With VAT coming into the GCC region, those required to register must be mindful of two things: the onus to account for it will generally fall on the supplier (as it is the supplier who is generally required to account, though not always); and a contract that is silent with regards to VAT will generally be treated as inclusive of VAT.
Contractors should pay particular heed to the above. Given the current low margins and the value and volume of contracts they have in place at any one time, "sticking VAT" could become a real problem and burden to bear. The new VAT law in the UAE, which comes into force on 1 January 2018, requires all those who make supplies of goods and/or services to register for VAT (click here for further guidance on the VAT thresholds). The Executive Regulations, due to be issued later this year by the government, will seek to flesh out much of the detail that the legislation does not yet cover.
However, what is made clear by the legislation is that it is generally the supplier who will be held responsible for accounting for VAT. Suppliers/contractors can expect a number of changes to their business operations, including what a "VAT invoice" should look. The legislation provides some guidance, but those seeking to register for VAT should seek advice on this, and on the inclusion of VAT clauses in their contracts. Parties to private contracts will be required to adhere to the express terms agreed and, where a contract is silent on the new tax, a recipient of goods/services may well argue that VAT is not to be borne by them as the contract has failed to specify VAT as an addition to the contract price. Indeed, the Transitional Rules in the legislation make it clear that generally, where a contract is silent with regards to VAT, it will be treated as VAT inclusive. Furthermore, in those scenarios where the recipient (and not the supplier) must account for VAT, additional complexities will apply to contractual interpretation. Whilst the Federal Tax Authority (FTA) provides some recourse for challenging tax assessments, it is unlikely that the FTA will enter into the arena of private contractual negotiations, and it is likely to be the supplier/contractor who will be stuck with bearing the VAT liability. You should check your contracts now.