax Procedure Bill, that will pave the way for the collection of taxes.

Several briefings for entrepreneurs – from small and medium-sized enterprises (SMEs) to huge multinational organisations – will be held on different dates between April and May this year.

The sessions will explain to companies the rules of the new VAT system and cover the general application of the new VAT rules.

UAE to implement 5 per cent VAT from January 2018 to Business and Landlords

Business owners and landlords must pay a five per cent value-added tax (VAT) starting January 2018, announced the Federal National Council (FNC) on Wednesday in the UAE capital.

The FNC approved the draft law, which serves as a legal framework and organises all the regulations of taxes, which aims to generate revenue for the federal government and enabling a sustainable economic growth.

Private businesses making Dh370,000 and more a year will have to pay VAT. The tax is binding on landlords renting out properties as well, which could mean a rise in rents for tenants across the UAE.

There are currently more than 450,000 private owned companies in the UAE, and the number is expected to soon reach 600,000, which will see a growth in the annual GDP, said Obaid Humaid Al Tayer, the Minister of State for Financial Affairs.

Last year, the GCC countries, including the UAE, Saudi Arabia, Qatar, Bahrain and Oman, signed an agreement to implement a VAT of five per cent.

Al Tayer said the law will be implemented in the UAE on January 1, 2018. However, all GCC members have until January 1, 2019, to implement the rule.

"VAT is the only law that is currently on the legislative committee, as well as the selective items tax on tobacco, fizzy drinks and energy drinks."

The minister said the effect of the VAT on people in general, including residents and consumers, will start with 1.3 percent and will drop with time, whereas businesses will face 0.06 percent, and 0.04 on gross domestic product (GDP) growth when implemented.The law will also provide the authority measures to address procedures for tax collectors, tax auditing, tax avoidance, violations and the penalties.

The passed draft law also stipulates that fines for those avoiding the pay their taxes should not exceed five times the value of the evaded tax.

The minister said that by 2021 the aim is to generate 80 per cent of UAE's economy by non-oil sectors, while the remaining 20 percent generated by oil, as opposed to the current 80 percent GDP.

Selective items tax

The GCC countries also agreed to introduce 'selective items tax', including on tobacco, soft drinks and energy drinks.

The cap for the 'selected items tax' is 100 per cent, in which Saudi Arabia has already drafted its law and placed a 100 percent tax on tobacco while placing 35 percent on soft drinks.

Although the UAE's Ministry of Finance has yet to confirm the amount of tax implemented on its selected items, Al Tayer said it is expected to be applied this year.

"The cap is 100 percent, it could be less depending on each country," said Al Tayer.

"Once the law is issued, it will say when it will be implemented," he added.

The revenue generated from tobacco products alone is expected to reach Dh2 billion a year.