VAT Presentation - Staff.

Value Added Tax ( VAT )
in the UAE
VAT CONSULTANCY | ACCOUNTING | FEASIBILITY | I DUE DILIGENCE I ISO AUDIT I DIGITAL MARKETING www.marsgroup.ae
CONTENTS
1. Introduction
2. VAT Registration
3. Types of VAT supplies
4. Place of Supply
5. Tax point & Tax invoice
6. Capital Assets Scheme
7. VAT Compliance & Implementation
8. Penalties
9. Transitional rules
10. VAT rates on selected sectors
11. VAT Treatment
12. Understanding of some important VAT impacts
13. MARS VAT services
INTRODUCTION
UNIFIED VAT AGREEMENT ( UVAT ) is a framework agreement signed by all six GCC
countries. This framework agreement sets out the underlying principles of VAT laws
for the six GCC countries. Member states retain some flexibility, such as how to treat
healthcare, education and free zones for VAT purposes.
The KSA & UAE are among the first GCC member states to publicly announce the
introduction of VAT, with a effective date of 1 January 2018.
Following are the steps undertaken by the Ministry to introduce VAT in UAE:
Federal Law by
Decree No. The landmark
Common VAT 13 of 2016 Federal Law Federal Law No
Agreement Concerning the No. (7) of 2017 8 of 2017
of the States of establishment of for Tax on VAT
GCC the Federal Tax Procedures
Authority
INTRODUCTION
WHAT IS VAT
VAT is an indirect tax applied upon the consumption of most goods and
services. VAT is levied by VAT registered businesses which make supplies of goods
and services in the course or furtherance of their business. VAT will also apply on the
importation of goods.
VAT is levied at each stage in the supply chain and is collected by businesses on
behalf of the Government. VAT is ultimately incurred and paid by the end consumer.
VAT will be charged at the standard rate of 5%. There are certain supplies and
services which will be subject to zero rate or under exempt categories.
WHO WILL COLLECT VAT?

VAT will be governed by Federal Tax Authority (FTA). They will be responsible for
collecting taxes and reviewing the compliances. They will be responsible for
conducting tax audits and administering penalties.
INTRODUCTION
MECHANICS OF VAT
VAT registered businesses charge and add VAT to the value of goods and services
they supply. Such businesses can also reclaim VAT incurred on goods and services
acquired for business purposes.
VAT-registered businesses will submit a “VAT return” document to the FTA on a

periodic basis mentioning all output tax due and input tax recoverable for the period.
“Final consumers” (i.e. persons not registered for VAT) do not submit VAT returns
and cannot recover the VAT they are charged
Net VAT payable or credit recoverable will be calculated as the following:
OUTPUT VAT INPUT VAT NET VAT PAYABLE

(Collected on (Paid on business OR RECEIVABLE
sales) purchase/expense) (from / to FTA)
INTRODUCTION
MECHANICS OF VAT
VAT REGISTRATION
Every taxable person resident of a member state whose

value of annual supplies in the member state exceeds
or is expected to exceed the mandatory registration
threshold
Taxable Supplies” include:
The threshold for registration will be:
• Standard rated supplies
– Mandatory registration threshold: AED 375,000
– Voluntary registration threshold: at least AED 187,500 • Zero-rated supplies
• Reverse charged services
Threshold will be calculated as follows: received and
• Imported goods
– Total value of supplies made by a taxable person for the
previous 12 months; or
– Total value of supplies of the subsequent 30 days
– Value of exempted supplies will not be considered for
computing the annual supplies
VAT SUPPLIES
TAXABLE SUPPLIES ZERO RATED SUPPLIES EXEMPT SUPPLIES
STANDARD RATE 5% ZERO RATE 0%

EXEMPT
VAT charge/ VAT credit No VAT charge/ VAT
credit available No VAT charge/ No VAT
available
credit available
EXAMPLES EXAMPLES
International transport EXAMPLES
Vehicles
New residential Specific financial
Clothing
buildings services
Food
Schools Local passenger
Business consumable
Charity buildings transport
Utilities
Healthcare Bare land
Export
WHAT IS SUPPLY
It is important to establish whether a taxpayer is supplying goods or services since

there are different rules applying to each for the purposes of determining where and
when the supply takes place.
Any activity
conducted regularly,
VAT Registered on an ongoing
Place of supply rules basis
determine where the Consideration is
supply is ‘made’ for VAT anything received in In the course
purposes return for a supply By any Person of
Where the supply is conducting
made within the UAE, business
For
UAE VAT will be due
Consideration
There are different
place of supply rules for In the UAE
goods and services
A Supply Goods = the passing of ownership of physical property or the

of Goods right to use that property as an owner, to another person
or
Services Services = anything which is not a supply of goods is a supply
of services
PLACE OF SUPPLY
BASIC RULE
If the supply is treated as made outside the UAE: no UAE VAT will be charged
If the supply is treated as made in the UAE: VAT may be charged
GOODS SERVICES
the place of supply is the the place of supply is
location of goods when where the supplier has
the supply takes place the place of RESIDENCE
PLACE OF SUPPLY
PLACE OF SUPPLY - GOODS

