No plans to raise UAE VAT Rate in next 5 Years: UAE Minister
The UAE’s government has no plans to raise the rate of value-added tax (VAT) or excise tax in the near future, according to Minister of State for Financial Affairs Obaid Al Tayer.
“If you’re referring to the next five years, we don’t see anything [about] increasing the VAT rate of the excise tax,” Al Tayer told reporters at the Arab Fiscal Forum.
“I also want to confirm that there aren’t any subsidies or any legislation or any legislation regarding introducing income tax.”
However, Al Tayer noted that the UAE is in “the early stages” of studying the framework needed to implement corporate tax.
In a January note, S&P Global Ratings said it believed some GCC countries may double the rate of VAT to 10 percent to account for the difference between “statutory and effective tax rates”, which in turn would raise government revenues, on average, by between 1.7 and 2 percent of GDP.
Speaking at the forum, International Monetary Fund managing director Christine Lagarde said that the implementation of VAT “is an important step toward diversifying revenue and building tax capacity.”
“There is of course scope to do more as domestic revenues are very low, averaging only 10 percent of GDP,” she added. “This must be done with equity and fairness in mind, both of which are conditions for the acceptability of taxation.”
Minimal VAT impact on UAE Workforce
While most companies in the UAE will not take any specific measures to compensate against the introduction of VAT, a new study shows that VAT will only have a minimal effect on people’s buying power.
Mercer, a global consulting leader in advancing health, wealth and careers, and a wholly owned subsidiary of Marsh & McLennan Companies has released its latest research on the impact of VAT on the purchasing power of the UAE workforce.
“While VAT is applied to most items that are purchased on a daily basis, such as food, clothing and personal care, the so-called ‘additional spend’, which is made up of items such as financial services, education and flights are non-taxable,” said Rob Thissen, Talent Mobility leader for Mercer in the Middle East.
“Along with housing, these are accounting for a large proportion of employees spending power which will not be impacted by VAT. However, VAT will not affect everyone in the same way. Different individuals and households will have different spending patterns.”
Mercer research shows that income level and family size can cause the impact of VAT to vary considerably. For example, lower salary households living on an income of Dh100,000 would typically spend 48.5 per cent of their income on taxable goods and services, meaning a 2.4 per cent loss in purchasing power, while higher salaried single individuals with an income of Dh500,000 would only spend 37.7 per cent of their pay on taxable goods and services, decreasing the impact of VAT on their purchasing power to only 1.5 per cent.At the same time, Mercer’s study forecasts that VAT will be offset by the expected salary increases.Ted Raffoul, Career Products leader at Mercer in the Middle East said:
“While the VAT implementation will have a measurable impact on purchasing power, we forecast the average salary increase in the UAE to be 4.3 per cent across all industries, which is considerably higher than the expected level of inflation.
According to the IMF, inflation for 2018 is forecasted at 2.9 per cent. Inflation statistics already account for the expected consumer price increases, and most companies incorporate this figure while budgeting for salary increases.
Therefore, most companies feel no need for any extraordinary measures, but will likely monitor the situation closely as it evolves.”Industries such as life sciences and technology expect an even higher increase close to 5 per cent, while the energy and financial services sectors project salary increases closer to 3.5 per cent. – TradeArabia News Service
UAE VAT: First Tax returns to be submitted no later than 28th of February
The Federal Tax Authority (FTA) has urged businesses to file their first VAT returns by no later than the last day of this month to avoid penalties.
The first tax reporting period since the January 1 rollout of a 5 per cent VAT in the UAE ended on Wednesday. VAT returns must be filed monthly by companies with annual turnover above Dh150 million, while businesses with revenue below that level must file quarterly.
“Taxable persons must comply with tax laws, submit tax returns, pay their due taxes within the specified time frames and keep records as required in tax legislation in order to avoid penalties,” said the FTA’s director general Khalid Al Bustani.
For some companies, exceptions have been made, “following requests from a large number of businesses subject to VAT”, said Mr Al Bustani.
The first tax period has been extended to three months in some cases, he said. The filing period will return to a monthly basis afterwards for these firms.
Businesses whose initial tax period was for the three months ending in March, have not been given any leeway, said the director general.
The UAE began implementing VAT along with Saudi Arabia as part of a planned GCC-wide levy as member countries seek new revenue streams amid lower oil prices.
DOCUMENTS TO BE FILED FOR THE VAT RETURN :
- Records of all supplies and imports of goods and services
- All tax invoices and tax credit notes
- Alternative documents related to receiving goods or services
- All tax invoices and tax credit notes
- Alternative documents issued
Nil VAT returns to be filed if no business transactions in UAE
The Federal Tax Authority (FTA) in the UAE has issued a guide to file tax returns for companies and taxpayers.
The form requires taxpayers to report supplies zero-rated supplies, exempted supplies, etc separately and Standard rate supplies at 5 per cent for each emirate.
VAT return can be filed using form VAT 201 and Form 311 to claim input refund.
Girish Chand, director, MCA Management Consultants, said Nil return will have be filed by the companies and taxpayers in case no business transaction took place.
Pratik Shah, partner, WTS Dhruva Consultants, said taxpayers should ensure that transactions are appropriately classified in the following categories in the accounting system – emirate-wise (standard rated at 5 per cent), zero-rated, exempted or out of the scope of VAT.
In case the due date to file the VAT return is a weekend or a national holiday, Shah said a relaxation is given by FTA to submit the VAT return and making the payment on the succeeding business day.
Payment of VAT liability/ penalty can be done through an e-Dirham card or credit cards (Visa or Master card). Charges for payment via e-Dirham card would be Dh3 per transaction while payment via credit card will incur a charge between 2 and 3 per cent of the total payment amount.
The FTA on Saturday told UAE businesses, whose first tax period ended on January 31, to file their VAT returns before February 28 deadline.
Girish Chand said VAT returns must be submitted within the specified deadline, otherwise, a penalty of Dh1,000 will be imposed for the first time of occurrence of a delay. In case of repetitive non-compliance within 24 months, the penalty will be doubled to Dh2,000 for each offence.
The returns can be filed both in Arabic and English.