On November 7th the Executive Regulation for the Federal Decree-Law No. (8) of 2017 on Value Added Tax was approved. This regulation is particularly important as it explains how free zone companies will be subject to the tax. In the UAE companies are either set up as an onshore entity or in a free zone; onshore firms are controlled by majority stake by a GCC national, free zone companies are 100% foreign owned with trade restrictions. This regulation states that companies operating in a free zone will be subject to tax on goods and services procured from outside of a free zone. This means VAT will apply to the purchases of everything from chairs for an office to services rendered by a cleaning company.
As we discussed last month, registration is mandatory for almost all companies and voluntary for others. Khalid Ali Al Bustani, Director-General of the Federal Tax Authority, told The Khaleej Times, “We have allowed businesses considerable time to fulfill their registration requirements, with free registration through our website 24 hours a day, seven days a week, as well as extensive awareness campaigns. The registration process is seamless and simple, taking no more than 20 minutes.” Other news articles have referenced penalties for companies that fail to register by the deadline but none have so far clarified what they are.
We are also now able to clarify in detail goods and services which will be VAT exempt or zero-rated.
Zero-rated
1. A direct or indirect export to outside the implementing states as specified in the executive regulation of this decree-law.
2. International transport of passengers and goods which starts or ends in the state or passes through its territory, including also services related to such transport.
3. Air passenger transport in the state if it is considered an “international carriage” pursuant to Article (1) of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.
4. Supply of air, sea and land means of transport for the transportation of passengers and goods as specified in the executive regulations of this decree-law.
5. Supply of goods and services related to the supply of the means of transport mentioned in Clause (4) of this article and which are designed for the operation, repair, maintenance or conversion of these means of transport.
6. Supply of aircrafts or vessels designated for rescue and assistance by air or sea.
7. Supply of goods and services related to the transfer of goods or passengers aboard land, air or sea means of transport pursuant to Clauses (2) and (3) of this article, designated for consumption on board; or anything consumed by any means of transport, any installations or addition thereto or any other use during transportation.
8. The supply or import of investment precious metals. The executive regulation of this decree-law shall specify the precious metals and the standards based on which they are classified as being for investment purposes.
9. The first supply of residential buildings within (3) years of its completion, either through sale or lease in whole or in part, according to the controls specified in the executive regulation of this decree-law.
10. The first supply of buildings specifically designed to be used by charities through sale or lease according to the controls specified in the executive regulation of this decree-law.
11. The first supply of buildings converted from non-residential to residential through sale or lease according to the conditions specified in the executive regulation of this decree-law.
12. The supply of crude oil and natural gas.
13. The supply of educational services and related goods and services for nurseries, preschool, elementary education, and higher educational institutions owned or funded by federal or local government, as specified in the executive regulation of this decree-law.
14. The supply of preventive and basic healthcare services and related goods and services according to what is specified in the executive regulation of this decree-law.
VAT exempt
1. Financial services that are specified in the executive regulation of this decree-law.
2. Supply of residential buildings through sale or lease, other than that which is zero-rated according to clauses (9) and (11) of article (45) of this decree-law.
3. Supply of bare land.
4. Supply of local passenger transport. The executive regulation of this decree-law shall specify the conditions and controls for exempting the supplies mentioned in the preceding clauses of this article.
Recent talks by Clyde & Co and PKF have enabled BCB clients to stay abreast of the coming changes. To download their presentations click the relevant link below. If you need more information on VAT in the UAE contact us at the BCB and we’ll put you in touch with the company of your choice (or, contact them directly)