TRANSACTION PLACE OF VAT RATE
SUPPLY
Domestic supplies UAE Standard or Zero rate
Exports to outside GCC UAE Zero rate
B2B Import of goods (Outside GCC) UAE Reverse charge mechanism (RCM)
for sales within UAE
B2B Import of goods (Outside GCC) UAE Pay VAT (no RCM) - This import VAT
for re-export to GCC should be recoverable in the GCC State to
which the goods are transferred
B2B Exports to GCC Other GCC Out of scope

state
Exports outside GCC UAE Zero rated
REVERSE CHARGE MECHANISM
RCM
A mechanism under which the recipient of goods or services is required to pay VAT
instead of the supplier, when the supplier is not a taxable person in the member state
where the supply has been made.
The Reverse Charge moves the responsibility for the recording of a VAT transaction
from the seller to the buyer of a good or service.
Normally, the supplier pays the tax on supply however in certain cases ( IMPORTS ),
the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which
is why it is called reverse charge.
VAT registered purchaser must account for VAT in respect of cross-border supplies to
relieve a non-resident supplier from the requirement to register and account for VAT
in the country of the purchaser.
The purchaser will account for VAT on its normal VAT return and he may be able to
claim that VAT back on the same return, subject to the normal VAT recovery rules.
PLACE OF SUPPLY
PLACE OF SUPPLY - SERVICES

SERVICES PLACE OF SUPPLY
Recipient is VAT registered in another GCC Other state
State
Recipient is VAT registered business in UAE UAE
Installation of goods Where services are performed
Restaurant, Hotel & Catering Where services are performed
Real estate services Location of real estate
Transport services Where transport begins
Supply of means of transport to Non-registered Goods at disposal of the recipient
person in GCC
Telecommunications and electronic services used and enjoyed by the recipient
Cultural, artistic, sporting, educational or where they are performed
similar activities
TAX POINT
Basic tax point for goods:
Date of removal of goods (in case of supply of goods with transportation), date on
which goods made available to customer ( in case of supply not involving
transportation ), date of assembly / installation ( supply of goods involving assembly
or installation ).
Basic tax point for services:

Date on which performance of service is complete.
Special tax point: If any of the following event take place before the basic tax point, it
will be considered as the tax point for accounting for VAT.
• Payment is received
• Tax invoice is issued
Tax point for supply of continuous services:

In case of continuous services over a period of several months or years, the time of
supply for will be the earlier of:
• Receipt of payment
• Issuance of tax invoice
TAX INVOICE
DETAIL VAT INVOICE SIMPLE VAT INVOICE

 ‘Tax Invoice’ clearly displayed  ‘Tax Invoice’ clearly displayed
 Name, address and TRN of supplier  Name, address and TRN of supplier
 Name, address and TRN of recipient (if  Date of issuance
recipient is also registered for VAT)  Description of goods or services supplied
 Sequential Invoice number, or a unique no.,  Total consideration and tax amount charged
which enables identification of the Tax
 Invoice and the order of the Tax Invoice in
any sequence of invoices
 Date of issuance
 Date of supply (if different from date of
issuance)
 Description of goods or services supplied
 The unit price, quantity or volume, rate of
tax and amount payable expressed in AED
for each good or service
 The amount of discount offered
 Gross amount payable in AED
 Tax amount payable expressed in AED
 together with rate of exchange applied
 Where the recipient is required to account
for tax, a statement that this is the case and
reference to relevant law
CAPITAL ASSETS SCHEME
Capital Assets Scheme
Adjustment of VAT recovery on costs incurred relating to large value capital assets with a long useful life
Intended to reflect the use of the asset for taxable or exempt purposes over its useful life – intended use of
the asset may change over time and VAT recovery based on intended first use may not fairly reflect its use over
time
WHAT IS QUALIFYING ASSETS?
Qualifying assets > 5,000,000 AED on which VAT was payable:
1. building or a part thereof: useful life > 120 months

