The year 2019 has already seen a lot of changes in laws and regulations in the business and banking industry. New tax laws, variations in the Central Bank’s guidelines and changes in the bank compliance criteria can be labeled the major ones.
Budding entrepreneurs planning to start or expand their business in the UAE will have to keep up with the following changes to ensure smooth flow of activities;
- Banking Regulations are tightening across UAE;
The UAE Government have made announcements that obligated companies to adapt quickly to hold their position in the market. Ever since the introduction of VAT in the UAE, companies have had to change their ways in how they negotiate with customers and suppliers. There has also been an impact on their price structures, cash flow, and business processes ever since VAT.
The excise tax was introduced prior to VAT and as a major change, The UAE government has joined hands with over 100 countries to establish a Common Reporting Standard (CRS). This commenced an exchange of information between various tax authorities which increased transparency. Under CRS, the UAE Central Bank demands the Local banks to be stricter and more precise in their diligence and compliance operations. An Ejari (lease agreement) and DEWA bill will be needed to back your VISA and EMID, for the bank to serve a resident for non-exchange.
It is recommended to stay up to date with the country’s laws and legislation as news quickly becomes outdated on the internet. It is also recommended to business owners to stay at the top of their game in terms of country laws and news as the UAE is moving far ahead with times and is accordingly creating opportunities for FDI.
Dubai and Abu Dhabi are becoming the country’s International Business Hub for new businesses: Due to the impact of these tax and banking regulations, there is an evident shift in the location chosen by companies to base their office. In order to open a Corporate account, you need to provide your UAE residency Visa and Emirates ID. You will need to have a local corporate address as a signatory as a
The Northern Emirates are not as cost-effective as they were in the past.
The E-channel Immigration System is an integrated immigration system implemented in 2017. The Northern Emirates has also introduced the system and has been in five emirates, but Dubai and Abu Dhabi continue to use their own self-regulating ones currently.
The E-channel offers many benefits such as Online Processing and faster approval, but it also brings in a lot of expenses which would be around 7,000- 8,000.
For example, in the Ras Al Khaimah Economic Zone, Registration alone costs AED 2,000. Along with that comes a guarantor fee of AED 5,050. Then annual registration cost would be around AED 1,200.
Due to the Northern free zones’ charges, businesses look to locate in Dubai and Abu Dhabi. This is also not an easy choice as the location of your business depends on numerous factors; the field of business activity, scale of operations, visa requirements, capital to be invested etc. The UAE government is also introducing a dual license that allows companies to hold one license to run their business inland and another to run in a free zone without an office space. This gives the companies more choices but also makes decision-making complex.
- Banks favor different business activities;
Business activity field is more scrutinized by banks in 2019 based on what’s deemed ‘high-risk’ or ‘vague’ activities. Certain nationalities are also viewed as riskier compared to others on a geopolitical view. This leads to background checks and more compliance papers. Which eventually leads to higher costs or even rejection of your application due to the absence of necessary supporting documents.
It is advised to contemplate well over how a business describes their operations. The company may come across problems in the future during audits or face questions about their suppliers and clients and they may have to pay fines as well.
Over the past years, UAE has transitioned immensely in terms of its economy and legislation.
You can consult with us to stay up to date with these transitions as Executive Business Solutions vows to offer one of the most reliable services in Company Formation and help you along the steps involved in its procedures. With our knowledge of dealings with local banking regulations, you can ensure that your new venture will be off to a good start.
A Bad Debt is a loss that a company incurs when credit that has been extended to customers becomes worthless, either because the debtor is bankrupt, has financial problems or because it cannot be collected.
During a transaction, the registered supplier charges VAT to the customer which is shown as output vat in its vat return. This amount is usually paid to the tax authority during the respective VAT period.
Article 64 of the Federal Decree Law No. (8) of 2017 on Value Added Tax in the UAE, mentions on the matter of adjusting bad debts. A supplier can decrease the output tax on a bad debt if the following conditions are met: –
- 1. The receivable amount is written off as bad debts from the books of accounts.
- 2. The customer needs to be notified that this amount has been written off.
- 3. This receivable amount should be more than six months old from the date of supply.
