Like the end of the year holiday season, the deadline for the Federal Government’s introduction of Value Added Tax on 01 January 2018 looms ever closer.
The VAT Law itself is already on the Government’s Statute Books – in the form of Federal Decree-Law Number 8 of 2017 (the VAT Law); but, although the Law has already been issued, Article 85 specifies that it is only due to come “into effect as of January 1, 2018”.
Parties that are going to be subject to the Transitional Rules in the VAT Law of course need to know how those arrangements are to affect them, but at the time of writing a vital part of the VAT Law jigsaw is missing.
The Transitional Rules are contained in Article 80 of the VAT Law and specify, in part, the applicable law where a contract has been entered into between parties before the date of January 2018, but which relates to “supply” made, in whole or part, after that date.
The specific part of Article 80 then sets out how the “supply” is to be treated. Broadly put the agreed price is to be treated as inclusive of the VAT percentage (where applicable to a “supply”).
Yet, this important part of Article 80 is stated as being applicable only to contracts which do not contain causes “related to Tax on the supply” – the “Tax” mentioned being the term specifically defined in the Law of “Value Added Tax (VAT)”.
These provisions will be generic to all forms of applicable contracts that are already in place in UAE and whose effective periods span the effective date of 1 January 2018.
In the Construction Industry sector in UAE model forms of Main Contract and Subcontract are of course in widespread use – principally the contract “suites” contained in the FIDIC forms.
Parties to these types of contracts will need to decide whether their contracts do – or do not – “contain clauses related to” the defined term “Tax”; i.e expressly Value Added Tax (VAT), in order to know whether the Transitional Rules will apply to them.
If an existing Contract contains a Contract Price that is to be deemed to include VAT, then maybe one of the Parties to that contract is going to have to be concerned about losing value under it, as an element of the price would be treated as tax to go to the Government.
Understanding the above is not, though, the only issue currently confronting Parties to year-end spanning agreements.
Press reports have highlighted that, as yet, the Executive Regulations applicable to the VAT Law hare still to be published by the Government.
Article 80 of the VAT Law also specifies that these Executive Regulations are to “set forth special provisions related to the implementation of…” the VAT Law, applicable to those contracts that have been concluded before 1 January 2018 where the “supply” under the contracts is to be made after that date. Therefore, the Regulations are intended to bring further clarity to the Transitional Rules.
Yet it is also these Regulations – with just over two and half months to go before the effective date of the VAT Law – which are, essentially, the vital missing part of the VAT Law jigsaw for Parties who have entered into cross-over contracts.
Widespread speculation indicates that the Regulations are to be issued soon, maybe even imminently. So Parties will have just the remainder of the time before 1 January 2018 to complete their jigsaws, and with the end of the year holiday period looming.