UAE VAT from 1 January 2018: preparing packaging component purchases

Value added tax is due to start in the United Arab Emirates on 1 January 2018. For companies that buy buckles, clips, seals and strap, the change touches every quotation, invoice and import from that date. Three weeks before the start, the main legal pieces are in place, and the practical work is making sure purchasing documents say clearly what has been agreed.

This guide summarises what has been published and the points a buyer of strapping components should settle with suppliers in December 2017. It is not tax advice.

What has been published

In late August 2017 the UAE issued Federal Decree-Law No. 8 of 2017 on Value Added Tax. As reported by Khaleej Times from WAM on 28 August 2017, the law sets a 5 per cent tax on the import and supply of goods and services at each stage of production and distribution, as a step towards implementing VAT from January 2018. The same report explains that exports to outside a VAT-implementing GCC state, and international transport of goods, are zero-rated.

On registration, Gulf Business reported on 31 October 2017 that the Federal Tax Authority requires businesses to register if their taxable supplies exceed the mandatory threshold of Dhs375,000 over the previous 12 months, that goods and services imported from abroad count as taxable supplies, and that registration is online and free of charge.

The VAT Executive Regulation followed at the end of November. Khaleej Times reported on 29 November 2017 that the regulation had been issued, that businesses whose taxable supplies and imports of goods and services exceeded Dh375,000 over the previous 12 months were being urged to register without delay, and that the authority was reminding businesses of an administrative penalty of Dh20,000 for failing to register.

VAT follows the excise tax on tobacco, energy drinks and carbonated drinks, which started on 1 October 2017. Excise does not apply to packaging components.

What changes on a strapping component order

For most buyers, three documents are affected.

The quotation. From 1 January 2018, a price that does not state its VAT treatment invites argument. Ask for prices to be shown clearly as excluding or including VAT, and for the delivery term and named place to be stated, because they show who imports the goods and where responsibility passes.

The invoice. Registered businesses will need invoices that support their VAT records. Make sure suppliers have your correct legal name, address and tax registration number once issued.

The import. Because imports count as taxable supplies, the party that imports the goods matters. Under some delivery terms the buyer imports; under others the seller or its agent does. Identify the importer for each order and check how import VAT will be handled with your customs broker and tax adviser.

A quotation checklist for December 2017

Item	What to agree
Price basis	Excluding or including VAT, in which currency
Delivery term and named place	Who imports, who clears customs and where risk passes
Importer	The legal entity named as importer on the customs declaration
Buyer details	Legal name, address and tax registration number
Delivery date	Expected arrival relative to 1 January 2018
Re-export	Whether goods will leave the UAE, and to which country
Credit and adjustments	How price corrections and returns will be documented

Our Gulf enquiry guide explains how to define the actual delivery point, which is the starting point for several of these lines.

Orders that span the start date

Orders placed in December 2017 for delivery in January 2018 deserve particular care. Which tax treatment applies to a given transaction depends on the rules in the law and its Executive Regulation, and on the facts of the supply. Do not rely on a supplier’s assumption. Ask your tax adviser how your orders should be documented, and make sure the quotation can be updated if the treatment needs to change.

Distributors and re-exports

Distributors who supply customers elsewhere in the Gulf, or further afield, should record the destination of each shipment. The zero rate for exports reported in August 2017 refers to goods leaving for destinations outside a VAT-implementing GCC state, so the evidence of export matters. How sales to customers in other GCC states are treated is a question for your tax adviser under the law and its Executive Regulation. Keep transport documents with the sales record.

Keep the technical specification separate

VAT changes the commercial documents, not the component. A buckle, clip or seal is still identified by its dimensions, finish, strap and tool. Keep the agreed specification on the purchase order so that a change of price basis does not turn into an accidental change of part. The RFQ checklist offers a format that keeps the two apart.

Requesting VAT-ready quotations

When requesting prices for galvanized wire buckles, sheet metal clips, steel strapping seals or woven strap for UAE delivery, include the delivery point, importer and buyer details through the enquiry page. Delivery terms and documents are agreed in each quotation.