When the above conditions have been met, the supplier can then request for the refund, through UAE VAT Return by adjustment, from the FTA.
From a registered customer’s side, it is his responsibility to deduct the input tax that he has already claimed in previous VAT Return.
Disclosing VAT on bad debts in the UAE Vat Return
- Supplier: On the UAE VAT Return form, there is a column labelled adjustment under the section “VAT on sales and other output 1a to 1g”. Once the bad debt has been adjusted, the output tax is treated in this column. The VAT amount need to be entered here which is always a negative figure. It is to be deducted from the total output VAT for the specific VAT Return period.
- Customer: If the customer has been notified that his payment has been considered as Bad Debt by the supplier and is going to recover it through his VAT return, the customer will also have to adjust the amount in their VAT return form as well. The adjustment column under section “VAT on Expenses and all other Inputs, line no. 9 – standard rated expenses” is used for this. The VAT amount on the bad debts that the customer has not yet paid but initially claimed as input needs to be subtracted from the current period input tax.
Reporting the Refund of Bad Debts under VAT Return
The disclosure requirement can be explained by the following example:
DEF LLC sold AED 2M worth of goods to JKL LLC on 1/1/2018. JKL LLC paid 3 postdated Cheques against the sales:
- AED 800,000/- dated 31.01.2018
- AED 600,000/- dated 28.02.2018
- AED 600,000/- dated 31.03.2018
AED 800,000/- was cleared on due date, whereas the other two Cheques were bounced back.
If JKL LLC refuses to pay AED 1,200,000/- as the balance amount, on the expiry of 6 months from the date of supply, DEF LLC is eligible to reverse the output tax on the bad debts which was paid beforehand. The balance amount AED 1,200,000/- need to be written off as bad debts in their books of accounts and AED 60,000/- as its VAT to reverse the output tax. DEF LLC will then have to notify JKL LLC that the amount has been written off.
On being notified that the amount has been written off, JKL LLC has to reverse the input tax credit previously availed. They can reduce AED 60,000/- from the input tax credit displayed under line no. 9- standard rated expenses by disclosing under the column adjustment.
A public statement was made by FTA to clarify on the treatment of public transportation under the UAE VAT Law, and identify what all vehicles are qualified to be treated as zero-rated under the law.
According to the Clause (4) under Article (45) of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and the Article (34) of Cabinet Decision No. 52 of 2017 on the Executive Regulations (“VAT Executive Regulations”),
“The supply of the means of transport shall be subject to the zero rate in the case of a supply of bus or train that is designed or adapted to be used for public transportation of ten or more passengers.”
Therefore, the supply of a bus or train intended for the use of public transportation of ten or more passengers qualify under the law. Other means of transport intended for the purpose of transporting school students or employees of companies are not counted and will be subject to the standard VAT rate of 5%.
To further clarify on what is labeled as Private and Public Transportation under this law;
Private Transportation refers to all means of transportation designed for the role of transporting individuals under contracts. They are used for the transport of a specific group of people and the supply of such transport will be taxable.
Public transportation refers to all means of mass transportation used to transport individuals regardless of their category. The difference is that public transport should be available to the public unconditionally.
The following are the factors used to classify means of transport as Public: –
- The passengers pay for transport use or they possess a ticket from which a payment scanner or any such devices will obtain money from.
- There is a significant branding within or outside the vehicle indicating its availability to all.
- There is significant branding on the vehicle indicating its regulation by the public transportation regulating entity of each emirate.
- The means of transport was made solely with the intention of transporting the general public, with no exceptions or limitations to any groups.
School buses, Employee buses, Shuttle buses are therefore not exempted and will be subject to the standard rate of VAT.
Furthermore, transportation services shall be governed by Clause 4 of Article 46 of the VAT Law and Article 45 of the Executive Regulations which state that any supply of local passenger transport shall be exempted and encompasses motor vehicles such as taxi, bus, railway, tram, monorail etc. which are designed for the transport of the general public are to be zero-rated.
VAT Experts at Executive Business Solutions are committed to providing the best VAT Advisory Service in the UAE to clients in compliance with the rules and regulations of VAT in the UAE having their international experience in Taxation. The Tax team at Executive Business Solutions is professionally equipped with relevant industry experience from different ends of the globe.