First year of VAT in the UAE: FTA reveals the key details of implementation

A total of 296,000 businesses have registered for value added tax (VAT) in its first year of implementation in the UAE, the Federal Tax Authority (FTA) has revealed.

The UAE implemented 5 per cent VAT on the supply of most goods and services in the country on January 1, 2018.

Statistics showed that the total number of periodic tax returns received by the FTA from businesses registered for VAT purposes exceeded 650,000 in 2018.

The payment mechanisms available include the UAE Fund Transfer System (UAEFTS) of the Central Bank, which enables taxable persons to pay their taxes through the branches of nearly 77 banks, exchange offices and financial firms across the country. These payments are made using the GIBAN or e-Dirham systems.

Khalid Ali Al Bustani, FTA director general, asserted that the authority witnessed high compliance rates among businesses across the country.

“The Federal Tax Authority was among the eight most searched names in the UAE on global search engine Google in 2018,” he said.

“This demonstrates that in a short period of time, the authority successfully became the centre of attention among large segments of society and across various sectors.”

The authority’s contact centre answered more than 306,500 phone enquiries about the tax system, while another 147,000 were answered by e-mail.

“It is always our priority to ensure that consumers are aware of their rights and obligations and to protect them from any attempts to exploit tax laws. In collaboration with the relevant authorities across the UAE, the authority was able to combat attempts at profiteering by certain retailers, address any failure to issue tax invoices, and curb the spread of false rumours,” said Al Bustani.

The system’s user base is also expanding with 122 freight forwarding companies commissioned, the number of accredited tax agents increasing to 176. Up to 12 tax accounting software vendors were also contracted.

Taxable persons can enlist one of the authorised tax agents, listed on the FTA website, to assist them in ensuring tax compliance, Al Bustani said. Meanwhile, tax accounting software vendors provide technical support for businesses, including software, and accounting and bookkeeping tools, which facilitate calculations of due and recoverable taxes.

“In collaboration with all concerned entities, the Federal Tax Authority set the foundations for a holistic and balanced tax system, making the UAE one of the first countries in the world to implement a fully electronic paperless tax system,” Al Bustani said.

“Our advanced system encourages auto-compliance with procedures, all the while maintaining transparency and accuracy.

“Despite the challenges that were expected at the beginning of implementation – a common occurrence in many countries that introduced VAT around the world – the UAE successfully rolled out a seamless and flexible tax system with a progressive legislative environment,” he added.

Tax refund scheme

The FTA launched the first phase of the Tax Refunds for Tourists scheme and its electronic system in November 2018, with the programme fully operational in less than one month after its launch.

The system covers 12 ports of entry into the UAE – including six airports, two seaports and four land ports.

“One of the most important procedures launched by the authority in the first year of VAT is the VAT Refund Scheme for Foreign Businesses in UAE, whereby the authority collaborates with countries that refund VAT for UAE businesses visiting their territories, facilitating tax refunds for businesses coming to the UAE from these countries,” said Al Bustani.

“It is characterised by rapid completion of refunding requests, ease of procedures and clarity and the scheme now processes over 5,000 transactions per day,” he added.

The FTA also launched VAT refund procedures for UAE nationals building new residences, and issued a guide providing an explanation of the mechanism through its website.

“Many UAE citizens have already taken advantage of the procedure,” he said.

Al Bustani also stressed the flexibility of the VAT regulations, highlighting the cabinet decision on taxing gold and diamonds and also refunding VAT on services provided at exhibitions and conferences.

Plan ahead

Looking ahead, the FTA expects 2019 to witness a “significant leap forward for the UAE tax system”, with the authority planning to further improve tax compliance rates, promote registration among taxable businesses, and combat tax evasion, said Al Bustani.

“The authority will continuously develop its electronic systems and will be launching new campaigns to raise tax awareness,” he said.

“The FTA organised 90 seminars and training workshops, attended by approximately 28,000 experts from various sectors in 2018. The authority is currently working to launch new campaigns, most notably the tax invoice campaign, which is set to take place during the first quarter of 2019 and aims to ensure the use of tax invoices for all business operations,” Al Bustani said.

“This campaign will run in parallel with the tax clinic, launched in August 2018 to ensure direct and constant communication with business sectors. The clinic is still underway across all seven emirates, raising awareness among businesses, identifying the obstacles they may face, and developing solutions to address them immediately.”