21 Dec 2017 Comparison of UAE VAT with Switzerland and Malta
On 1 February 2017, the representatives of the Gulf Cooperation Council (the “GCC”) signed the Unified Value Added Agreement for the GCC, meaning that a formal Value Added Tax (the “VAT”) system is going to be introduced in all six member states of the GCC in accordance with the Unified Value Added Agreement. Every Member State must follow certain principles mutually agreed, but each Member State will draft its own legislation. The UAE has consequently released the Federal Decree-Law no (8) of 2017 on VAT and the Executive Regulation of the Federal Decree La (no) 8 of 2017 on VAT. VAT is the most common type of tax found around the world and is essentially a consumption tax that is added on the price for goods and services as a fixed percentage of the price at each step of the supply chain. Ultimate consumers bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
In this this article we will focus on a comparison of the VAT regulations in the UAE with the established VAT systems in Malta and in Switzerland.
|VAT Definition||VAT is defined as a tax imposed on the import and supply of goods and services at each stage of production and distribution, including the deemed supply.(The deemed supply being defined as anything considered as a supply and treated as a taxable supply according to the instances stipulated in the Federal Decree Law (no) 8 of 2017 on VAT.)||VAT is defined as a consumption tax charged at every stage of the supply chain with businesses being allowed possibility to recover VAT incurred on purchases or expenses so that the final burden of VAT falls on the end costumer.||VAT is defined as a general consumption tax based on the system of net all-phase taxation with input tax deduction.
The purpose of the tax is to tax non-business end use on Swiss territory.
|Threshold for registration||The VAT system in the UAE differs between a mandatory and a voluntary registration for businesses:
(i) A business is required to register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000;
(ii) A business may choose to register for VAT voluntarily, if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500; and
(iii) a business may register voluntarily if their expenses exceed the voluntary registration threshold of AED 187,500.
|The VAT system in Malta requires that all companies and individuals involved in an economic activity to register for VAT. An economic activity is defined as an activity carried on by a person, who is not an employee and consisting of any one or more of the following:
– any trade, business, profession or vocation and the provision of any personal services; The VAT system in Malta requires that all companies and individuals involved in an economic activity to register for VAT. An economic activity is defined as an activity carried on by a person, who is not an employee and consisting of any one or more of the following:
– any trade, business, profession or vocation and the provision of any personal services;
– the exploitation of tangible or intangible property for the purpose of obtaining income there from on a continuing basis;
– the provision by a club, association or organisation of the facilities or advantages available to its members for a subscription or other consideration; and
– the admission of persons to any premises for a consideration.
Companies and individuals are allocated to one of the following three categories:
(i) Companies with an annual turnover exceeding the national threshold, which is decided by the economic activity in the company. This is in line with Article 10 of the VAT Act;
(ii) Small undertakings with an annual turnover below the threshold. Such small undertakings should have an annual turnover of over EUR 7,000 however they would still be considered as exempt from registration as their turnover does not exceed the payment threshold for taxable supplies. This is in line with Article 11 of the VAT Act; and
(iii) Entities or individuals intending to make intra-Community acquisitions in Malta. This is in line with Article 12 of the VAT Act.
|In Switzerland any person, irrespective of legal form, objects and intention to make a profit, is liable to register for VAT, if that person carries on a business with an annual turnover exceeding CHF 100,000.|
|Standard VAT rate||5 % standard VAT rate.
With a standard VAT rate of 5 % going into effect from 1 January 2018, the UAE standard VAT rate is very low and is considered a limited burden for end consumers by the Federal Tax Authorities.
|18 % standard VAT rate.
With a standard VAT rate of 18 % based on EU VAT directives, Malta has the highest standard VAT rate out of the three.
|8 % standard VAT rate.
Switzerland, which is known for having the lowest VAT rate in Europe, has a standard rate of 8 % VAT being applied to most goods and services. However a reduced rate of 2.5 % applies to certain everyday consumer goods (i.e. human needs) such as foodstuffs, non-alcoholic beverages, books, newspapers, magazines, medicines and tickets for sports and cultural events.
|VAT Responsibilities||VAT-registered companies in the UAE must*:
1. Keep an accurate and up to date track of their financial records that must be submitted to the Federal Tax Authority;
2. Charge VAT on taxable goods or services that they supply;
3. Report the amount of VAT that has been charged and the amount of VAT that has been paid to the government on a regular basis; and
4. Keep a range of business records which will allow the Federal Tax Authority to check that anything is in order.
*Please note that the above responsibilities are only some of the responsibilities for VAT registered companies in the UAE and that the list of obligations is not exhaustive.
|VAT-registered companies in Malta must*:
1. Charge VAT on taxable goods or services that they supply;
2. Submit returns electronically to the tax authority before the 22nd day of the second month [= 1 month + 22 days] following the month during which the relevant tax period ends; and
3. Keep books of account and records for 6 years in a proper manner.
*Please note that the above responsibilities are only some of the responsibilities for VAT registered companies in Malta and that the list of obligations is not exhaustive.
|VAT-registered companies in Switzerland must*:
1. Charge VAT on taxable goods or services that they supply;
2. Provide the tax authorities with information on all matters that could be of significance to tax liability or for assessment of the tax, and must submit the documents required;
3. Report to the tax authorities either quarterly or every six months depending on the method of calculation decided by the company; and
4. Keep books of account and records in a proper manner for at least ten years.
*Please note that the above responsibilities are only some of the responsibilities for VAT registered companies in Switzerland and that the list of obligations is not exhaustive.
|Exempted and zero rated sectors||The UAE operates with zero rated sectors and exempted sectors.
The following sectors will be charged with a zero % VAT rate:
(i) Exports of goods and services to outside of the GCC;
(ii) Internal transportation;
(iii)Supplies of certain sea, air and land means of transportation;
(iv)Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
(v) Newly constructed residential properties, that are supplied for the first time within three years of their construction;
(vi) Supply of certain education services, and supply of relevant goods and services; and
(vii) Supply of certain healthcare services, and supply of relevant goods and services.
The following sectors are exempted from VAT in the UAE:
(i) The supply of some financial services performed by banks and financial institutions;
(ii) Residential properties;
(iii) Bare land; and
(iv)Local passenger transport.
|The VAT system in Malta operates with VAT exempt without credit and VAT exempt with credit (zero-rated sectors).
The VAT exemptions with credit include the below sectors:
(ii) International traffic and transportation;
(iv) Local transportation;
(v) Intra-community goods and services;
(vi) Certain ships and aircrafts;
(vii) Certain categories of foodstuff;
(viii) Packaged medicines;
(ix) Brokers and other intermediaries; and
(x) Goods onboard of a cruise liner
On the other hand, VAT exemptions without credit include the following sectors::
(i) Insurance and financial services;
(ii) Cultural and religious facilities;
(iii) Lottery and gambling;
(iv) Postal services;
(v) Educational services;
(vi) Health facilities;
(vii) The supply of water by authorities;
(viii) Credit and banking;
(ix) Sports; and
|The VAT system in Switzerland operates with VAT exempt without credit and VAT exempt with credit (zero-rated sectors).
VAT exempt without credit includes the following:
(IV) Education; and
(V) Real estate.
VAT exempt with credit (zero-rated) applies for the following sectors:
(I) Exports of goods and services;
(II) Supplies of certain goods and services to airlines; and
(III) Services with the supply abroad.
lecocqassociate (DIFC) Ltd. specializes in the incorporation and structuring of financial and non-financial institutions with cost efficient solutions. It regularly advises and assists clients with the incorporation of VAT. This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on *protected email* for any questions.