In June 2014, the long anticipated announcement came from the UAE Ministry of Finance about its plans to establish a corporate tax and VAT regime as part of its efforts to ‘[ensure] the sustainability of the federal government’s financial resources.’ (Ministry of Finance, 2014 annual report). The draft legislation has not yet been published and is yet to go through legislative process, and no implementation date has been set. Nevertheless, the Ministry of Finance’s intentions have been clearly set out in its 2014 annual report, indicating that the days of tax-free living in the UAE are coming to an end.
Against this backdrop, the Association of Chartered Certified Accountants (ACCA) and aafaq Islamic Finance recently hosted a panel to discuss about the impact of Value-Added Tax (VAT) on businesses in the UAE.
ACCA’s global head of taxation, Chas Roy Chowdhury was the keynote speaker. Addressing over 100 finance professionals, Chowdhury shared his views on how Europe has witnessed VAT since the 1970s as a truly renaissance taxation that was able to pass on the ultimate burden of tax on value adding supply chain to the final consumer.
Chaired by Chowdhury, the panel discussion featured views from Hisham Farouk, CEO for Grant Thortnon UAE; Farooq Ladha, International Tax Partner at Crowe Horwath UAE; Mujtaba Naseem, CFO & Deputy CEO for AAFAQ Islamic Finance; Shady Shaher Elborno, Head of Macro Strategy Research at Emirates NBD; and Tobias Lintvelt, Partner Transaction Tax/International Tax Services for EY UAE.
Key insights from the panel were that whilst there may be some concerns that the introduction of VAT in the UAE may intensify the cost of doing business in the country, the anticipated low rate of 5% should mitigate this. What will help businesses to prepare is early sight of the detail of the legislation so that organisations have time to build management and financial reporting systems to support the detail of the requirements. The panel felt that the simpler the system; the fewer exemptions and the greater the consistency there is across the GCC the easier it will be for all.
A key area that will be critical to the implementation of the VAT system will be the judicial system to support this specifically a clear appeals and enforcement system. This is likely to take some time to develop and implement.