More relief as three UAE free zones are out of VAT scope
The UAE’s Federal Tax Authority (FTA) has added three new free zones to the list of designated zones that will be out of the five per cent VAT scope imposed earlier this year.
The new addition sees the total designated zones increasing to 23 across the UAE.
Federal Decree Law No. (8) of 2017 on VAT specifies that any area meeting certain conditions and mentioned in the Cabinet decision is termed as designated zone for VAT purposes and should be treated as being outside the state for VAT purposes.
According to the FTA, the newly-added free zones are Al Ain International Airport Free Zone, Al Bateen Executive Airport Free Zone in Abu Dhabi, and International Humanitarian City – Jebel Ali in Dubai. The treatment of these areas as designated zones was effective from June 18, 2018.
Thomas Vanhee, partner at Aurifer Middle East Tax, said businesses that have transactions in the new designated zones will be relieved that no VAT applies on the supplies of goods inside the designated zones with some exceptions.
“Some businesses in these designated zones may potentially now deregister for VAT purposes. It will be important for them to assess again their transactions in the zone and determine which ones are actually subject to VAT and which ones are not. Although this constitutes an important relief, the transactions with designated zones can be complex,” said Vanhee.
Currently, eight designated zones are located in Dubai, five in Abu Dhabi, three in Ras Al Khaimah, two each in Fujairah, Sharjah and Umm Al Quwain, and one in Ajman.
International Humanitarian City, which is to be the largest humanitarian hub in the world with the most diverse members, has 70 members including nine UN agencies, 48 non-profit organisations and 13 commercial members. Currently, over 45 free zones are across the country.
Exports from the UAE’s free zones totalled Dh225.5 billion in 2017, a growth of 6.6 per cent from the previous year, according to the Central Bank of the UAE data. That amounts to 19.5 per cent of the UAE’s total exports recorded last year.
The UAE houses one of the highest number of free zones globally at 45 with another 10 under construction. Dubai now houses around 30 free zones.
Nirav Shah, director at Fame Advisory, said all companies in the free zones will be able to avail VAT benefits for all goods that were not to be used within the UAE since all transactions within designated zones for goods movement is outside the scope of five per cent VAT.
Technically, Shah said, the Cabinet can add more free zones, because tge VAT law says that free zones with customs-restricted access will qualify for this, so if any other free zone infrastructures are developed and meet this criteria, those can also be included in the designated zones.
According to Mayank Sawhney, director at MaxGrowth Consulting, the Cabinet decision had said earlier that designated zones can be added or removed from the list.
“In the future, more free zones can be added if they fulfill the criteria of designated zones such as custom control, fenced boundaries and controlled movement of goods going in and out of it,” Sawhney said.
He pointed out companies from specific sectors are increasingly looking at moving into one free zone as it benefits them from cash-flow perspective because they are heavily involved in bilateral trade and dealings.
“In Dafza [Dubai Airport Free Zone], there a number of mobile phone companies that are engaged in buying and selling to each other. So, having a presence in one designated zones will not block their cash flow,” he added.
FTA issues more clarification on labour accommodation
Meanwhile, the FTA also issued clarification about the issue of the applicability of five per cent VAT on labour accommodations.
“In the initial period, there was confusion whether labour accommodation is chargeable or not. Subsequently it was clarified by the FTA that labour accommodation is treated as residential property and hence exempt from VAT. In essence, where additional services such as cleaning, Internet etc. are provided as part of the composite labour accommodation service, there is a single pricing and it is provided by the same supplier, it will be treated as residential property and will be exempt from VAT,” said Girish Chand, director at MCA Management Consultants.
He also pointed out that where the labour accommodation is a mixed supply consisting of various elements and it is charged separately, the tax treatment of each component will have to be determined separately.
Now hiring: Banking and finance professionals back in demand, says recruiter
The improving fortunes of banks in the United Arab Emirates and Saudi Arabia, coupled with the introduction of value-added tax (VAT) in both markets, has led to an increase in demand from for finance professionals, according to a new survey.
Recruiter Robert Walters said that its Middle East Jobs Index recorded a 32 percent increase in demand for banking and financial services professionals in the UAE, and a 26 percent increase in demand for accounting and finance staff.
Saudi Arabia also witnessed a 26 percent increase in demand for accountancy and finance staff, plus a 55 percent increase in the number of legal posts advertised.
Overall, the number of advertised jobs climbed by 81 percent year-on-year in Saudi Arabia during the first quarter, the company said.
“The job index reflects the sentiment across the banking sector in both UAE & KSA,” James Grundy, country head at Robert Walters was quoted as saying in a press release announcing the results. Although many banks in the UAE were making headcount cuts as late as last year, Grundy said that that several banks in both markets had recently reported “double-digit growth” in quarterly results, and that several regional and international banks are looking to establish a presence in the Saudi market.
Demand in the accountancy and finance market had been driven by the introduction of VAT, the firm said, adding that it has created new roles both within major public practices firms and within companies.
“The most in-demand roles so far this year are tax managers, financial planning and analysis and controllers. Candidates who are qualified with good enterprise resource planning (ERP) experience and mergers and acquisitions exposure, will be in high demand in 2018,” Grundy added.