2. other than building or parts thereof (e.g. computer): useful life > 60 months
Capital Assets Scheme – adjustment calculation
Year 1: recover input tax incurred on the purchase of the asset based on the expected taxable use of the asset
e.g. 100% taxable use, therefore recover all input tax incurred in full
Year 2 – 10: adjust input tax recovery for that year based on that year’s taxable use e.g. total input tax
incurred / 10 years = input tax for year 2 x difference between initial recovery percentage and actual taxable
use
VAT COMPLIANCE REQUIREMENTS
An inherent feature of the VAT is the self-assessment nature, meaning every business
which is VAT registered (or required to be VAT registered) must record, assess and
report its VAT obligations and entitlements, in accordance with the law, to the tax
authorities.
Requirements of the VAT
 Mandatory registration for VAT for all businesses exceeding the mandatory VAT
registration threshold.
 Filing of periodic VAT returns with the tax authorities (monthly or quarterly).
 Remitting any VAT payable by a specified date
 Record keeping in respect of all business transactions:
– Tax invoices
– Debit or credit notes
– Import and export records
– Records of goods/services provided for free or allocated for private use
– Zero rated or VAT exempt supplies and purchases
VAT IMPLEMENTATION
MANAGING THE IMPLEMENTATION PROJECT
Given the whole of business impact of VAT, appropriate sequencing and project
management of the implementation is clearly important. We would suggest a high
level project approach such as the following:
PENALTIES
Administrative Penalties:
Administrative penalties are intended to address non-compliance, and encourage
compliance and will be not less than 500 dirhams and not more than 3 times the
amount of tax for which the penalty was levied.
Example:
If the person conducting a business fails to keep the required records and other
information; If the person conducting a business fails to submit the data, records and
documents related to tax in Arabic language when requested by FTA;
If the taxable person fails to submit a registration application within the period
required.
PENALTIES
Tax Evasion Penalties
Tax evasion is where a person uses illegal means to either lower the tax or not pay the
tax due, or to obtain a refund to which he is not entitled under law and will be Up to
five times the relevant tax at stake.
Example:
Where a person deliberately provides false information and data and incorrect
documents to the FTA Where a person deliberately conceals or destroys documents
or other material that he is required to maintain and provide to the FTA.
Tax Audit
the Federal Tax Authority may perform a tax audit on any taxable person to ascertain
the extent of that taxable person’s compliance with the provisions of the law. They
may perform the tax audit at their office or the place of business of the taxable
person subject to such audit or any other place where such taxable person carries on
its business, stores goods or keeps records by informing the taxable person at least
five business days prior to the tax audit.
TRANSITIONAL RULES
Where a contract is entered into prior to the effective date of the VAT law which
concerns a supply made wholly or partly after the effective date of the VAT Law, VAT
will be due on the supply taking place after the effective date of the VAT Law.
If the contract does not mention VAT, the value of the supply stated in the contract
shall be treated as inclusive of VAT.
Company A Company B
Enters contract to sell
Must account for 5% to Company B for
VAT to the FTA on AED 5,000
the value of the
supply contract is silent
on VAT
AED 238.10 AED 5,000
payment to the
FTA
TRANSITIONAL RULES
However, where Company B is registered for VAT and is entitled to full VAT recovery
on costs incurred, Company A can treat the contract as if the price stated was
exclusive of VAT and is able to charge VAT to Company B in addition.
Company A Company B
Enters contract to sell
Must account for 5% to Company B for
VAT to the FTA on AED 5,000
the value of the
supply contract is
exclusive of VAT
AED 250.00 AED 5,000 + AED
payment to the
FTA
250 (VAT)
TRANSITIONAL RULES
EARLY INVOICING OR PAYMENT
Where an invoice is issued or payment is received prior to the date the VAT Law
comes in to effect, the value of the payment/invoice will be subject to VAT where the
following takes place after the date the VAT Law comes in to effect:
 Transfer of goods under the supplier’s supervision

