Although the introduction of VAT in the UAE doesn’t appear to have greatly impacted regional supply chains, there could be complications in store later in the year, warns Jeremy Cape, tax and public policy partner, Squire Patton Boggs.
“My sense is that business have now registered for VAT, they’re issuing and receiving invoices for VAT and so a lot of them think that this whole VAT introduction isn’t too complicated,” he says. “The problem is that VAT is not a hard legislation to understand, but inherent in it are some quite complex wording dealing with ideas, philosophies and practises that are very complicated.”
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According to Cape, this is why in other countries where VAT has been established, such as the UK and North America, there is a lot of ongoing VAT litigation.
“What I’m expecting to see later in the year is that there will be some tax assessments and questions that will be raised by the FTA that will require businesses to interrogate that legislation in a bit more detail,” he says.
“That’s going to be due to the fact that even though 5% isn’t a very high rate of VAT by global standards, but over the course of several months and years 5% on a certain category of sales could give rise to a series of potential business-threatening tax assessments,” he adds.
Cape says that at this stage businesses will be turning to their lawyers to fully understand whether these assessments are fully grounded in law.
“And they’ll also be looking at how their supply chains are documented and structured in order to minimise the risks of an assessment that could amount to a substantial amount of money,” he says.