As the January 1, 2018 deadline for VAT implementation in the United Arab Emirates (UAE) rapidly approaches, it is striking how many businesses remain skeptical that it will actually happen. The problem is, delaying preparations could prove costly.
Business skepticism is understandable. Although the draft VAT regulations were initially released at the beginning of November, they were then promptly withdrawn with no explanation. This triggered much conjecture as to the reasons why and fed rumors that the VAT plans might be abandoned. The final regulations were released only last week, on November 26, 2017.
Another reason for skepticism is the lack of concrete information available—although the Federal Tax Authority (FTA) has said that businesses have been given enough information to get started on implementation.
So how can we distinguish truth from rumor, and fact from fiction? What we do know is that the FTA has opened its VAT registration portal and businesses should already have started to register for VAT.
As a reminder, the registration deadlines for businesses are as follows—and two key deadlines have already passed:
So, can businesses really afford to take the chance that the specter of VAT will go away? Those that fail to register by their respective deadlines may be subject to a late registration penalty of 20,000 UAE dirham. The FTA may apply a light touch to compliance initially, but this cannot be guaranteed.
The Ministry of Finance needs the tax dollars that VAT would raise to support infrastructure spending and there is a desire for greater transparency to encourage outside investment. It therefore seems likely that VAT will go ahead regardless of speculation, conjecture and hope.
What this means is that businesses will need to be prepared. The good news is that you don’t have to be 100 percent ready by the January 1, 2018 deadline—there will be some extra time to finesse systems and processes before submitting your first VAT return. However, the introduction of VAT is not just about adding 5 percent onto sales and recovering VAT on purchases; it has commercial and reputational ramifications too. With this in mind, its introduction needs to be given proper thought and care.
Elsewhere across the GCC, Oman’s Consultative Assembly approved its VAT law at the end of last week, and the Kuwaiti VAT bill is still being debated in the Kuwaiti National Assembly.
By Terri Bruce, Associate Director with Moore Stephens LLP, U.K.
She may be contacted at: email@example.com
Click here to register for a free Bloomberg Tax Webinar about the new VAT systems in Saudi Arabia and the UAE, on Monday, December 4, 2017, 11:00 AM – 12:00 PM, ET.
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