In Saudi Arabia, he added, jobs growth was being driven by Vision 2030 initiatives and the requirement for firms to hire more Saudi workers from both sexes.
“The main challenge for employers, both local and international companies, is to hire good quality Saudi talent,” Grundy said.
The company said that despite the forthcoming Ramadan and Eid holidays, improving market sentiment meant that growth was likely to continue in local jobs markets in the second quarter of the year.
Key points on VAT registration in UAE
The Federal Tax Authority (FTA) has stressed that all businesses subject to the implementation of value added tax (VAT) should be fully aware of key on registering for VAT.
Khalid Ali Al Bustani, Director-General of FTA, urged business sectors to learn and understand key information, which has been identified based on the first period of VAT implementation, with the new taxation system coming into effect from January 1, 2018.
He said that it was incumbent on all businesses to ensure that they are compliant and properly registered.
“This continuous follow-up is a commitment by the FTA to adopt the highest standards of transparency and accuracy in its efforts to achieve optimum implementation of tax systems locally and to avoid misconceptions that can lead to the arising of issues that can have a negative impact,” he said.
“This information is being added to the existing guidelines, laws and regulations available through the FTA’s website: www.tax.gov.ae, as well being made available in the form of infographics, short film presentations and induction workshops in the UAE. The messaging has been designed to guide community members and business sectors to the mechanisms of calculating VAT, to explain the steps and procedures related to it, and to outline the obligations of each party,” he added.
The FTA clarified that included in the information were seven essential pointers to ensure optimum VAT implementation, including:
Businesses whose supplies are less than Dh375,000 are not required to register for tax
Businesses must register for VAT if their taxable supplies exceed Dh375,000 over the previous 12 months, or expected to exceed the threshold in the next 30 days. Businesses with supplies less than voluntary registration of Dh187,500 cannot register with the Authority to obtain a tax number and are not required to have a tax registration number (TRN).
Natural persons are subject to VAT if their supplies exceed the mandatory threshold
A natural or legal person in business is required to register for VAT if their taxable supplies exceed the mandatory registration threshold of Dh375,000 000 over the previous 12 months, or expected to exceed the threshold in the next 30 days. They should register as soon as possible to avoid late penalties and the accumulation of payable tax duties.
The tax registration number (TRN) is sufficient to carry out all commercial activities.
Providing a TRN is sufficient to carry out any business or other economic activity, which can be verified using the service of the TRN verification through the FTA website at www.tax.gov.ae. Businesses do not need to wait for the completion of a VAT registration certificate in order to trade – a TRN is sufficient. This policy is in line with FTA’s continuous efforts to ensure there’s no negative economic impact on businesses that could result from not being permitted to trade.
Registration is continuous
Registration for VAT is continuous for either new business or businesses reaching the mandatory registration threshold or late registration cases for which the legal process will be applied upon registration.
Computation of the mandatory limit according to revenues.
The mandatory registration threshold shall be calculated on the basis of total business turnover relating to taxable supplies provided no explicit provision for exemption has been issued. The registration threshold is calculated on the value of imported goods and services and not based on profits.
Exemption from the late registration penalties only until the end of April.
The FTA’s decision to exempt late business sectors from VAT registration procedures applies only up until the end of April 2018. All taxable businesses are still required to settle all due taxes due from January 1, 2018.
Unregistered businesses are not entitled to impose tax
Unregistered businesses are not entitled to impose a tax on their customers and therefore cannot issue tax invoices. Such businesses will still have to pay tax on imported goods before they clear customs outlets. Violating parties will be required to pay an administrative penalty of Dh20,000.
VAT has not impacted deal flow, according to experts
Among the sectors identified as significantly affected by VAT are construction, real estate and export industries
The implementation of 5 percent value-added tax (VAT) in the UAE and Saudi Arabia has not impacted deal flow in the GCC, even as many companies found themselves unprepared, according to experts speaking at the Institute of Chartered Accountants in England and Wales (ICAEW) corporate finance faculty roundtable in Dubai.
According to the panellists, despite the fact that the flows of deals was not impacted there remain uncertainties regarding the items subject to the tax, as well as a “sentiment of denial” across businesses that affected their ability to be ready on time. Now, however, businesses are embracing VAT.
“We are living in a very exciting period,” said Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA). “There is no doubt that VAT implementation will improve business conditions and create more stable economies over the long run.”
The panel noted that many businesses do not have access to consultants with VAT experience, which means that smaller businesses with no access to tax advice are struggling with the compliance processes.
The panellists added that while some businesses experienced a negative consumer reaction to the implementation of VAT, it is likely to only be a short-term effect that is negated by the positive long-term economic impact of VAT.
Among the sectors that the panellists identified as significantly affected by VAT are the construction, real estate and export industries. They noted that because of the long tenure of construction projects, businesses with existing contracts hadn’t factored in VAT when planning and found it difficult to pass the cost of the tax onto their customers.
Many panellists applauded the UAE government’s efforts to provide guidance to make the tax’s implementation process as simple as possible for stakeholders.
“As a young legislative body, it’s tough for the UAE tax authority to address all concerns raised by businesses,” Armstrong added. It has been a hasty incorporation process, but as time unfolds, VAT will create a more transparent, credible and internationally accepted economy.
“Time will tell whether this increased transparency will make the UAE more or less competitive,” he added.