Earlier this month a royal decree has been passed by HH Sheikh Khalifa bin Zayed Al Nahyan – President of the UAE & Ruler of Abu Dhabi – that urges all UAE based companies to complete their VAT registration before January 1, 2018. As per this royal order, all the businesses (reaching Dh 375,000 revenue and supply) will have to keep proper records and present them in front of tax officials upon the closing of each month.
The law will be in effect from January 1, 2017 and there is about a month left in its full implementation in business sector. We, being a Facilities Management Company in Dubai, have gathered some interesting changes this law will bring in the business sector of UAE. So here are some of the expected changes this decree is instilling in the infrastructure of UAE’s business sector.
Understanding Value Added Tax Law:
According to this law, all the businesses that meet a certain revenue threshold are liable to pay tax on their revenue generated, maintain their books and keep record of every transaction. The VAT is decided to be 5% of total value of a product/service charge and all the businesses, meeting the threshold (which is Dh 375,000 or more) must register to obtain a VAT registration number. If any company misses to register before January 1, 2018, it is liable to face odd consequences in shape of heavy fines and legal actions by the Federal Tax Authority of UAE.
The UAE Government aims to generate Dh12 billion in first year through VAT implementation in the first year and is anticipating a collection of Dh20 billion 2019 i.e. second phase of VAT implementation.
Impacts of VAT Implementation:
The days are about to end when businesses used to benefit from UAE’s free zone areas scheme. The law of VAT implementation is going to change how businesses operate in the United Arab Emirates. We, being a facilities management company in Dubai, have some possible impacts that every business would see in its core operations.
- The businesses are urged to upgrade their record keeping system and make it in line with VAT. This is essential as the previous bookkeeping systems didn’t deal with VAT up till now but if they companies want to avoid any unfavorable situation, they need to adapt with this change in policy.
- Due to the effect of VAT implementation in United Arab Emirates, there would be a considerable impact on how businesses and service providers price their services/products. The customers would see a slight increase in prices following the VAT inclusion in the services/product price.
- Businesses that are engaged in stocking the goods and purchasing different items could be able to demand a concession in taxes imposed by the government if they register themselves in VAT program.
Benefits for Businesses:
Where businesses are concerned about the increase in their expenses following the implementation of value added services, there are certain benefits that could be expected by this change.
- If we compare the VAT registered companies with those that are not yet registered then majority of individuals would want to work with a registered organization. The registrations on different levels boost the confidence of end consumer on the company he/she is dealing with.
- Regardless of the size and turnover of a company, it works within a certain jurisdiction and wouldn’t want to go against the state laws. So VAT registration saves a company from legal penalties that could cost a lot of money and time of the organization.
- The companies – that have a valid VAT registration number – would be able to receive different compensations and benefits from the UAE government in the long run.
- This initiative, on part of UAE government, would help business community in dealing their commercial activities with more confidence and ease once they are registered with the FTA.
- This is a positive step has it would encourage businesses to abide by fair practices and avoid any activity that leads to violation of any state law while crafting their yearly resolution for sales and revenue generation.
The clock is ticking for those companies that are yet to obtain their VAT registration number. And these assumptions – as a facilities management company in Dubai – are yet to prove how beneficial they would be in favor of every business concern. We hope that every party benefits from this initiative by the MENA governments.