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Over half of UAE businesses unprepared for VAT

Over half of UAE businesses do not have a plan in place for introducing VAT on time for the deadline, according to research by recruitment company Hays.17 May 2017

While 69% of UAE businesses believe that value-added tax (VAT) will be implemented on schedule by January 2018, 52% do not have an implementation strategy in place and 60% say they have not assigned a budget for managing the change, Hays has found.

Most businesses hope not to have to recruit new staff, with 61% expecting their existing workforce to handle the introduction of the new tax, Hays said.

Larger companies are more prepared, it said, with 73% saying they have a strategy in place, 7% having set aside a budget of more than AED 100,000 ($27,200) for implementation and over half (53%) planning to hire non-finance staff. This compares to 42%, 3% and 23% respectively for smaller organisations.

The survey ran from February to April 2017 and asked 100 finance professionals operating in the UAE about their preparation for the new tax.

The UAE Ministry of Finance has said it will release domestic VAT legislation by mid-2017, with detailed regulations to follow quickly. 

The standard rate of VAT will be 5%, with exemptions and zero-rate reliefs available.

Registration will be mandatory for businesses with turnover in excess of $100,000, while businesses with turnover in excess of $50,000 may voluntarily register. Below that level, registration will not be possible. Registration is expected to open in the third quarter of 2017.

Ratings agency Fitch said in February that the introduction of VAT in Gulf Cooperation Council (GCC) countries will create risks for companies and put pressure on performance and cash flows.

There will be "notable" set up and compliance costs in collecting and remitting tax to GCC governments as they introduce VAT, and businesses will need to put new IT systems in place, alongside new procedures and staff training, Fitch said.

Tax expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com said: "Although the rate, at 5%, is comparatively low, businesses should not underestimate the complexity or compliance challenge posed by the introduction of VAT. The expected high level of penalties and sanctions will create a high cost of compliance failure."

"GCC tax authorities may not have helped themselves, and the credibility of the new tax, by numerous postponements of its introduction and the delay in releasing legislation to allow businesses to comply," he said.