One Year after VAT in the UAE

PUBLICATIONS / Articles / 2019 / One Year after VAT in the UAE
It has been one year since the VAT was implemented and many businesses were facing internal changes to adapt to the new regime. After one year we see the change as fully functioning. We have prepared some statistics from the public sources for you to see the results of the implementation after one year in the UAE. 
As an agent assisting companies to register for the VAT we have witnessed the transition period. Many agents switched to the VAT registration and accounting services in the UAE. This was a real rise of accounting services affecting the entire services sector. Many agents got accredited for the activity. The Federal Tax Authority (FTA) stated that 176 Tax Agents were accredited.  

Since historically the UAE had not experienced tax implementation, authorities provided taxpayers with flexibility to help them overcome the initial interruptions. For example, the UAE extended the exemption period for the late registration penalties until the end of April to help businesses prepare. 
 
Now businesses are fully operating with the VAT.  The system works smoothly and even start-up companies have successfully coped with the transition period.  During the first year of VAT functioning 296 000 businesses have successfully registered with the system. The number of tax returns received from businesses registered for the VAT purposes exceed 650 000 in 12 months since the 1st January 2018.
 
In 2018, the number of quires was tremendous for all service providers. We have received enquiries daily. The FTA stated the total number of answered queries about the new tax regime exceeded 453 500. Moreover, during the first year while the FTA was among the eight most searched names in the UAE on global search engine Google in 2018.

Khalid Ali Al Bustani, director general of the FTA, argued that the VAT system has been praised by experts, local, regional and international official bodies, adding "a seamless and flexible tax system" has been rolled out. The comments appear in the statement issued by the FTA to mark the first anniversary of the introduction of the VAT in the UAE. He also expects 2019 to witness "a significant leap forward" for the UAE tax system, as the FTA has set plans to further improve tax compliance rates, promote registration among taxable businesses, and combat tax evasion. 

As a result, also the tax regime seems beneficial for tourists and visitors of the UAE. The recent tax refunds on tourists schemes of 12 ports of entry into the UAE processes more than 5 000 transactions per day.

What is next? 
 
Regulations are in place and taxpayers are expected to prepare for audits by the FTA. It is an exercise that will test resources and the accuracy of record keeping as well as the filing of tax returns.
 
 
Will VAT increase in the future? 
 
No one knows exactly until the changes happen. If we look at other VAT implementation samples, the VAT has steadily grown in different countries.  However, this could be different in the case of the UAE VAT rate. The UAE Expo 2020 will see a huge inflow of Foreign Direct Investment through investors starting a business in Dubai. In case the VAT rate increased in the similar period, international investors would not mention a few percentage points growth whereas the country would benefit. Although it is difficult to comment at the moment, it is clear that having a high foreign investors' interest in the UAE business, VAT should not increase in the near future. 


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