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VAT introduction in UAE (UAVAT): what implications are there?

26th Jul 2017
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Award-winning cloud accounting software for multi-company businesses.

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In 2018 consumers in UAE will for the first time be paying value added tax (VAT). The GCC (Gulf Cooperation Council) which is made up of six states, BahrainKuwaitOmanQatarSaudi Arabia, and the United Arab Emirates has agreed that VAT will be implemented at an expected rate of 5% on most goods and services. The GCC UAVAT (unified agreement of VAT) is expected to boost the revenue of these countries by generating almost €22 billion in tax proceeds annually, at a time of falling oil prices.

Introduction

UAVAT will be introduced across the GCC, though it does not mean that each VAT law will be identically applied across all member states. It may also not become effective at the same time across the board. The VAT rate has been confirmed however, 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.

The Bahraini prime minister, for instance,  has confirmed that basic food items (a total of 94 food products so far) 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, demonstrating a less aggressive form of the tax.  A notable encouragement from the Bahraini minister.

Businesses will need to prepare diligently for this tax addendum. Core operations, financial accounting, management and technology will all need to take time to understand the implications of VAT on their business, making every effort to align their business model and administration with the requirements.

Preparing for the implementation of VAT:

  1. Based on your industry, customers and suppliers, identify how the new VAT rules will impact individual transactions and contracts;
  2. 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);
  3. Know the government and compliance requirements (research, training, systems, etc.);
  4. Consider the impact on existing contracts where the duration exceeds 31/12/2017;
  5. Understand the working capital impact of having to charge, collect and return VAT;
  6. Implement in plenty of time 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

AccountsIQ 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. 

About AccountsIQ

Built for the Cloud, accounting software from AccountsIQ makes advanced financial analysis affordable for mid-sized organisations worldwide. Its unique way of producing consolidation reports in real time makes accountsIQ an obvious choice for multi-company businesses.  accountsIQ’s ability to integrate with other applications allows customers to join up processes and information business-wide.

Launched in 2008, AccountsIQ now supports over 20,000 users in over 40 countries. This year, AccountsIQ celebrates ranking 18th in the Deloitte Fast 50 high growth index. Headquartered in Dublin, Ireland, accountsIQ’s main commercial office is in London with a services team spanning Europe, the Americas and Australia. www.accountsIQ.com

For more info contact the author: 

Grace Dooley, Business Development, AccountsIQ

Tel: +353 (1) 707 04400  [email protected] www.accountsiq.com

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