1. BDO’s Analysis of the Unified Agreement for VAT Key facts, Compliance Obligations, Action points 17 April 2017

2. VAT Overview
THE LAW
Unified Agreement for VAT– provides a framework for all of the GCC members to follow
National law – each GCC country will enact their own law to implement the tax, based on the Unified agreement.
Unified Agreement heavily based on European Law
To be introduced 1 January 2018
5% rate
This presentation is based on our expectations of the VAT law. Definitive advice cannot be given until the final law is published

3. KEY FACTS

4. VAT – KEY FACTS The Basic Principles
VAT is charged on sales (Normally referred to as ‘output tax’ and ‘outputs’)
VAT is paid on purchases (Normally referred to as ‘input tax’ and ‘inputs’)
The OUTPUT TAX is collected from customers and paid to the government
The INPUT TAX is paid to your supplier and claimed back from the government
Company
INPUTS
OUTPUTS

5. VAT – KEY FACTS Filing VAT returns – pay and claiming VAT
VAT is declared monthly or quarterly
The output tax is paid over minus input tax
The VAT declaration (NB the VAT return will require additional data)
Output tax
1000
Input tax
(400)
payable
600

6. VAT – KEY FACTS The scope of VAT:
Taxable supplies made by taxable persons in the course or furtherance of a business
Imports of goods
Reverse charges
Definitions:
Taxable supply – any transaction on which VAT is charged at zero or standard rate
Supply – anything done for consideration
Supply of Goods – transfer of ownership of tangibles, finance leases, real estate
Supply of services – anything that is not goods, includes refraining from doing something
Taxable person -A person who is or should be registered for VAT
Person - Company, partnership individual, unincorporated body
Business (economic activity) -An activity being practiced continuously and regularly, including commercial, industrial, agricultural, professional, service activities, or any usage of material and non-material property and any similar activity.

7. VAT – KEY FACTS Who has to register?
Registration threshold: 375,000 AED
Voluntary registration: 187,500 – 375,000 AED
Calculation based on:
Look back over past 12 months; or
expected turnover for next 12 months
VAT grouping possible
Registration open October 2017 (expected)

8. VAT – KEY FACTS Basic principles of VAT recovery
VAT recoverable if:
Its is incurred in connection with taxable supplies;
In the course or furtherance of the business.
VAT is not recoverable if it relates to:
Exempt supplies
Non-business activities
VAT that relates partly to taxable supplies:
Apportioned (‘partial exemption’)
Evidence (tax invoice) will be required I N P U T A XI
TAXABLE
CLAIM
EXEMPT
BLOCKED
PART TAXABLE
PART EXEMPT
PART CLAIM

9. ZERO-RATE AND EXEMPTION

10. VAT Zero-rate and exemption
No VAT is charged
The supplier can reclaim all of the VAT on its costs
Result: complete relief from VAT 
EXEMPTION
No VAT charged
The supplier cannot reclaim VAT on costs linked to the supply.
Result: partial relief from VAT – the customer may benefit from a slightly lower price but the supplier has an additional cost. 

11. VAT Zero-rate
Note: The UAE will have flexibility about how it applies the rules:
Medicines and medical equipment
International and intra-GCC transport of goods and passengers - and related services
Exports of goods to outside the GCC
Some international services
Supply of investment gold, silver and platinum

12. VAT Zero-rate or Exempt (Unified Agreement allows a choice):
Education
Medical
Real Estate
Local transport
The UAE will have flexibility about how it applies the rules:
MOF has confirmed
Real Estate:
Commercial lettings and sales VATable
Residential exempt
- first letting or sale zero-rated
No option to tax
No capital goods scheme
Medical and Education:
Zero-rated
Local Transport
Likely to be zero-rated

13. VAT Exempt Financial services
The UAE will have flexibility about how it applies the rules:
What we expect:
Banks likely to partly exempt (ie not all supplies exempt)
Life insurance likely to be exempt
General insurance likely to be subject to VAT at 5%

14. VAT May be treated as Zero-rated – the UAE can choose
The oil and gas sector
Certain food items.
Supply of maritime, air and land means of transportation for commercial purposes
Insight:
All of these are expected to qualify for Zero-rating

15. THE REVERSE CHARGE

16. VAT Reverse charge A business buys services from overseas
Services (VAT zero)
Price 100
Seller A
Reverse charge
Buyer
UAE
Oman
REVERSE CHARGE
The reverse charge ensures VAT is paid in the buyer’s country.
It ensures the buyer can gain no advantage by buying from a foreign supplier
For most businesses it is a paper exercise with no VAT cost.
For a business that cannot claim all of its VAT– the reverse charge will create a ‘real’ cost.
Buyer’s VAT declaration (for illustrative purposes assume no other sales or purchases)
Output tax 5
Rev charge
Input Tax
(5)
Rev charge plus input tax
Payable
ZERO

17. INTERNATIONAL TRADE

18. VAT Movement of goods – expected treatment
Sales between GCC countries
Business to Business sales – Reverse charge for buyer
Business to consumer – seller charges VAT
Export sales (ie to buyers outside GCC)
Zero-rated – all customers
The above is based on our understanding of the framework agreement. The National law, when it is released, could contain variations.

19. VAT Movement of goods (B2B) - example
KSA
UAE
Buyer
Seller
Goods
No VAT in UAE
Reverse charge in KSA
Seller will need evidence of export to support zero-rating

20. VAT Movement of goods – Local stock
UAE
KSA
Seller
Buyer
INVOICE
As goods are located in KSA when allocated to customer the seller makes a supply in KSA
Seller must register for VAT in KSA
Goods

21. VAT International Services
Place of supply of services – basic rule
B2B – place where the customer belongs (reverse charge kicks in)
B2C – place where the supplier belongs
Exceptions to the basic rule
Land – where the land is located
Catering and hotels - location
Telecoms – where the service is enjoyed
Events – where the event takes place

22. FREE ZONES

23. VAT Free Zones What do we know? Very little comment from MOF
No real mention of Free Zones in Unified Agreement – but an indication that goods in bond (held duty free) will be VAT free until released
The law will need to specifically exclude free zones if there is any specific relief.
Possible outcomes
Relief for gated zones?
Blanket relief? - unlikely
Likely outcomes
Reliefs for international trade and movement of goods and passengers might facilitate some level of relief
No relief for un-gated zones

24. WHAT SHOULD BUSINESSES BE DOING NOW?

25. VAT – GETTING IN SHAPE Form a project team
Carry out an impact assessment
Make a plan
…..and give yourself plenty of time
VAT affects all parts of Business

26. VAT The BDO road map TIMELINE (example) PROJECT ACTIVITIES
ACTION (examples)
Phase 1
Impact assessment & implementation road map
Review and mapping of the ‘as is’ position
Identify VAT touch points and risk
Design a road map
Assess system capabilities
Phase 2
Plan and build; blueprinting design; implementation roll out, testing and staff training
Plan and design process, accounting and IT requirements
Identify additional software needs
Implement system and process changes
Testing and dry-run
Run training program
Communicate with clients and suppliers
Phase 3
VAT compliance , system and reporting support
Assist with submitting first VAT returns
Review first returns and system outputs
On-going VAT compliance (optional)
Systems support (optional)
WEEK # 0-5
WEEK # 5- 30
Pre and Post January 2018

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