VAT is being introduced in the UAE from January 1, 2018 as part of the wider introduction of VAT by members of the Gulf Cooperative Council (GCC). It is expected to raise significant revenues: AED20 billion in the second year (approximately $5.5 billion). The head of the Federal Tax Authority (FTA) has confirmed recently that online registration will open by the end of September1. The basic VAT law Federal Decree Law No. (8) of 2017 on Value Added Tax (the Decree) was published on August 27. The underlying regulations (providing detail on the operation of the new VAT system) are expected in the fourth quarter of this year. Businesses that are required to register must have done so by January 1, 2018 and it is possible that regulations may specify an earlier date to avoid a last-minute rush on registration.
The GCC member states signed a Framework Agreement for the introduction of VAT back in 2016. This set out the basic principles for GCC VAT allowing some scope for implementation to vary between members. The UAE Ministry of Finance (MoF) has released some details of how it will implement the regime. This, taken alongside the Decree, enables us to see, in broad outline, how GCC VAT is expected to operate.
The introduction of VAT presents some obvious systems and compliance challenges in terms of invoicing and accounting for the new tax, but it is also essential for businesses to be aware of and prepare for the effect of VAT on contract documentation, group structuring/ restructuring and mergers and acquisitions (M&A).
Some risk areas are sector specific, others apply to specific transaction types. The basic Framework for GCC VAT does not replicate all the characteristics which have given rise to complexities in the EU VAT system, but the broad concepts are aligned which means that we can draw to a significant extent on experience of the operation of VAT in the EU in order to identify risks and those areas where pre-emptive action can be taken.