Further to the introduction of Value Added Tax (VAT) by the Unified Gulf Cooperation Council Value Added Tax Framework Agreement, the UAE has implemented the VAT system according to the powers granted by the Agreement to THE AUTHORITY.

The UAE VAT legislation enacting the Agreement is as follows:

• The Federal Decree-Law No. (8) of 2017 on Value Added Tax (“VAT Law”);
• The Value Added Tax Executive Regulations (“Regulations”); and
• The Federal Law No. (7) of 2017 on Tax Procedures (“Procedures”)

The UAE is a MEMBER STATE of the GCC. VAT is a common system of the GCC. All taxable transactions taking place within UAE and between UAE and other MEMBER STATES of the GCC are subject to a specific VAT treatment, according to the rules of the VAT Law, Regulations and Law on Tax Procedures further to the provisions stated in the Agreement.

The introduction of taxes in the UAE is part of a GCC-wide initiative to diversify regional economies. Given the overall reduction in oil prices in recent years, it has been necessary for the GCC member states to explore other revenue raising measures and reduce dependency on hydrocarbons as the key contributor to the public purse. As a result, the GCC member states have agreed to sign unified framework agreements for the implementation of VAT and Excise taxes. Member states will also implement their own domestic legislation that will govern the introduction of these taxes.

The UAE’s citizens and residents enjoy exceptional public services, such as healthcare, roads, education, parks, social services and waste management. The full cost of these services is paid for by the government. The introduction of VAT and Excise taxes will help the UAE diversify sources of revenue so that government departments can continue to deliver excellent public services and ensure a high quality of life for coming generations.

In addition, taxation allows governments to correct certain behaviors that are detrimental to society and which cannot be left to the market to regulate. Excise taxes on products that are harmful to human health are a good example of this.

A transaction is within the scope of UAE VAT if all the following conditions are met.

• It is a supply of goods or services according to the definition provided in the Agreement. Certain transactions, although supplies, are regarded as supplies of neither goods nor services and are outside the scope of GCC VAT.
• It takes place in the UAE.
• It is made by taxable person. A taxable person. A taxable person is an individual, firm or company, etc. which is registered for VAT or which required to register for VAT in the UAE.
• It is made in the course or furtherance of any economic activity carried on by that person.

To be within charge to VAT, a supply must be made in the UAE. The Regulations establish where the place of supply is to determine where VAT is applied in relation to goods and services; they make special provisions for certain supplies of goods and services and specify that the Regulations have precedence over the provisions made in the Agreement.

Separate rules apply for determining the place of supply of goods and services between the UAE and other MEMBER STATES requiring specific evidence for the supply having taken place.

The VAT Law establishes the rules for when a supply takes place and VAT is imposed. The time of supply for goods and services is different. For goods, this can be the earlier of when title in the goods passes, the goods is imported, made available, installed and accepted by the receipt. For services, the time of supply is when the services are completed. However, if an invoice or a payment is made earlier than the above occurring the time of supply is the date of the payment or the date of the invoice, whichever is first

In addition to straightforward business transactions where output tax is payable by the supplier, the UAE legislation makes provisions for special cases where output tax may also be due, such as business gifts above a certain value and private use of goods and services originally bought for business purposes but subsequently put to private use.

Input tax can be claimed on supplies received in the course of an economic activity. These include imports from outside the GCC, acquisition of goods from another MEMBER STATE on condition that the input tax relates to taxable supplies, including zero-rated supplies.

The Regulations establish the limits within which input tax can be deducted and set out rules for specific circumstances such as VAT recovery on goods and services bought before registration, as well as VAT recovery on goods held at deregistration. Also, there are specific Regulations restricting VAT recovery on goods and services which are not used for business purposes (e.g. for private use), such as business entertainment.

Where input tax has been claimed but the consideration for the supply is not paid within a period, established by each MEMBER STATE, the input tax must be repaid to THE AUTHORITY.