 Goods are placed in the possession of the recipient of the goods
 Completion of assembly of the goods
 A customs statement is issued
 The customer accepts the supply of goods
VAT RATES ON SELECTED INDUSTRIES
VAT TREATMENT
VAT TREATMENT
VAT TREATMENT
VAT TREATMENT
VAT TREATMENT
Understanding of some important VAT impacts
Import VAT
Import VAT– Goods andand
– Goods services
services
VAT payable upon importation of goods may significantly impact cash flow. There is a special import VAT scheme introduced to mitigate negative
cash flows. Eligibility may differ across the GCC. Imports of goods and services will be ‘reverse charged’ hence no VAT cash flow impact as such
in UAE, provided goods are not imported into state to re-export to Implementing state in GCC.
Designated zones
Designated zones
Any Designated Zone specified by a decision of the Cabinet shall be treated as being outside the State and outside the Implementing States,
subject to conditions: The Designated Zone is a specific fenced geographic area and has security measures and Customs controls in place
to monitor entry and exit of individuals and movement of goods to and from the area and it has internal procedures regarding the method of
keeping, storing and processing of Goods thereintade – Only special rule for goods not services
Intra-GCC trade
Intra-GCC trade – Only
– Only special
special rule
rule for for goods
goods not services
not services
The place of supply for inter-GCC trade will differ depending upon whether the VAT has been introduced where the customer is. This will
require monitoring and impact IT system VAT coding. Services outside UAE will be zero rated. Export of goods: place of supply is the other
GCC State (e.g. KSA) provided the customer is registered for VAT in that GCC State, and the goods are exported outside the UAE
Intra-group transactions
Intra-group transactions
Intra-group supplies cannot be ignored for VAT purposes. While VAT grouping is allowed this will need to carefully consider if this provides
any actual advantage in cash flow and compliance.
Contracts – Supplies made after 1 January 2018 will be subject to VAT

Contracts – Supplies made after 1 January 2018 will be subject to VAT
You should already be considering the impact of VAT on new and existing long-term contracts. There could already be significant VAT exposure
that will need to be mitigated. Consideration also needs to be given to ensuring tax invoices are received in a timely fashion from suppliers.
Important
Understanding
understanding
of some important
of VAT impacts
VAT impacts
Employee benefits
Most employers provide its employees with many benefits. The VAT law are impacting few of these benefits and so these needs to be carefully
assessed. E.g. You may be deemed to be making a taxable supply when you give gifts to employees which exceed a determined value which it
cannot, or would not, recover from the employee.
Entertainment expenses
There are certain entertainment expenses will not be VAT recoverable. This will become a real VAT cost for all businesses.
Stock write-offs/ Damages

We would expect that where stock has been destroyed there would be no requirement to repay previously claimed VAT credit. However, if there is
a stock discrepancy then may be required to repay VAT credit.
Returned goods/ Cancelled sales

Where you have already accounted for VAT on the sales then when returned and customers refunded, we expect you to be able to recover
VAT previously paid. However, FTA expect certain commercial documentation to support this recovery (e.g. VAT credit invoice)
Pricing displays
After the introduction of VAT, prices inclusive of VAT may need to be displayed on all the goods and services. There could be a situation that on
cutover date (31st December 2017) prices would be exclusive of VAT but on 1st January 2018, all goods and services should be inclusive of VAT.
This may pose some organizational challenges.
Important
Understanding
understanding
of some important
of VAT impacts
VAT impacts
Volume discounts / rebates

The value of supply may be reduced in the case of a discount if customer has benefited from the reduction in price and the supplier funded
the discount.
Again before an adjustment can be made to recover ‘overpaid’ VAT will need to issue relevant documentation to support VAT recovery.
Other party will need to write back VAT credit taken earlier.
We understand that rebates from certain suppliers are based on a ‘hand shake’. Going forward they will want to recover VAT and so will need to
issue a credit note
– cannot ignore appropriate documentation of the transaction.
Sponsorships / Barter arrangements
Where sponsorship results in a material benefit in return then that will be a taxable supply.
Where it involves a barter then can give rise to two taxable supplies, one by each party. Ideally need to exchange tax invoices for same
agreed value – results in VAT neutral transaction. Will need to assess at ‘fair market value’.
Voucher
Defined as instrument that gives the right to receive goods or services against a value stated thereon or receive a discount but excludes
postage stamps issued Emirates Post Group. A taxable event occurs when the voucher is redeemed. The issuance or sale of a voucher
is not a taxable event unless the received consideration exceeds the monetary value mentioned on the voucher.
Example: Fashion label sells John a voucher which states the holder can redeem for AED200 in store purchases. Fashion label does not
account for VAT on sale of voucher but when voucher is redeemed in store for purchases. VAT is effectively deferred.
Important
Understanding
understanding
of some important
of VAT impacts
VAT impacts
Gifts and Samples

