The introduction of VAT into the UAE marks the end of tax-free living in the Middle East. This specific move is absolutely expected to generate Dh12 billion in the first year, and is part of the Gulf Co-Operation Council (GCC) nations’ plans so that it can decrease their dependence on oil as the revenue stream. But how will the construction industry be affected?
The Facts of Construction Sector in UAE
VAT will be easily introduced on the 1 January 2018 at an absolutely moderate rate of 5% on services and goods that are not VAT exempt or zero-rated. Goods will be subjected to VAT will usually be items such as constructions or foods, whereas some other services will include consulting services and maintenance works. The VAT on UAE construction will be also subjected.
Each and every UAE resident business should register for VAT in UAE if they make taxable supplies or imports over AED375, 000, but businesses can willingly register for VAT if this threshold is AED187, 500 or higher. Though, this is quite significant to note that some of the areas are taxed differently (Deloitte) between the UAE and Saudi Arabia, so not all GCC countries will have the same laws.
Which Areas Will Affect Construction Businesses?
New residential property sales will be simply exempt from VAT likely to affect UAE construction sector. Though, the very first and foremost sale within 3 years of the building’s completion is zero-rated for VAT and that permits developers to recover the VAT on the goods and services used in the construction of new residential properties. Though, if you purchase the residential property and refurbish it, expect to pay VAT on the materials and services used but the sale itself will be VAT exempt. In contrast, the commercial properties – whether leased or sold – will be subject to VAT. Any building plots, which have been bought as bare land will be exempt from VAT.
Vehicles and Equipment
If you buy any of the vehicles, phones, computers or other electronics for staff to utilize as part of their role, they will now contain VAT on the purchase price.
Insurance and Financial
Any of the insurance that is not life insurance will be subject to VAT, so expect insurance premiums to rise to account for this. If your company utilizes any kind of financial services that are fee based (for example, accountancy services), then these will also have VAT added. Financial services, which are margin based, will be exempt.
If you are purchasing any kind of materials from abroad, VAT will be payable using a reverse charging system.
Whenever you are building up your quotations, you will now require increasing them to permit for the VAT charges. This is also worth thinking about what additional measures will be needed to track your input and output VAT.