There are specific provisions for blocking input tax such as on entertainment, motor vehicles for private use, etc.; and also provisions for calculating input tax that is not fully in relation to taxable supplies made by the taxpayer.

The VAT rates established in the Agreement are adopted by all MEMBER STATES, including UAE.

These are 5% for standard-rated supplies and 0% for zero-rated supplies. There are specific provisions for zero-rated supplies and these apply to exports of goods from the UAE, some forms of transport, exports of goods and services and the supply of medicines and health equipment.

The Regulations define exempt supplies as supplies of goods and services on which VAT is not chargeable but also non-recoverable. Exempt supplies are financial services, residential buildings, bare land and local transport services.

Where a person makes both taxable supplies and exempt supplies, he is partially exempt and may or may not be able to recover all of his input tax. All input tax directly attributable to taxable supplies can be reclaimed but none of the input tax directly attributable to exempt supplies can be claimed. Special rules then apply to work out how much input tax can be reclaimed on general overheads, etc.

The Regulations define what an import is. Imports include Concerned Good and Concerned Services; they are supplies that would have been taxable if bought in the UAE.

VAT is accounted for and paid of entry on imports of goods into the UAE. VAT on imported services is applied by way of the reverse charge.

To pay and claim VAT the importer is required to keep evidence of the value of the import and other customs documents.

VAT cannot be claimed by a private individual or unregistered business but must be paid to THE AUTHROITY.

Export of goods are zero-rated and include the export of own goods to another GCC country. Services are also zero-rated when provided to a recipient outside the GCC, subject to certain conditions. There are specific conditions to zero-rating an export. Exports can be direct or indirect exports depending on whether the delivery is arranged by the recipient or the supplier.

The Regulations set up the details of a valid tax invoice and also allow the issuance of a simplified VAT invoice where the recipient is not registered for VAT or where the recipient is registered but the consideration for the supply does not exceed AED 10,000.

A taxable person must provide a VAT return to THE AUTHORITY by the 28th day of the month following the end of the tax period. The tax period is three months ending on the month as requested by the registrant or on a month allocated by THE AUTHORITY. A VAT return is a declaration of all supplies made and received in the tax period. Payment of VAT is also due by the 28th day of the month following the end of the tax period.

Records for all supplies made and received as well as records of tax declarations, must be kept for a number of years. The Agreement specifies that records must be kept for at least 5 years except in the case of records in relation to real-estate transactions which must be kept for 15 years. Also, access to the records must be provided to THE AUTHORITY.

The VAT law makes provisions for a bad debt write-off and discount of output tax paid on a supply for which consideration has not been received, either fully or in part after 6 months from the date of the supply. Certain conditions must be met in order for a supplier to be able to write off a bad debt and claim the output tax back.

Assessments can be raised on tax and penalties for specific omissions, errors and non-compliance. An assessment must be notified by THE AUTHORITY within 5 days from the decision being made.

THE AUHTORITY has wide powers to access records and perform an audit for the purpose of an assessment and can take measures to seize documentation. THE AUTHROITY also has duties towards the taxpayer being assessed such as carrying out an audit within prescribed time of the day and giving notice of an audit taking place. The taxpayer also has rights, such as cooperating and assisting THE AUTHORITY in performing audit.

Penalties can be imposed on non-payment of VAT, VAT evasion, non-compliance and failing to provide information or access to information to THE AUTHROITY. The competent court can impose penalties for tax evasion.

The Law on Tax Procedures allow for appeals to be made against decisions of THE AUTHORITY within a specific time frame of 20 business days from the notifications of a decision.

An appeal for THE AUTHORITY can be escalated to the Tax Dispute Resolution Committee. Only tax disputes exceeding AED 100,000 in tax and penalties that are not resolved at the Committee level can be brought to a competent court.

Decisions issued by the Committee for tax and penalties below AED 100,000 are final and cannot be appealed further.