The UAE will close down a business for 72 hours and impose a severe financial penalty for value added tax evasion, according to tax consultants who attended a VAT briefing by the Ministry of Finance (MoF).
The briefing for advisors took place last week ahead of a nationwide awareness campaign by the MoF that will educate various stakeholders on the collection of VAT ahead of its implementation on January 1, 2018.
“Audits will generally be conducted only after five days advance notice, except where fraud is suspected,” MoF officials reportedly said according to consultancy firm EY’s tax update.
"Where fraud is suspected a business may be closed down for 72 hours and penalties of up to 500 percent may be applied on top of the primary VAT owing."
The update said officials also mentioned that a zero rate of VAT will be applied to healthcare and education services.
“Both services were previously expected to be exempt from VAT, meaning that input VAT would have been a cost to businesses making such services. The zero rate will allow such businesses to recover input VAT,” it added.
No VAT will be imposed on life insurance but all non-life insurance products will be subject to the standard VAT rate.
Local transport providers, such as taxis, buses and trains, will be exempt from VAT. However, VAT for supplies made within freezones, and by freezone entities is still under final consideration.
On import duties, the MoF said that the importation of goods into the UAE will be subject to a reverse charge, which means businesses will not have to physically pay VAT at the point of import.
“Imports of goods into other GCC member states, trans-shipped through the UAE will not be eligible for the reverse charge, while import VAT will be due on such imports at the first point of entry into the GCC customs union,” the update said.
If imported through the UAE, there will be no entitlement to recover the import VAT paid as input VAT in the UAE and will have to be recovered from the final destination member state.
But if a business has previously imported goods into the UAE under the reverse charge mechanism, and then subsequently moves the goods to another GCC member state, it will be required to pay back the input VAT it initially recovered under the reverse charge to the UAE federal tax authority, the update added.
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