VAT in UAE imposes VAT on tax-registered businesses at a rate of 5%AM Audit | Audit Accounting Firm in Dubai
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1. What Is VAT?

A. VAT or Value Added Tax is an indirect tax applied on most of the goods and services. It is also referred to one of the types of general consumption tax. It is imposed on a product/service at all the stages of production and the final sale stage.
The businesses collect VAT on each stage of the supply chain on behalf of the government. Since it is added to the sales price chargeable to the consumer, it is ultimately the end consumer who pays all the VAT.

2. Why has UAE Implemented VAT?

A. The main reason for implementation of the VAT is UAE’s entry into the tax implementing nations’ bracket. Moreover, another key reason for the implementation of VAT in UAE is to generate more revenue for the government. This revenue will indeed help to offer various types of public services, including medical facilities, good roads, transportation facilities, public schools, parks, waste control, and more. VAT is also providing a new source of non-oil revenue for the Emirates.

3. How Does VAT Work?

A. Once a business is registered for VAT, the portion of VAT computed and charged on its sales of goods and services is called the ‘Output VAT’.
Whereas, the portion of VAT computed and paid on the purchase or import of goods and services and the expenses of the business, is called the ‘Input VAT’. The final VAT liability payable to or recoverable claim from the tax authority is computed by subtracting the Input VAT from the Output VAT figure.

4. Who Needs To Register For VAT?

A. A business should register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of 375,000 AED.

A business can also choose to register for VAT voluntarily under two conditions:

  1. If the supplies and imports of the business are less than the mandatory registration threshold, but greater than the voluntary registration threshold of AED 187,500.
  2. If expenses subject to VAT of the business exceed the voluntary registration threshold of AED 187,500. This opportunity is designed to enable start-up businesses with no turnover to register for VAT.

5. Is VAT Applicable for Tourists?

A. The travel and tourism industry are an important part of the UAE’s national economy. So, VAT is applicable on this industry. However, not all parts of the industry are subjected to the same VAT rates. The travel and tourism sector can be broken down into several components, such as luxury, medical, education, meetings, exhibitions, events and other special interest groups. Healthcare and education are zero-rated supplies in the UAE. Meetings, conferences, events, and trade expos, which account for a significant portion of the revenue-generating drive of the tourism sector, is taxable.

6. How Should Business Owners Calculate Their VAT?

A. Businesses should keep track of their sales, purchase and expenses including the tax paid on the same. The VAT payable by a taxpayer is equal to VAT collected on output (sales) – VAT paid on input (purchases).

Let’s look at an example of how to calculate output and input VAT.

Suppose you own a juice shop and spend 200,000 AED towards obtaining raw materials. The input tax rate is 5%, so the input tax you pay is 5% of 200,000 AED = 10,000 AED.

Now after selling juices using the purchased raw materials, you make sales of 400,000 AED. Supposing 5% is the output tax, the output tax you pay is 20,000 AED.

So, the final (net) VAT payable by you will be 20,000 AED – 10,000 AED = 10,000 AED.

In the VAT settlement, you deduct input VAT from output VAT. The resulting amount must be reported to your regional tax office. As you can see, you only pay tax to the state on the value your enterprise has added to the goods. (If your purchases exceed your sales in any one period, the difference will be negative, and the difference will be refunded by the tax authority).

7. How Is VAT Affecting One’s Cost Of Living?

A. Each person’s cost of living is affected by their lifestyle, so the impact of VAT will vary between individuals.There is negligible effect on the overall cost of living, but a person who spends mostly on exempt and zero-rated things does not see much increase.

