The UAE introduced value added tax (VAT) from January 1, 2018, after publishing the Federal VAT Law in August 2017 establishing the domestic rules applying for VAT in the UAE. This adds to the Unified VAT Agreement between GCC nations. The standard VAT rate of 5 percent is applied to goods and services. It's only natural to wonder how the introduction of VAT could affect certain sectors, so let's look at telecommunications.
VAT is an efficient and transparent way for governments to increase revenue; the IMF predicts that GCC states can boost GDP by 1.5 percent with the implementation of VAT. This will help GCC states to diversify their economies away from oil and to continue delivering on their public service mandates.
According to the Federal Tax Authority of UAE, VAT is a tax on the consumption or use of goods and services levied at points of sale in the UAE, including the telecom sector. VAT is levied at each stage of the "supply chain". In general, the final consumer is the one who bears the cost of this tax, while businesses (including telecom companies) collect and calculate the tax, as a tax collector for the Federal Tax Authority.
For the telecom sector, VAT will be applied as follows: for postpaid services, 5 percent of the total amount of the invoice will be charged to users. For prepaid services, VAT will be calculated at 5 percent upon purchase of a new SIM after January 1, 2018. However, as for recharge cards, the tax will not be applied to the face value of the recharge, but 5 percent will be applied to prices of the services used by the user from the recharged amount.
As of January 1, 2018, the price of services in the UAE's telecom sector will be inclusive of VAT, but that does not apply to telecom services to which VAT is not applicable pursuant to Federal Law No. 8 of 2017 on value added tax and its executive order (e.g. international roaming services), the Telecommunications Regulatory Authority (TRA) said in a statement.
The role of telecom companies in the UAE is to collect VAT for the Federal Tax Authority. The core role of the TRA is to ensure that telecom companies comply with the law by implementation of VAT of not more than the 5 percent declared in the Federal Law No. 8 of 2017 on Value Added Tax as well as to ensure that telecom companies do not apply VAT on exempted services.
UAE telecom provider Etisalat announced on December 21 that starting January 1, 2018, it would start collecting VAT with a standard rate of 5 percent on behalf of the government, which will be added on applicable products and usage of its services. Etisalat said it is taking all efforts to be ready and compliant for the new law and provide complete information to all customers on its effect in the future.
The UAE leadership's vision is to build a diversified and sustainable economy and the new tax system aims to support the economic development in the country enabling it to compete with world's most advanced economies. Etisalat said it is making sure that transparency is maintained by taking all necessary measures in educating customers on the new government directives regarding VAT and its impact on their telecom services.
On January 3, 2018, Etisalat clarified that it had not increased the prices of prepaid recharge cards after the implementation of VAT in the UAE. The company said it had introduced five denominations of recharge cards sold at AED30, AED55, AED110, AED210 and AED525 to ensure customers have sufficient credit to subscribe to existing data and combo packages after adding 5 percent VAT.
"The five percent VAT will only apply on the actual usage, and not on the prepaid recharge cards value. Prepaid users will not pay any extra fee when they recharge," Etisalat management said.
Meanwhile, Etisalat has asked distributors to adhere to the approved pricing policies and not to levy any additional fee, and cautioned customers not to pay more than the amount on any of its recharge cards. Customers are also being encouraged by Etisalat to report any unwarranted price increase in the wake of the VAT implementation.
Emirates Integrated Telecommunications Company (EITC), the parent company of du, the UAE's second telecom provider, has developed a simple tax registration online form for customers to submit their Tax Registration Number and claim back tax from their du bill. Tax Registration Numbers will be collected so that eligible business customers can claim back tax on their du bill, directly from the UAE government under the new legislation.
In November 2017, du began contacting all of its customers directly and individually to advise them on the introduction of the VAT. Now, in addition to these initial efforts, du's tax registration form will help provide further clarity for its customers by gathering all the required information from them digitally via an electronic portal designed to streamline the submission process.
"Our goal is to be transparent with our customers to help eliminate any uncertainty or misunderstanding they may have about VAT before it goes live," said Fahad Al Hassawi, deputy CEO, EITC. "By providing a simple and straightforward process for our customers to be able to submit their Tax Registration Number, we aim to enable awareness and compliance with the government directives associated with VAT in a way that leaves customers feeling informed and assured."
As part of this process, du customers can provide the company with their FTA issued Tax Registration Number (TRN) along with other details through a special web form accessible through the company's dedicated VAT webpage. Customers will be required to provide their company name, contact name, phone number and email, du account number/code, and FTA Tax Registration Number.
Customers will also be required to upload digital copies of their Tax Registration Certificate, Emirates ID, and their most recent du bill. From there, all the submitted information will be reviewed by a dedicated team at du, who will verify the documents, file them into du's system, and send confirmations to customers. In the case of documents being rejected or invalid, du's team will contact the customer to advise accordingly.
"VAT is a valuable building block in the construction of a greater future for the UAE, and we want to ensure that our customers can provide their tax related information to us through a simple and easy process as we value our customer's happiness and satisfaction when it comes to our services," Al Hassawi added.
EITC CEO, Osman Sultan, said the company sees the introduction of VAT as a "positive step towards developing a sustainable, economically diverse and future proof UAE." Sultan said, "Our nation and its leaders have worked tirelessly to provide us with numerous public services and amenities, and this is an opportunity for us to help in taking this success further."
Sultan added, "Our aim is to ensure that we smoothly implement VAT across our business operations. We look forward to this new step the UAE leadership is taking. It is reflective of our development as a society, as well as our diversification into a knowledge economy."
Speaking on the impact of VAT on UAE-based firms, Mansoor Sarwar, regional technical director for the Middle East at cloud accounting and payment systems company, Sage, said compliance with the UAE VAT law "requires significant changes to a firm's technology, operations, financial management and accounting practices."
Sarwar added, "The reality is that businesses in this region have never had to deal with taxation before, and it is unlikely that their current systems are VAT-ready." Sarwar suggests investing in a cloud-enabled accounting solution to "streamline the VAT collection, record-keeping and reporting processes."