Major new tax rule to come in from October 1 in UAE

The UAE’s Federal Tax Authority will now be able to refuse to refund VAT to businesses if they don’t comply with stricter rules.

Businesses across the UAE have been warned that they will need to do much more due diligence when it comes to their suppliers.

The warning came from the UAE’s Federal Tax Authority (FTA), who have announced they are imposing a major new tax rule next month.

From October 1, the FTA will be able to refuse to refund VAT to a business if they suspect that the goods purchased have avoided tax somewhere along the supply chain.

The UAE first introduced VAT in 2018.

VAT is a 5 per cent charge added to the vast majority of goods and services in the country, and businesses typically have been able to claim back the VAT they paid on the purchases made.

However, that is all set to change on October 1.

Under new rules being introduced by the UAE’s Federal Tax Authority, authorities can refuse to refund VAT claims.

Many legal experts say that the hardest part of the new reforms and rules around VAT in the UAE is the fact that businesses no longer need to have been aware of wrongdoing to have their VAT claims blocked.

Even though almost all businesses in the UAE would be blissfully unaware if tax evasion happened at some juncture on the supply chain, the VAT return will still be refused.

The stance is very much a case of they “should have known”.

What changes do businesses need to make?

Businesses across the UAE must take a much closer look at all their suppliers.

Experts are advising that the checks will need to consist of a two-layered approach

Businesses must verify a supplier’s identity the first time they work with them, and repeat the check every 12 months.

There are a few signs that businesses need to look out for when checking suppliers, and that is a change of address, key staff moving, or deals brokered that look too big considering the size and scale of the business.

For some of the bigger commercial partnerships, businesses across the UAE that work with a supplier that provides them with more than $102,000 (AED 375,000) must get written confirmation from a UAE bank that the supplier holds an account there.

Another important change is the fact that cash payments now need to be documented.

Companies will also be required to put in writing exactly who carries out these checks, who reviews them, and who is responsible for overseeing the process.