VAT on basic necessities as well, countdown begins

As of the latest news, the UAE residents will have to pay 5 per cent value-added tax (VAT) on food, water and power and higher education from next year onward.

Girish Chand, director, MCA Management Consultants, said both Saudi and the UAE authorities have brought these categories under the VAT.

Khalid Al Bustani, director general of Federal Tax Authority said, the tourists in the UAE will also get refunds on the returns. He said the authority is working with the parties involved on the project and expected to be rolled out ahead of VAT implementation.

Under the VAT regulation, higher education institutes which are more than 50 per cent funded by the government, will not be charged VAT but the rest will be.  

Surandar Jesrani, partner and CEO, Morison MJS, said the education services shall be taxable at zero per cent only if it is supplied by a recognized educational institution and offer recognized curriculum. “In case of higher education institutions, the institution should be either owned by the Federal or local Government or receives more than 50 per cent of its annual funding directly from the Federal or local Government.” he said.

He also added that a supply of goods or services provide by educational institutions directly related to above shall be zero-rated. “We expect tuition fees, study material for the curriculum, medical fees, registration fees, admission fees, exam fees would be 0 per cent,” he said.

However following services shall be taxable at 5 per cent even though provided by recognized educational institutions:

1. Goods & services supplied to persons who are not enrolled in the institute.
2. Any goods other than educational material provided which are not related to the curriculum of the educational institute.
3. Supply of School Uniforms as required by the educational institute.
4. Providing electronic devices irrespective of whether or not supplied as a part of educational services.
5. Foods & Beverages supplied at the educational institutions
6. Excursions or field trips unless directly related to the curriculum of the educational services.
7. Extracurricular activities provided by or through the educational institutions.
8. Supply of membership in a student organization.

 

Al Bustani added: “With the countdown to the introduction of the tax system, we call on businesses to expedite their registration and compliance procedures. They must make changes to their core operations, financial management procedures, accounting methods, and the technical means they use, in addition to changes in their human resources, including accountants and tax advisers.”

Speaking on the impact of VAT on UAE-based firms, Mansoor Sarwar, regional technical director for the Middle East at Sage, said compliance with the UAE VAT law requires significant changes to a firm’s technology, operations, financial management and accounting practices. The reality is that businesses in this region have never had to deal with taxation before, and it is unlikely that their current systems are VAT-ready.

“Investing in a cloud-enabled accounting solution can streamline the VAT collection, record-keeping and reporting processes,” he added.

The UAE’s Federal Tax Authority (FTA) on 8th November announced that the countdown has begun as 53 days are left in total, of which 35 are working days, before VAT comes into effect from 7am on January 1, 2018.