Dubai Compliance Updates

Dr Mashal ALZarooni

MAZ Chartered Accountants

This articles highlights the updates to the new regulatory requirements in Dubai which are applicable in 2018. These are ‘Value Added Tax (VAT)’ and ‘Restructuring and Bankruptcy’.


Value Added Tax (VAT)

VAT in Dubai came into effect from 1 Jan 2018 as part of the government’s strategy to diversify its revenues - with the aim to reduce the country's dependency on oil and other hydrocarbons as a source of revenue.

Companies with revenue more than USD 100,000 per annum are required to register with the Federal Tax Authority (FTA). Companies who fail to register and comply with the requirements will be liable for criminal offence. Khalid Al Bustani, director general of the FTA, said ‘we will not tolerate tax evaders, and we will not tolerate tax avoiders.’ The FTA has postponed the penalty for not registering until the end of April to give companies more time to prepare their business, but it highlighted that this did not mean these companies were exempt from registering.

The rate of VAT is set at 5%, while there are products that will be set at 100% tax such as tobacco and energy drinks. Some products and services will be exempted from the VAT such as food, education and health etc.

Types of VAT:

a) Standard Rate: This is set at 5%, which covers most goods and services.

b) Exempted Rate: This is 0% (zero percent), however you can’t claim your input tax.

c) Zero Rate: This is set at 0% (zero percent), however you can claim your input tax.

d) Excise Rate: This is a 100% tax, on products such as tobacco and energy drinks.

The UAE is connected with other GCC countries through 'The Economic Agreement between the GCC States' and 'The GCC Customs Union'. It closely coordinates VAT implementation with other GCC countries. Read more on the websites of the Federal Tax Authority and the Ministry of Finance.


Restructuring & Bankruptcy

The UAE government has issued Federal Decree Law No. 9 of 2016 on Bankruptcy (the New Law). The New Law came into force on 29 December 2016.

The objective was to modernise and streamline bankruptcy procedures available for UAE companies whilst maintaining a backdrop of accountability for directors of failed enterprises.

The New Law sets out three main procedures for a business in financial difficulty:

a) Protective composition: this is a debtor-led, court-sponsored process, designed to facilitate the rescue of a business which is in financial difficulty but not yet insolvent.  The scheme requires the approval of both a majority in number and two-thirds by value of the unsecured creditors. The scheme must be implemented within three years of court approval, which may be extended for a further three years with creditor approval.

b) Insolvency with restructuring: where a debtor is insolvent but the court determines that the business is capable of rescue, it may approve a restructuring scheme.  Such a scheme is similar to the protective composition described above, requiring the same levels of creditor approval, but a longer period of five years (extendable by a further three years) is allowed for implementation.

In each case, a "trustee", who must be independent of the debtor, is appointed to manage the process.  The New Law includes strict time limits for making filings and lodging objections, and it is expressly provided that the relevant process continues while the court considers any objections.  This is important, as time-consuming proceedings may otherwise prove to be a practical obstacle to using the procedures under the New Law.

In Dubai, and all over the UAE, there are only a very few ‘Restructuring and Bankruptcy cases’; businesses are still reluctant to file cases for restructuring and bankruptcy.


XLNC MAGAZINE | No. 01 | May 2018

Interested in becoming a member of XLNC?

If you are a professional services firm with an international client base and are regarded as one of the leading industry practices in your country, working to the highest standards and providing excellent client service, you meet the basic requirements for XLNC membership.

Become a member