Gifts and samples involve the disposal of business assets free of charge. They are considered to be a deemed supply for VAT purposes and the
supplier will need to account for the output VAT on the value of the total cost incurred to make this deemed supply. If the value of the supply of the
Goods does not exceed AED500 for each recipient of goods within a 12-month period, where the total of Output Tax payable on all Deemed
Supplies for each Person for a 12-month period is less than AED 2,000, and the goods are used as samples or commercial gifts, no deemed
supply occurs.
Loyalty programs
There is no definition of a loyalty program. Generally, they are rewards programs offered by a company to its customers who frequently
make purchases. A loyalty program may give a customer discounts, free goods or services, special treatments etc. Where a discount is
granted, VAT should be accounted for on the discounted value.
Promotional campaigns - bundled goods

Bundled goods received by the business from supplier and being sold to the customer (“as is”). The business will need to make sure that goods in
bundle are of same VAT category/ rate (as VAT authorities will not allow the business to charge standard rated VAT on the full price of bundle if
products in bundle belongs to different VAT rate/ category). The business will need to communicate to suppliers (also put a condition in the
supplier agreement) that bundled goods they send to Hypermarket shall be of same VAT rates/ categories.
Promotional campaigns - Free tasting offered to customers in the stores
The business offers free tasting of products to it’s customers in stores (from it’s owned stock) as part of promotional campaigns. There should be
no Output VAT due on free samples given to customers. It will be overall part of “cost of sales”.
Important
Understanding
understanding
of some important
of VAT impacts
VAT impacts
Bad debts
A registered company may be able to reduce output tax in a tax period to adjust the output tax paid for any previous tax period if all the
conditions are met. The application for refund of tax should be made only for those debts that either have been outstanding for more than the
period specified by the law (6 months) and all recovery efforts have failed or where the customer has become legally insolvent.
Need to notify customer debt has been written-off!
Warranties
Warranties are effectively a guarantee, issued to the purchaser of a good by its manufacturer or retailer, promising to repair or replace it if
necessary within a specified period of time. Two types of warranties are generally provided when goods are purchased – manufacturer/retailer
warranties provided free of charge with the original purchase of the goods, and extended warranties purchased for an additional charge.
The supply of a manufacturer/retailer warranty for no extra charge is treated as a composite supply together with the goods sold and follows the
VAT treatment of goods. The supply of an extended warranty is a separate supply of insurance and is subject to VAT at 5%.
The supply of replacement goods or spare parts, provided they fall within the scope of the warranty, should not normally be a supply for VAT
purposes. The charge by a business replacing goods under warranty, to a manufacturer or entity which is funding the warranty, is a charge for
a supply of services which is subject to VAT. Where the manufacturer funding the warranty is located outside the UAE, the supply is
nevertheless subject to VAT, as the place of supply is the place where work on the goods was performed i.e. the UAE.
MARS VAT SERVICES
Our VAT experts can assist in the following ways:
1. Setting up an accounting system to capture all the details as required to

ensure compliance of VAT provisions
2. Training the staff to understand the VAT and complying with the provisions of
the Law
3. To enable entities to invoice as per the VAT Guidelines and also to capture all
the purchases having chargeable VAT
4. Obtaining online registration and provide assistance in VAT grouping
5. Filing the quarterly return
6. Assist in accounting and audits
THANK YOU
MARS VAT SERVICES
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Value Added Tax ( VAT )

WHO WILL COLLECT VAT?

VAT-registered businesses will submit a “VAT return” document to the FTA on a

Net VAT payable or credit recoverable will be calculated as the following:

OUTPUT VAT INPUT VAT NET VAT PAYABLE

Every taxable person resident of a member state whose

TAXABLE SUPPLIES ZERO RATED SUPPLIES EXEMPT SUPPLIES

STANDARD RATE 5% ZERO RATE 0%

It is important to establish whether a taxpayer is supplying goods or services since

A Supply Goods = the passing of ownership of physical property or the

If the supply is treated as made in the UAE: VAT may be charged

PLACE OF SUPPLY - GOODS

B2B Exports to GCC Other GCC Out of scope

PLACE OF SUPPLY - SERVICES

Basic tax point for services:

Tax point for supply of continuous services:

DETAIL VAT INVOICE SIMPLE VAT INVOICE

WHAT IS QUALIFYING ASSETS?

Qualifying assets > 5,000,000 AED on which VAT was payable:

1. building or a part thereof: useful life > 120 months

Capital Assets Scheme – adjustment calculation

Requirements of the VAT

 Transfer of goods under the supplier’s supervision

Contracts – Supplies made after 1 January 2018 will be subject to VAT

Stock write-offs/ Damages

Returned goods/ Cancelled sales

Volume discounts / rebates

Sponsorships / Barter arrangements

Gifts and Samples

Promotional campaigns - bundled goods

Need to notify customer debt has been written-off!

1. Setting up an accounting system to capture all the details as required to

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