The long-awaited Draft Cabinet Decision on the Executive Regulation of Federal Decree Law no. 8 of 2017 on VAT (the “Regulations”) have recently been issued by the Federal Tax Authority. The Regulations have provided guidance on some of the provisions mentioned in the Federal Decree Law no. 8 of 2017 on VAT (the “Law”) including registration requirements, exemptions and designated zones.
The Regulations have further confirmed some of the mandatory and voluntary registration requirements. It is important to note that businesses must register in accordance with the timelines announced by the Federal Tax Authority. Taxpayers may be liable to pay penalties if they are not registered within the timelines. Business with an annual turnover of more than AED 150 million must have registered by October 31st 2017, those with an annual turnover of AED10 million must register by November 30th 2017, and all other businesses are required to register by December 4th 2017.
Exemptions, Free-Zones and Designated Zones
The Regulations have further clarified the various industries which are zero-rated and exempt. The defined “financial services” are particularly helpful since this was an area of great debate. Those financial services listed in the Regulations shall be exempt where they are not conducted in return for an explicit fee, discount, commission and rebate.
How each of the free-zones are to be treated remains to be seen however. Art. 51 of the Regulations refers to certain “Designated Zones” being treated as outside the state on condition that they are fenced geographical areas with security measures and customs controls in place to monitor entry and exit of individuals and movement of goods (amongst other conditions). Movement of goods between the “Designated Zones” shall not be subject to tax. However, a decision of the cabinet is yet to be issued listing the specific “Designated Zones” which will be treated as outside the state.
It is essential that businesses review their contractual positions in order to assess whether VAT will be inclusive or exclusive of their commercial agreements which have already been entered into. Any agreements entered into from now on should clearly stipulate provisions for VAT. The transitional rules are further specified under Art. 70 of the Regulations which detail the record keeping requirements for businesses. A strict due diligence must be conducted for companies’ accounts and commercial contracts, whether or not they are VAT registered, in order to avoid any liability.
UPDATE: we now have further guidance for Service Providers and Consultants on Zero-Rating the Export of Services.
For any questions on a particular UAE VAT issue you are facing, please contact us on +971 (0)44 357 577.