What implications are there?
Next year (2018) will see UAE VAT introduction for consumers for the first time in history. The GCC (Gulf Cooperation Council) made up of six states, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates has agreed to implement VAT at an expected rate of 5% on most goods and services. At a time of falling oil prices, the GCC UAVAT (unified agreement of VAT) will boost the revenue of these countries by generating almost €22 billion in tax proceeds annually.
Although UAVAT will be introduced across the GCC, it does not mean that each VAT law will be identical across all member states, nor does it mean that it will become effective at the same time across the board.
The VAT rate however, has been confirmed as a constant across the six states. Whilst the purpose of this VAT imposition is clearly to diversify the UAE’s economies, which remain far too dependent on oil, the finer details on the new law have yet to be released.
As an example, the Bahraini prime minister has confirmed that basic food stuffs (so far a total of 94 food products) will be exempt from tax, as well as healthcare and school bills. This ensures poorer segments of society will continue to have access to basic needs, exampling a less aggressive form of the tax. A notable encouragement from the Bahraini minister.
Businesses will have to prepare diligently for this tax addendum. Core operations, financial accounting, management and technology will all need to prepare. It is important for businesses to take time to understand the implications of VAT on their business and make every effort to align their business model and administration with the requirements.
How can businesses prepare for the implementation of VAT
- Based on your industry and the customers and suppliers, identify how the new VAT rules will impact individual transactions and contracts;
- Consider the impact on your sales and margin analysis depending on your industry and the expected reaction of competitors (e.g. ability to absorb pricing and impact of margin);
- Know the government and compliance requirements (research, training, systems, etc.);
- Consider the impact on existing contracts where the duration exceeds 31/12/2017;
- Understand the working capital impact of having to charge, collect and return VAT;
- Timely implement an appropriate accounting system to ensure compliance with new VAT rules, ensuring proper books and records are maintained at all times (i.e. Full transaction records and VAT liability at any reporting period.
How accountsIQ can help
Accounts IQ has a very experienced professional services team and a highly configurable VAT module that is already configured for use across the UAE. We would be happy to arrange a free model to demonstrate its use in practice, specific to your business requirements to give you the re-assurance your stakeholders need.
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For further information: contact the author Grace Dooley, Business Development, AccountsIQ. Tel: +353 (1) 707 04400.