A UAE-based construction industry expert warned that proactive measures should be taken to help protect suppliers from cash flow issues as a result of this year’s value added tax (VAT) introduction.
Zander Muego, partner at international project management and cost consultancy firm, Thomas & Adamson, said: “The construction sector is particularly prone to cash flow challenges due to the extended value chain and cash intensive nature of the industry. With cash flow already a major issue, the introduction of VAT is likely to exacerbate this problem.”
Muego analysis is backed up by a recent study by credit insurer Coface which found construction-related companies across the UAE last year delayed payments by an average of 123 days longer than the contracted payment schedule.
Muego added: “The issue surrounding cash flow will arise as VAT falls due when the supplier raises a VAT invoice, irrespective of the payment date of that invoice. With the VAT then being accounted for by the supplier in the VAT return period in which the invoice falls, payment will be required whether or not they have been paid."
However, the Federal Tax Authority (FTA) in the UAE also revealed that selected supplies in certain sectors will be assigned zero-rated tax.
According to a statement released by the authority, selected supplies in sectors such as transportation, real estate, and financial services will be completely exempted from VAT.