The UAE's tax authority has announced that it will be relaxing the reporting deadlines for VAT, for those businesses which qualify for the new scheme.

The Federal Tax Authority (FTA) said that it was prepared to relax the rules after businesses, representation groups and authorities in the field said that they needed more flexibility and time to adjust to the new rules.

Around 450,000 SMEs across the United Arab Emirates said that they were not sufficiently prepared to adjust to the new incoming VAT regulations and would need more time to get themselves in order. Consequently, a new 'exceptional amendments' provision will allow qualifying businesses to benefit from extra time to enable them to get ready for the new Value Added Tax and the implications on their accounting, pricing and overall business finance.

The new 'exceptional amendments' rule will only be applicable to certain businesses, and it will extend the tax accounting period by one to three months, for qualifying businesses, according to the FTA's director general, Khalid Al Bustani. Details of which companies will be eligible for the extension are yet to be confirmed.

By way of example, he explained that, for some businesses, the new tax period would extend and become four months, and others would have a five-month period. Those businesses which retained a three-month period that concluded in March would not be impacted by the VAT amendments.

The move on tax reporting deadlines was announced as part of the FTA's intention to promote a partnership working approach with the UAE's business community and to support businesses fully as they worked to achieve full tax compliance. The country's SMEs are responsible for over 60% of the country's total GDP.

VAT can be a highly complex area even for businesses familiar with its requirements. The UAE began to implement a new 5% VAT tax from January this year, but many businesses are struggling to get up to speed with the accounting requirements of the new tax, especially those that left their registrations until the last minute.

Around 350,000 firms in the country are expected to be subject to the new VAT requirements and were obliged to register before 4th December. However, many missed the deadline. The authority has urged those companies which did miss their registration deadline to complete the process as quickly as possible to avoid being subject to penalties.

The UAE, together with Saudi Arabia, have taken the first steps to introduce VAT across the Arabian Gulf as part of a significant package of reforms designed to mitigate the region's lessening government revenues from oil.

The UAE and Saudi Arabia are the two largest economies in the Arab world and they have created additional government revenue sources by implementing new taxes on sugary and energy drinks, as well as on tobacco.

The UAE's government calculates that it will receive an expected Dh 12 billion this year, and around Dh 20 billion in 2019, according to official figures. As a result of the levy, consumer prices are expected to rise by around 1.4%, which may fuel inflation.