Be part of the ecosystem

Don’t sit around if you are not in the category that needs to be VAT complaint. Ensure that your business has the proper systems in place to help other businesses that will require proper invoices and different types of transactions dubai — The small and medium-sized enterprises in the UAE still need to fully prepare for value added tax (VAT), which will come into effect from January 1, 2018, leading tax analysts said in Dubai on Saturday.

Despite the fact that majority of the SMEs are not ready, there is still one month to go which is good enough for them to meet the deadline, analysts noted while speaking at the “VAT Clinic” organised by the UAE’s first English newspaper Khaleej Times in partnership with The Institute of Chartered Accountants of India (Dubai Chapter) and Qadi Accountants.

Ranging from free zones to construction and from gold and jewellery to financial services, the VAT experts responded to over 150 questions from more than 100 ICAI members during the three-hour session held at Khaleej Times’ office on Saturday morning.

As part of the GCC-wide agreement, the UAE and Saudi Arabia will implement five per cent standard VAT rate on certain goods and services from January 1, 2018.

The tax experts were of the view that it is time for a change for the companies to get rid of their old practices. With the dawn of new post-VAT era, they need to maintain

Businesses in the uae that are comfortably sitting back because they don’t need to register for value added tax (VAT), can’t afford to take a break, because there is a good chance that the VAT might affect the way that they do business indirectly.

Experts speaking at the VAT Clinic event at the Khaleej Times office on Saturday, were of the mind that even if a business need not register for the VAT today, then they might have to tomorrow.

According to the UAE Ministry of Finance, a business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of Dh375,000. Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of Dh187,500.

Pratik Shah, partner at Dhruva Advisors, said that VAT is going to be applicable in the entire ecosystem, and that this is something that businesses need to understand, whether they need to register or not.

“You cannot afford to stay aloof in VAT compliance by saying that my turnover is not crossing the threshold, so I need not worry about it,” he said.

“Even if your current turnover is not above the threshold limit, you might have customers and different vendors that do fall in the VAT bracket, who will ask you to issue invoices in a particular manner, or follow a particular form of transactions. This means that you have to step into the mainstream; and I believe that many businesses would easily be able to reach the current limit set by the government,” he pointed out.

Shah also advised businesses to gear up their accounting systems right away.

“Ensure that your basic accounting system or software is completely adequate when it comes to invoicing requirements. You need not have a tax registration number, but look into all the other back end particulars. Start maintaining your records in such a manner in advance, so that when the day comes when you cross the threshold limit, you aren’t going to find it as a titanic change. Be sure that you are already part of the ecosystem,” he added.

Mahmood Bangara, vice chairman of the Institute of Chartered Accountants of India – Dubai Chapter, also offered his thoughts and noted that businesses have to look at their own systems. “At the end of the day, businesses in the UAE have to see the requirements that are needed to file the returns of the VAT. These should come automatically. If they don’t align these properly, then there will be huge problems. I feel that the majority of the issues that are coming up today, with regards to VAT compliance, is not about the clarity of the law, but more about how businesses are going to handle it.”

— rohma@khaleejtimes.com Q: How will banking and financial services be treated? A: Fee-based financial services are likely to be taxed but margin-based products are likely to be exempt. Q: Will non-residents be asked to register for VAT? A: Non-residents whose supply include taxable items will have to register for VAT unless there is another UAE resident who is responsible for accounting for VAT on those supplies. However, an exclusion may apply; for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident. Q: Will Islamic finance products be taxed or not? A: It will be treated in line with standard conventional financial services. their accounting books for at least five years irrespective of the fact that the company is registering or not under VAT regulations with the Federal Tax Authority.

They noted that the large entities — with their multinational parent companies having presence outside the UAE — had asked their local subsidiaries here to get themselves ready much earlier, therefore, they’re well-prepared in advance. But it was the SMEs who had taken the call themselves about the deferment and delayed necessary preparation, and now they have realised that it would be implemented so they’re rushing it.

Though executive regulations are yet to be released by the UAE’s FTA, the tax experts noted that around 80-90 per cent of clarification is there and it’s just that 10 per cent which falls into grey area or ambiguity and they would be clarified once the executive regulations are out.

Naveen Sharma, chairman, The Institute of Chartered Accountants of India – Dubai Chapter, said: “There’s still a lot to be done in terms of preparations of individual companies as they had not started preparing well in advance in spite of government giving them almost one-and-ahalf year time. They are rushing now after realising that VAT is becoming a reality.”

Mayank Sawhney, director of MaxGrowth Consulting, said: “In terms of readiness or time preparedness, large corporates had started the process much earlier. Large corporate are 50 or 60 per cent ready while 40 per cent of work is yet to be done. For SMEs, they are largely unprepared. At the most they have done is VAT registration.” — waheedabbas@khaleejtimes.com