I) Federal Tax Authority
The Federal Tax Authority (FTA) was established by virtue of Federal Law Decree no. 13 of 2016 promulgated by the President of the UAE on 26 th September 2016. The law provides for the organizational structure of FTA and lays down its jurisdiction and administration, collection and enforcement of Federal Taxes and penalties.
The FTA is the authority for implementing all applicable laws and regulations relating to Federal Taxes and penalties. It also implements the double taxation treaties ratified by the State. It decides on the application submitted to it for registration in the tax system, create records for the registered tax payers, collect taxes, review tax returns, inspects tax payers records etc.
II) Value Added Tax (VAT)
Zero Rated Supplies
VAT will be charged at 0% in respect of the following main categories of supplies:
- A direct or indirect Export to outside the Implementing States as specified in the Executive Regulation of the Decree-Law.
- 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.
- 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.
- Supply of air, sea and land means of transport for the transportation of passengers and Goods as specified in the Executive Regulations of the Decree- Law.
- 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.
- Supply of aircrafts or vessels designated for rescue and assistance by air or sea.
- 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.
- The supply or import of investment precious metals (e.g. gold, silver, of 99% purity). The Executive Regulation of the Decree-Law shall specify the precious metals and the standards based on which they are classified as being for investment purposes.
- 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 the Decree-Law .
- 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 the Decree-Law.
- 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 the Decree-Law.
- The supply of crude oil and natural gas.
- 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.
- The supply of preventive and basic healthcare Services and related Goods and Services.
Zero rated supplies are not subject to VAT but there is a right to an input tax deduction on the corresponding expenses.
The following categories of supplies will be exempt from VAT:
- The supply of some financial services (as may be covered in the VAT Executive Regulations)
- Residential properties; (other than zero rated supplies per Article 45)
- Bare land and
- Local passenger transport
Registration for VAT
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
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 AED 187,500.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
Article 78 of the Law prescribes the records required to be maintained.
It is important that companies have capable and reliable accountant or accounting company to take care their bookkeeping / accounts so that their records comply with the VAT Law and Regulations. Meticulous record-keeping processes and cash accounting methods in a company are crucial at any level throughout the business to be able to satisfy the authorities, meet the requirements and make sure that tax returns are filed on their due date. Companies should ensure that they have a proper and efficient filing system in place as well as a VAT compliant software.
- Administrative penalties are intended to address non-compliance and encourage compliance
- Not less than AED 500 and not more than three times the amount of tax for which the penalty was levied.
- Examples of actions and omissions that may give raise to penalties include:
- A person failing to register when required to do so;
- A person failing to submit a tax return or failing to make a payment within the required period;
- A person failing to keep the records required under the issued tax legislation;
- Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.
- Tax Evasion Penalties
- Tax evasion is where a person uses illegal means to either lower the tax or not pay the tax due, or to obtain a refund to which he is not entitled under law
- Few examples of instances of tax evasion:
- Where a person deliberately provides false information and data and incorrect documents to the FTA.
- Where a person deliberately conceals or destroys documents or other material that he is required to maintain and provide to the FTA
- Tax evasion penalties are up to 5 times the relevant tax at stake.
- The imposition of a penalty under tax law does not prevent other penalties being issued under other laws.
- The FTA has the power to waive or reduce penalties at its discretion.
III) Excise Tax
The Excise Tax was introduced by Federal Law No. 7 of 2017 and promulgated by the President of the UAE on 17th August 2017 which states that Excise Goods subject to a tax will be determined by a Cabinet Decision upon the recommendation of the Minister to determine the tax rates and the method of calculating the Excise Price, provided that the tax rate shall not exceed (200%) of the Excise Price of the Good.
The Law sets the foundations of tax procedures, tax implementation, tax rates, tax obligations, cases of tax exemption, as well as procedures and rules of tax registration and cancellation, filing of tax returns, maintenance of accounting records etc.
The law outlines cases in which tax registration or de-registration are exempted in addition to rules with regards to tax payment or exemption.
UAE Cabinet Decision No. (38) of 2017 on Excise Goods, Excise Tax rates and the methods of calculating the Excise price.
To restrict the improper habits usage of carbonated drinks, energy drinks and tobacco products, the UAE Cabinet issued the Decision No. (38) of 2017 on excise Goods, excise tax rates and the methods of calculating excise price. The decision outlines the rules of excise goods including tobacco and tobacco products, carbonated drinks, and energy drinks, in addition to its tax rates. The provisions also specify the excise price, designated retail sales price, and the rules with regards to contradicting provisions.
Article 6 of the Law specifies the tax rates on the Excise Goods as under:
|Excise Good Rate||Rate|
|Tobacco and tobacco products||$100|
Cabinet Decision No. (37) of 2017 on the Executive Regulation of the Federal-Law no (7) on the Excise Tax
The Cabinet issued Decision No. (37) of 2017 on the Executive Regulation of the Federal Decree-Law No (7) of 2017 on Excise Tax. The law outlines provisions with regards to liability to tax, tax registration and exception methods, rules of tax payment, in addition to details on exemption for selective goods.
The law also outlines the rules towards designated zones, mechanism of calculation of due tax, tax returns, tax period and payment of tax. In addition, it specifies the rules related to other tax refund, requirements on for keeping tax record as well as the repeal of conflicting provisions.
Article 24 of the Law specifies the record keeping and evidential requirements.