8. What Sectors Are Zero Rated?

Zero-rated supplies include:

  1. Exports of goods and services outside the GCC.
  2. International and intra-GCC transport
  3. Supplies for certain sea, air, and land means of transportation (such as aircraft and ships).
  4. Supply of precious metals for investment (gold, silver, and platinum)
  5. Newly constructed residential properties that are supplied for the first time within three years of their construction.
  6. Supply of certain educational services and relevant goods and services.
  7. Supply of certain healthcare services and associated goods and services.
  8. Certain eatables (a standard list will be ratified across the GCC by the Financial and Economic Cooperation Committee)
  9. The oil sector and the oil and gas derivatives sector (at the discretion of each member state)

Additionally, each member state can zero rate or VAT-exempt:

  1. The educational sector
  2. The medical sector
  3. The real estate sector
  4. The local transport sector

9. What Sectors Are VAT Exempt?

The following categories of supplies that will be exempt from VAT are:

  1. The supply of certain financial services
  2. Sale of bare land
  3. Lease or sale of residential property
  4. Local transport

10. Is VAT Mandatory?

A:It is mandatory for companies with annual revenue of over Dh 375,000 to register under UAE VAT system.

11. What Are The VAT Rates?

A: The proposed standard rate of VAT in the UAE is 5%. Certain supplies of goods and are exempt (meaning VAT is not applicable at all), or zero-rated (meaning 0% VAT is to be applied to goods and services). The standard rate is be applied to all goods and services that do not fall under an exempt or zero-rated goods and services category.

12. How Do I Check Whether My TRN Is Valid?

  1. TRN validity could be checked by the following:
  2. Log in to the FTA e-services portal.
  3. Click the TRN Verification tab at the top of the page.
  4. Fill out the TRN field.
  5. Click Validate.
  6. If your TRN is valid, you will see the message ‘’TRN is available in the system’’ at the bottom of the screen.

13. What Is VAT Grouping?

A : Businesses that satisfy certain requirements provided by the legislation (such as being under the same ownership and located within UAE) will be able to register as a VAT group.

For some businesses, VAT grouping will be a useful tool to simplify accounting for VAT. By registering under the Group VAT scheme, businesses will get a single VAT number and can file a single return. A VAT group allows people and entities that are closely linked financially, economically and organizationally to operate as a single VAT person.

14. When And How Should VAT Returns Be Filed?

A : UAE taxpayers are expected to file VAT returns quarterly with the Federal Tax Authority (FTA). Returns must be submitted within 28 days from the end of the tax period according to the procedures set out in the VAT legislation. Taxpayers should use the e-services to file their returns online.
For eg, if Ali has VAT returns for the quarter of October through December 2018, he must file them before the 28th of January 2019

15. Under what situations can VAT Be Refunded?

A : Registered businesses whose input VAT (tax applied on the purchase of goods or services) is more than their output VAT (tax applied on the sale of goods or services) should indicate on their tax returns that they are eligible to receive VAT refunds.

16. Will VAT Be Paid on Imports?

If goods and services are imported from abroad, VAT is applicable. Most of the goods and services consumed in the UAE are imported; most come from Europe and Asia, while a few come from other GCC countries.:
Case : If the business owner in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

17. Can UAE Nationals Claim VAT?

A : Under some conditions UAE nationals who are not registered for VAT can still claim VAT. For example, the government has implemented a scheme that allows UAE nationals to reclaim VAT associated with building new residences for themselves and their families. They can demand VAT on services rendered by contractors, construction materials and related expenses.

18. Can Companies claim VAT on Expenses Incurred?

Under the following circumstances companies can demand VAT:

  1. If the company is registered under VAT, they can claim the VAT they have paid on expenses (the end user cannot seek any refund on input tax).
  2. Only permissible expenses allowed by FTA can be reclaimed. (Expenses incurred solely for business purposes. No personal expenses are admissible)
  3. Businesses should have appropriate documentation (such as a legitimate VAT invoice) indicating VAT is being billed.

19. Are labour camps and labour accommodations subject to VAT?

  1. It depends on whether the housing is termed as residential or industrial
  2. If a housing house provides the labourers with an apartment, it is tax free.
  3. When the lodging is supplemented by extra facilities, it is deemed commercial and subject to the regular VAT rate of 5%.

20. Are loans and other processing charges subject to VAT?

A : Loans are not subject to VAT under UAE, but the processing charges are subject to 5% VAT.

21. Are VAT-exempted goods and services also exempt from customs duty?

A : Needless to say. Two separate and independent levies include VAT and customs duties. However if customs duty on those goods is excluded, VAT can extend to the imports.

22. Can businesses offset customs duty against VAT payments?

A : VAT shall be payable in addition to the customs duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.

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