Dubai Lawyers: Essential items are mostly exempt from VAT

Introduction of VAT will ensure a financial discipline for businesses which is seemingly lacking for many SMEs here.

Q: We have an industrial unit in the UAE from last few years, which is doing reasonably well. I read in the newspapers recently about the introduction of VAT (value added tax) in the UAE. Please throw light on how it will impact us and other businesses in the UAE.

SM, Ras Al Khaimah

A:The Minister of State for Financial Affairs, Obaid bin Humaid Al Tayer announced last week that VAT will be made effective in the UAE from January 1, 2018. As per this announcement a VAT rate of five per cent will be applicable. The benevolent leadership of the country exempted certain sectors like healthcare, education, food items of 100 types, etc, from VAT and allowed nearly two years’ time for preparation to the business community of the UAE. The VAT will affect nearly all of us whether we are sellers or buyers. From the business perspective, it will require change of systems including the point of sale or any form of revenue booking system. Training will also be required to ensure effectiveness and may even require additional resources. Essential items are mostly exempt hence it is not expected to have a major impact particularly for low income earners. Introduction of VAT will ensure a financial discipline for businesses which is seemingly lacking for many SMEs here. Earlier, the expectation was that that VAT will be a replacement of the import duty however the honourable minister has not made any mention on the same so at this point of time VAT should be considered in addition to the import duty. Many clarifications are expected from the government on the method of accounting and collection of the VAT which will be done in due course. Service sector too will attract VAT, here the complexity is more as which components will be included may need specific clarifications from the tax department. Overall shopping will be dearer for both residents and tourists. Impact on larger value items will be bigger as an additional Dh5,000 payment for a purchase of Dh100,000 item will pinch. Companies have to make sure that their accounting software, particularly the revenue system is aligned to include VAT calculations. Tax is a worldwide phenomenon and the UAE residents too will have to take it in their stride.

Q: I have work experience in the UAE of over 10 years in building materials supply sector. I feel that it is now time to do something on my own, however, I would not like to rock the boat for my employment and would like to continue my job till business is smooth. My wife, who is now working as a secretary is willing to resign from her job and take care of day to day operations of the new business. Please suggest us on a cheapest option where we can do business here, currently we do not intend to hire any employees.

PN, Dubai

A:Entering into a business world has its own rewards, which many a times are far better paying than a fixed income job though it has its own risks. Some of the free zones in the northern emirates offer much lower cost of business setup, you will be able to register a company for below Dh15,000 where no visas are required. At a future date when your business grows you may opt for a higher package including visa facilities. Apart of this setup costs you need to ensure that you have sufficient funds to use as capital injection into the business including the cash required for purchase of assets and working capital for purchases, salaries, customer credit, running expenses, etc. Make sure that you tread carefully particularly when you are providing credit to your customers. Hard work and a little bit of luck will hopefully make you become your own boss. Best of luck.

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