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Non-compliance costs: The UAE sets out punishments for not taking taxes seriously.

Dubai: The UAE government’s message to businesses is clear: Take taxes seriously, because non-compliance costs. That is according to tax expert, Amit Chib, who believes that the Cabinet decision will bring transparency to the relationship between taxable businesses and the Federal Tax Authority. Earlier this month, the UAE Council of Ministers announced the penalties for failing to comply with the country’s new tax laws. Set fines for failing to adhere to tax laws range from Dh1,000 to Dh50,000, however other violations will incur a penalty of 50 per cent of the unpaid tax, which could be significantly more than Dh50,000. Observers are quick to point out that penalties are an integral part of any legislation for non-compliance with tax laws.

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VAT Registration! New deadlines

The FTA has recently updated a new deadline for companies falling under different turnover scales. Find out what is applicable to you below!

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Family offices told to separate family, business expenditures ahead of VAT.

Family-owned offices, importers/exporters, and technology, media and telecom (TMT) firms will be impacted in various ways, therefore, they need to ensure that they're prepared for the value-added tax (VAT) ahead if implementation from next year, says new study. "Every family office operating in the GCC will be affected by VAT because anything purchased in the GCC is likely to be subject to VAT. In addition, family offices will inevitably be dealing with VAT registered businesses as suppliers, or advisers to the family, and they will need to ensure that the VAT is treated correctly," according to a Deloitte study released on Wednesday. "To mitigate possible difficulties with VAT, it is important the family's office processes and procedures and expenditures are reviewed, and that family and business expenditure are separated. Not only is this good business practice, but it also minimises the risk of excess reclaims or under-reporting of VAT," said Fiona Mcclafferty, Deloitte Middle East Family offices Tax specialist. At this stage, according to Deloitte, the GCC has not indicated how family offices will be treated for VAT purposes. Questions remain about whether family offices will be recognised as business and allowed to register for VAT, or whether the business test will be applied as a pre-requisite. The Gulf Cooperation Council (GCC) nations have signed an agreement to implement five per cent VAT. The UAE and Saudi Arabia will implement tax from January 2018 while the other nations will jump into the bandwagon at a later stage. The companies and individuals will be subject to zero-rated, exemption and five per cent tax - depending on what categories they fall into. Industries like basic food items, healthcare, tuition fee, air travel and exports outside GC have been exempt under the VAT. With regard to impact on TMT industries, Deloitte says that one of the main VAT issues is knowing in which country the tax is payable. "Businesses in the TMT industry need to ensure their processes and IT systems are able to capture, store and provide evidence of where their services are being consumed. "Businesses should review transactions, their roles and parties involved in the supply of services to determine how they might fit within the expected VAT law of each of the GCC member state," explains Doukje De Haan, TMT industry VAT expert. Highlighting the impact on the activities of importers and exporters, VAT will interact with customs duty and customs authorities at national borders. "Import VAT should be payable on the customs duty inclusive value of taxable goods introduced into the GCC from outside countries. VAT reporting and invoicing requirements will likely be activated on intra GCC movements of goods between member states. Importers and exporters may continue to rely on existing processes and control," Deloitte added. Meanwhile, there remains uncertainty about how VAT relief for businesses operating in free zones will occur, but free zone entities should note that "on-shore" costs across the region may increase if they are not entitled to register for VAT in the location where VAT is incurred, according to the global consultancy's whitepaper's release on Wednesday

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Who will bear the burden of VAT in the UAE

The question of who bears the burden of VAT is a controversial one in countries that have mature tax systems. For example, does a cut in the rate of corporate income tax increase returns to owners of capital or providers of labour? Labour parties will say it increases returns to capital, capitalists will say it increases returns to labour. The truth, as is often the case, is likely to lie somewhere in between. Economic theory suggests that the burden of VAT, being a consumption tax, will be suffered by consumers, and the evidence, although surprisingly patchy, does generally tend to support this view. VAT is certainly a regressive tax, in the sense that a greater proportion of the income of poorer households is eaten up by VAT, as poorer households tend to need to consume a greater proportion of their income than richer households, who tend to be in a position to save more. The correlation is illustrated particularly strongly by the impact of VAT imposed on food. One particular study from September 2016, Incidence and Distributional Effects of Value Added Tax by Ingvil Gaarder of Chicago University – suggested that VAT on food is almost always borne by the consumer, whereas VAT on other items would not necessarily be passed on by the retailer. My guess is that the burger that cost me Dh50 on December 31 will cost me at least Dh52.5 on January 1. The UAE could have “zero rated” (ie imposed VAT at the rate of 0 per cent rather than 5 per cent) certain basic foodstuffs to reduce the affect of VAT on poorer households but it chose not to. That is sensible from a design point of view: Jaffa Cakes, smoothie juices, burritos and Pringles have all been the subject of litigation in the UK as to whether they should be zero or standard rated for VAT purposes, a delight that the UAE courts won’t experience. But there is a significant knock-on economic effect, and it is unusual for a country to subject all food to the full rate of VAT. Abu Dhabi Commercial Bank has estimated that the introduction of VAT will result in a one-off increase in inflation of 2.7 per cent to 3.7 per cent, but I expect a one-off increase in food inflation of at least 5 per cent. Advice to readers: do a big grocery shop on December 31.

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Are you liable for Income tax while living in the UAE?

Just because the UAE is supposedly a tax-free jurisdiction does not mean that expat residents can forget about paying income tax. Many new expats who land in the country breathe a sigh of relief after leaving their heavily taxed home country, while failing to realise they may still have an ongoing tax liability. The tax authorities can still catch up with you, particularly if you have earnings back home, such as rental income, dividend payments, savings interest and royalties, or capital growth on stocks or property. Most countries will want to continue taxing those sources of wealth no matter how long you are living overseas. Fiona McClafferty, a senior manager at accountancy firm Deloitte Private, Middle East, says the biggest tax mistake UAE-based expats make is failing to realise they may still have a tax exposure or reporting obligation in their home country. “This could either be by virtue of holding real estate or investments there, or being tax resident without realising it.” Tax rules can change from year to year and so it is important to keep up to date with the rules in the relevant jurisdictions, she adds.

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VAT in Saudi Arabia and the UAE: How do they compare?

As the UAE and Saudi Arabia continue to lead the GCC VAT drive, this article compares the key features of the future value added tax (VAT) regime in these countries including the treatment of different industry sectors based on what is currently known. The latest status In line with the recent trend where Saudi is the first to circulate any laws agreed at the GCC level, the country has become the first in the GCC to issue its final VAT law - doing so on July 28 after making the draft available for public consultation on May 29. Saudi Arabia has also published its VAT implementing regulations on July 19 for feedback which is required by August 19. Given the rapid pace at which the country is progressing its VAT related legislation, the regulations are expected to be finalised shortly after the feedback period is closed. The Saudi Arabia VAT law requires the regulations to be issued within 30 days of the issue of the law. No other GCC state has published its VAT law or regulations even in draft form. The UAE is expected to issue its VAT law and the related executive regulations within weeks.

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