The UAE Federal Tax Authority (FTA) will open registration of businesses for VAT (value added tax) with taxable income exceeding the yearly threshold in the third quarter of 2017,  a Ministry of Finance statement said.

Registration will be compulsory during the fourth quarter of 2017. VAT will be applied on January 1, 2018 and concerned businesses must have completed their registration by then, the statement said.

Businesses with taxable goods over the threshold of Dh375,000 will be required to register. Businesses with taxable supplies below Dh375,000 but over Dh187,500 will also have the option to register. Businesses not required to register are those that have non-taxable goods and services that are subject to zero-rate or exempted from taxation.

The statement was issued following the first meeting of the Federal Tax Authority (FTA) board of directors, headed by Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance.

The meeting, held at the Ministry of Finance’s (MoF) premises in Dubai, marked the FTA’s first step in developing its strategic and operational plan, to support the UAE’s economic diversification.

During the meeting, Obaid Humaid Al Tayer, Minister of State for Financial Affairs, was elected as deputy chairman of the FTA’s board of directors.

Sheikh Hamdan highlighted the FTA’s role in managing, collecting and implementing federal tax, and diversifying the UAE’s economy by adopting international best practices to increase non-oil revenues, reduce oil dependency and prepare for the post-oil phase.

He clarified the tax laws and regulations which include tax procedures, VAT, and selective tax, are prepared in line with the UAE government’s vision to maintain the country’s competitiveness in business practices. This will be achieved through facilitating procedures for tax payers, communicating with the FTA for technical assistance and through FTA’s efficiency in delivering tax returns, processing taxes online and implementing auditing procedures.

He said that the draft law of tax procedures is in its final stages of the legislative process and is being issued and published. The VAT draft law is being discussed by the Legislation Technical Committee to be approved by UAE Cabinet, followed by the selective tax draft law which will be discussed in the future by the committee.

VAT will be levied on the sale of all goods and services unless they are subject to a zero rate or tax exemption such as food, commercial property, hotel services, etc.

VAT will either be the basic 5 per cent tax or zero-rate tax, which is tax-free. Businesses will be able to recover VAT on the purchase of goods and services used for business purposes. Businesses exempt from VAT will not be able to recover the tax incurred on the cost of a good or service that is not exempt.

Zero-rated supplies include local transportation, imports and exports, the majority of healthcare and education services, investment gold, and sales and leasing of residential properties i.e. the sale or lease of a property for the first time within three years of completion of construction.

Some financial services, residential buildings, and vacant land will also be exempted.

Selective Tax
Selective tax will be imposed on specific commodities which are harmful to human health, including tobacco and energy drinks, which will be subject to 100 per cent tax, while 50 per cent tax will be imposed on soft drinks. This tax will be charged as a percentage of the pre-tax retail price, and will have to be paid at the time they are imported, or once they leave the factory if locally manufactured.

The payment of taxes is suspended when excisable goods are placed in a tax warehouse. In these cases, the selective tax will be imposed once the excisable goods are released for consumption.

Selective tax will be implemented in the last quarter of 2017. - TradeArabia News Service