Get your business ready for the VAT
Although the VAT is likely to be introduced in 2018, the majority of UAE business don’t seem to be prepared for the challenge ahead.
With the VAT expected to be introduced in the UAE on 1 January 2018, it is striking that a number of industry operators currently seem to have limited awareness of how the VAT will impact their business. With limited time, operators should start now to prepare their businesses for an upcoming change that will bring new challenges.
Here’s what UAE businesses should do to prepare for the VAT:
Phase 1— Plan and analyze (now)
– Identify project resources
– Map supply chains
– Map business units and systems
– Document key VAT touchpoints, and incorporate these into the VAT impact assessment (phase 2)
– Review existing long-term contracts that straddle VAT implementation
– Consider VAT clauses in new contracts and tender documents
Phase 2— Design and implement (before the end of 2016)
– Review legislation, when released, to validate the VAT points identified in phase 1—classify transactions for VAT
– Build input tax-credit allocation model
– Agree to requisite IT changes with IT vendor
– Build log to monitor and resolve issues where the law or its application remains unclear
– Log transitional provisions in the long-term contracts register
Phase 3—Test, train, and register (During 2017)
– Validate the impact assessment
– Action issues in log
– Validate applicable
Transitional provisions for long-term contracts—test VAT systems (IT vendor)
– Ensure VAT system reports are sufficient
– Train staff
– Register for VAT
Phase 4—Go live (from January 2018)
– Test exceptions
– Prepare and file VAT returns
– Resolve any teething issues
– Fine-tune compliance practices
While the 5% VAT rate will not affect 100 types of staple food and other essential service sectors such as healthcare and education, it will affect a wide range of products, such as electronics, smartphones, cars, jewelry and watches, eating out, and entertainment.
The inflation fears will impact mostly residents with a big appetite for luxury goods, services, and lifestyles, but the VAT will also have an effect on the buying power of tourists, as they will have to pay duty tax again on certain goods in their country of origin.
Dh12 billion is the estimated revenue to be generated by the UAE through the VAT in the first year.
Written by Emanuela Lertora