VAT introduction in the UAE/GCC · 2017. 7. 17. · Common GCC framework — The GCC framework agreement will be the basis for national VAT laws across the GCC UAE VAT implementation

1© 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),

a Swiss entity. All rights reserved.

VAT introduction in the UAE/GCC

——

July 2017

Roundtable discussion – Diamond polishers/ traders/ jewelers

Disclaimer: KPMG will not be responsible to any parties for any use of this presentation for any purposes whatsoever, as this is neither

an advice nor a deliverable of any kind.

AgendaKey objectives

of this session

VAT overview

and GCC

progress

VAT technical

areas

VAT impact and

issues for DMCC

member

companies

VAT

implementation

roadmap

Key objectives of this session

4© 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Key objectives

To raise VAT awareness

To understand the current developments in the introduction of VAT Law in the UAE

To understand the potential impacts of VAT on your business

To understand the VAT considerations/ issues related to specific sectors

To guide you to get VAT ready

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VAT overviewand progress across the GCC



GCC initiative — Modelled on the EU’s VAT regime

Common GCC

framework— The GCC framework agreement will be the basis for national VAT laws across the GCC

UAE VAT

implementation

— Expected to go into effect in the UAE on 1 January 2018

— Time for implementation is now only 6-months

Current VAT developments

The Unified GCC VAT treaty and draft VAT law has been released by KSA

New FAQs released by UAE MoF



VAT registered business that makes business use of the supply

will receive a VAT credit

There are many exceptions and complexities!

VAT charged at each stage in the supply of goods and services

VAT (or GST) now applies in over 166 countries at varying rates

VAT is ultimately borne by the final consumer

What is VAT?

Value Added Tax is a consumption tax and is collected on business transactions and imports



Exempt supply under the VAT law

Outside the scope of VAT

Not a supply or disregarded supply

Cannot charge VAT on a non-taxable supply

Taxable

supply Zero-rated supply

VAT rate 0%

Standard-rated supply

Proposed VAT rate 5%

Yes

Input tax credit

available?

Non-taxable

supply

No

Depends

Type of supply



Zero rated Standard rate

Treatment of free zones is yet to be determined

― Identified education services

― Identified healthcare services

― International transport of goods and

services

― Newly constructed residential

properties that are supplied for the first

time (and within 3 years of their

construction)

― Identified investment grade precious

metals

― Supplies of identified sea, air and land

means of transportation

― Exports of goods and services

― Most goods and services

― Commercial Real estate

― Financial services (non-margin

based)

― General insurance

― Basic foodstuff (UAE will adopt this

approach as the impact would not be

substantial)

― Local transport of Goods

― Non-essential medical services

including cosmetic surgery

Exempt

― Financial services (margin-based)

― Residential properties

― Life insurance

― Bare land

― Local passenger transport

As per MoF workshops

Examples of different types of supply



VAT technical areas


Time of

supply

Scope(Goods & services)

Types of supplies(VAT rates)

VAT recovery(Tax invoices)

GCC

regulations

Place of

supply

Compliance (VAT accounting/collection)

Registration

threshold

VAT technical areas


Taxable person





VAT impact on DMCC member companies



Possible VAT impact on diamond polishing companies

Customers (Overseas) Customers

(DMCC)

DMCC diamond polishing company

INVOICE INVOICE

SERVICE ORDERSERVICE ORDER

Zero-rated

Supply of services to overseas – likely to be treated as an export Zero-rated

Standard

rated

Supply of services to DMCC CustomersTaxable –

Standard Rated

Customers (mainland UAE)

INVOICE

SERVICE ORDER

Standard

rated



Possible VAT impact on diamond polishing companies (contd)

Customers (GCC countries which have NOT

implemented VAT Law)

Customers (GCC countries

which have implemented VAT

Law)

DMCC diamond polishing company

INVOICE INVOICE

SERVICE ORDERSERVICE ORDER

Reverse charge

mechanism

(RCM)

Supply of services to GCC countries which have implemented VAT Law

Zero-rated

Supply of services to GCC countries which have not implemented VAT Law Zero-rated

Taxable in the

receiving

country – RCM



Possible VAT impact on diamond trading companies

Manufacturers/ Suppliers

(Overseas)

Distribution centre(Overseas)

Buyer (Overseas)

DMCC diamond trading

company

INVOICE 1 INVOICE 2

PURCHASE ORDER2 PURCHASE ORDER1

Supply of goods by way of drop shipment (re-invoicing)Out of scope

supply

Out of scope supply



Possible VAT impact on diamond trading companies (contd)

Customers (Overseas) Customers

(DMCC)


company

INVOICE INVOICE

PURCHASE ORDERPURCHASE ORDER

Zero-rated

Supply of goods to overseas countries Zero-rated

Standard

rated

Supply of services to DMCC CustomersTaxable –

Standard Rated



Possible VAT impact on diamond trading companies (contd)

Out of scope supply

Supply of goods by way of drop shipment (re-invoicing)Out of scope

supply

Manufacturers/ Suppliers

(Overseas)

Distribution centre(China)

UAE Distributor


company

INVOICE 1INVOICE 2

PURCHASE ORDER2 PURCHASE ORDER1

Customers (Mainland UAE)

INVOICE 3

Standard

rated

Supply of services to mainland UAE customers Taxable –

Standard Rated



VAT considerations/ issues

Treatment of FTZ entities is still unknown

Identify whether your business will be allowed to register for VAT – businesses

making a taxable supply in excess of AED 375,000 have to register compulsorily and

those between AED 187,500 – AED 375,000 can register voluntarily for VAT

VAT recovery / increased costs – Entities may not be able to claim input tax credit

if they are not eligible for registering for VAT



Additional VAT considerations/ issues

Working capital impact

Business process changes

Recruitment and training

Documentation requirements

Transitional arrangements



VAT implementation roadmap



Plan and

analyze1 — Project planning— Awareness workshop— Identify information requirements

Implementation3— Work plan development— VAT Implementation support— IT implementation support— VAT technical training— Debrief meeting

Impact

assessment

— Transaction mapping— Calculate and prioritize VAT at risk— IT impact assessment — Legislation review and impact assessment— Contract review — Debrief meeting

2

Post-implementation

VAT review

— Pre go-live meeting — Review VAT returns and resolving teething

issues— Review phase 2 & 3 deliverables4

KPMG VAT implementation roadmap



Q&A

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely

information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without

appropriate professional advice after a thorough examination of the particular situation.

© 2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Thank youYour KPMG VAT Contacts:

Nilesh AsharPartner | Head of Tax

KPMG Lower Gulf Ltd

T: +971 4 424 8987

M: +971 56 683 3219

E: [email protected]

Clare MccollPartner | Head of Indirect Tax

KPMG Lower Gulf Ltd

T: +971 4 424 8959

M: +971 5 43072459


Ankur JainSenior Manager | VAT

KPMG Lower Gulf Ltd

T: +971 4 424 8960

M: +971 56 682 0488


Anika GoelSenior Associate | VAT

KPMG Lower Gulf Ltd

T: +971 4 356 9795

M: +971 56 558 3245


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Documents

VAT introduction in the UAE/GCC · 2017. 7. 17. · Common GCC framework — The GCC framework agreement will be the basis for national VAT laws across the GCC UAE VAT implementation