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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Syrian businesses look abroad as war chokes domestic market

Country’s economy has contracted by as much as 60% since the conflict began in 2011

Dubai: After nearly five years of civil war, Syrian businesses are looking for new export markets as the country’s crippling economy and infrastructure makes it increasingly difficult to operate.

Syria’s economy has contracted by as much as 60 per cent since the conflict began in the spring of 2011, according to a report released by British think-tank Chatham House in 2015.

The country’s workforce is dilapidated as millions have been left displaced while farms, factories, roads and other important infrastructure has been damaged or destroyed as a result of the fighting.

Tarek Nabeel, who works at Rostum Trading Company in Lattakia, northern Syria, told Gulf News the agriculture commodities company wants to start shipping to the Americas, Africa and Iran. It already sells its products, such as cumin and pistachios, to countries in the Middle East and Europe.

But Rostum faces “logistics issues because of the crisis”, Nabeel said.

One of its factories in Idlib was destroyed in the fighting and exports have roughly halved to between 20 and 25 containers a month.

“Due to the Syrian crisis our export decreased in the recent years because of the difficulty getting the stuff from the farmers,” Nabeel said.

The war has meant that many parts of the country are cut off from each other while some farms have been abandoned as millions flee the fighting.

Rostum is one of 20 Syrian wholesale food sellers in Dubai this week exhibiting at the Middle East’s largest food and hospitality trade show Gulfood.

East Mediterranean Olive Oil Company (Emoc), a Spanish-owned Syrian company, was forced to move its offices from Idlib to Latakia because of the conflict.

Emoc relies on foreign markets with exports accounting or 97 per cent of its businesses. But with a collapse in the Venezuelan economy, its single largest market, General Manager, Suhail Shammas, said the company is now trying to get into Chile, Brazil and Iran.

Unlike Rostum, Shammas said business is improving with 14 containers exported so far this year, which he said is more than last year when there “were a lot of problems” near its factory in Idlib.

“Of course, in our situation — in a war — it’s not as it was ten years or seven years ago but we are still alive and we are still working and we are still exporting,” he said.

Natural Max General Trading, a honey-maker from Syria exhibiting at Gulfood this week, opened a manufacturing factory in Dubai in 2010, a year before the civil war started. The company uses the Dubai factory to manufacture goods that use materials that cannot be found in Syria while also continues to run a factory in Damascus.

Ammar Al Masri, the company’s marketing manager, told Gulf News he wants to enter the US market while adding that the Syrian crises has made it difficult to get goods in and out of the country, making the Dubai factory increasingly important.

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Business leaders from Sharjah, Canada discuss investments

UAE has $30b in investments in Canada

Abu Dhabi: Business leaders from Sharjah and Canada held a round-table session on Tuesday to discuss key areas of investment and growth in the emirate.

Organised by the Sharjah Investment and Development Authority (Shurooq), officials from the emirate presented specific emerging industries to Canada’s representatives. These include tourism and hospitality, non-oil export trade, transportation, construction, real estate, and health care, among others.

The UAE’s investments in Canada reached $30 billion (Dh110 billion), with $2 billion in Canadian exports to the UAE.

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UAE said to implement 5% VAT from Jan 1, 2018

The UAE is reportedly set to implement 5 percent VAT from January 1, 2018, with 150 food items, health and education exempted, a senior official was quoted as saying on Wednesday.

Obaid Humaid Al Tayer, Minister of State for Financial Affairs said the Gulf Cooperation Council resolution covering the tax will come into effect in 2018 but countries will have until January 1 2019 to implement VAT.

“There’s a span of one year flexibility given the readiness of each country,” he reportedly said at a conference hosted by the Ministry of Finance in Dubai.

The minister said each country will have the flexibility to introduce VAT within this time frame.

In the first year, the UAE is expected to generate AED12 billion from tax revenue, Gulf News reported. It would be the first time the region has introduced direct taxation, in an attempt to boost regional coffers following a sharp drop in the oil price.

The International Monetary Fund said earlier this week that introducing a value-added tax in the Gulf region, even at a low single-digit rate, could raise revenues equivalent to as much as 2 percent of gross domestic product.

“Add to this greater emphasis on corporate income taxes as well as property and excise taxes. And continue to invest in building tax administration capacity that could eventually allow for introduction of personal income taxes,” said IMF Managing Director Christine Lagarde.

Introducing VAT is a major economic reform in the Gulf Cooperation Council states, which have minimal tax systems and no tax on income, although some levy fees such as road tolls.

The plunge of oil prices since last year has slashed government incomes, making it more urgent for them to find new revenue.

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Put investors first: Key to advancing the investment management industry in 2016

It is crucial to acknowledge that investors deserve an underlying investment environment that is fair and transparent

One of the key buzz words in the investment management industry today is “value.” There are some who question whether investment professionals are capable of providing value anymore to clients and point to the rise of passive investment and of robo-advisers as proof that investors are increasingly disillusioned. In addition, investment thought leaders pontificate about the so-called demise of active investment management. Meanwhile, regulators have succumbed to outside pressures and are taking a more active role in our business. If we don’t reform ourselves, we can count on them to do so by enacting regulation that in some instances may be invasive, negative, disruptive and have unintended consequences.

Let’s be clear, the effects of the global financial crisis still linger today with society at large. Our image is still under intense pressure. Multibillion dollar fines and settlements involving major financial services companies continue to be levied and there continue to be negative portrayals of investment professionals in recent Hollywood blockbusters and television shows. While it is predicted that an additional 1 billion middle-class consumers will emerge globally in the next few years, representing the largest single decade increase in potential clients in history, investors still need to be convinced that investment professionals work to meet clients’ investment objectives and create positive social impact. In order to thrive, we need to better demonstrate what it means to be a professional by promoting the highest standards of education, competence, and professional conduct.

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Rising from the ashes: The UAE’s insolvency dilemma

In March 2012, Bahrain-headquartered Arcapita Bank became the first company in the Gulf to file for Chapter 11 bankruptcy proceedings under US legislation. It was grappling with a $1.1bn debt obligation in the wake of the financial crisis and underwent 18 months of court-supervised restructuring in New York, where part of the company was based.

The rescue has been broadly hailed as a success. Just one year after emerging from the restructuring, Arcapita completed a $100m fundraising from Gulf shareholders, to make new investments in the region and beyond. It has since closed several deals, including the $200m acquisition of the first phase of Abu Dhabi’s Saadiyat Beach Residences last July, and the $85m purchase of senior living communities in Colorado last month.

Arcapita’s story is often used by lawyers and other parties lobbying Arab governments to introduce insolvency legislation similar to Chapter 11.

Arcapita chief executive and executive chairman Atif Abdulmalik, toldArabian Business in an interview last year: “The beauty about [Chapter 11] is it gives you enough time to restructure internally and is 100 percent controlled so there is no pressure to sell off your assets at a lower market price.”

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Small businesses in the UAE need more support than ever

If you’re running a small business anywhere in the Gulf, the chances are you’ve never had it tougher. Red tape, licence fees, the cost of visas and the lack of insolvency regulations are all combining with the difficult economic conditions to create an environment where even the hardiest entrepreneurs are thinking of pulling the plug.

Last week’s sentiment survey from Gulf Finance, which surveys small businesses in the UAE on a quarterly basis, made for refreshingly honest reading. Looking through the responses, it wasn’t easy to find any cause for optimism. From orders to payment collection, and from confidence to the ability to raise finance, respondents reported a significantly worse quarter than the one before.

The survey’s results chimed with comments made recently by entrepreneurs and commentators brave enough to speak out about what they see as problems facing the sector.

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