In recent development on the implementation in the UAE, the Public Revenue Department of the Ministry of Finance have today initiated the first of a series of public engagement workshops for practitioners and businesses. The session was well attended with over 500 practitioners who were briefed on the proposed VAT law.
The key highlights from the session are outlined below:
The VAT rate is confirmed at 5% as initially anticipated.
The mandatory registration threshold is likely to be in line with the GCC and will be AED 375,000. A voluntary registration option will be available for businesses making supplies of 50% or more of this figure.
Businesses that primarily make Zero-rated or Exempt supplies may not be liable to register for VAT purposes. Further details will be provided in the law and regulations.
The VAT law is expected be released by the summer of 2017. The detailed regulations will be issued later in the year. No draft law is expected.
Rules on Free Zones have yet to be clarified, although services in the Free zones are expected to be subject to VAT.
Good news for the Medical Services and Education sector where supplies will be Zero Rated. These were previously expected to be an Exempt Supply. Further clarity will be provided on what fees are zero rated and which of these will be Standard rated if these are strictly beyond Medical services and Education.
Special rules will apply for not-for-profit charities.
Within the Financial Services sector, it has been confirmed that Life Insurance is likely to be treated as an Exempt Supply for VAT purposes. For non- life supplies, these are likely to be Standard Rated. This will extend to ancillary services provided by brokers. The method of Input tax recovery for mixed suppliers providing both Exempt and Standard rated/Zero rated supplies will be provided. It has been confirmed that there will not be a Fixed Input Tax Recovery methodology as is available in Singapore and Malaysia.
The other industry which has had positive development is property development, where it was announced that the VAT on first sale of residential property is a Zero-rated supply and subsequent sales are likely to be an Exempt Supply. This is encouraging news for property developers where there was a concern that this may be an Exempt Supply and this would have been deemed as a ‘huge’ burden on one of Dubai’s leading business sectors.
For rental of commercial and residential property, it was as expected confirmed that rental of commercial property would be subject to VAT at Standard Rates and for residential properties, these would be an Exempt Supply. It remains to be seen if there will be special rules for long stay Hotel and Services Residences.
It has also been confirmed that there will not be a tourist VAT refund scheme operated in the UAE given the low rate of VAT already imposed within this sector.
Supplies of goods and Services to UAE Government are expected to be Standard Rated which will simplify processes for companies making supplies to the Government Departments and bodies.
The GCC VAT model will be similar to the model in the UAE, creating further synergy.
The VAT regime being introduced in the UAE with key sectors such as Health, Education and Property development receiving greater clarity is positive as it will aid as a boost for consumers with little likelihood of increased prices and fees.
We will continue to provide VAT updates as and when announced by the Ministry of Finance.