/ Vat Services

VAT SERVICES

Tax is such a simple, unassuming word, but it has the potential to frighten everyone who hears it. But what is the source of this insanity? Many individuals despise the word because they don't know what it means or have never attempted to learn it. So we'll take care of it for you. The Tax Procedures Law, which was passed last week, provided the groundwork for the projected UAE tax system, regulating tax collection and establishing the Federal Tax Authority's responsibilities.

By Decree No. 13 of 2016, the Federal Tax Authority (FTA) was established under Federal Law. The authority is in responsible of handling and collecting federal taxes and related fines, as well as distributing tax-generated funds and enforcing UAE tax laws.

His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Minister of Finance, is the authority's Chairman, while His Excellency Khalid Al Bustanitakes over as Director General from his position as Assistant Undersecretary of International Financial Affairs at the Ministry of Finance, which he held for more than 37 years. FTA will collaborate with the Ministry of Finance in order to accomplish economic diversification in the UAE, with an emphasis on non-oil profits.

5%. The VAT, as a general consumption tax, will apply to the vast majority of goods and service transactions. At each step of the supply chain, the UAE applies VAT on tax-registered firms on taxable supplies of goods or services. VAT-registered businesses collect the money on behalf of the government; consumers pay the VAT through a 5% rise in the price of taxable goods and services in the UAE. It will aim to improve the UAE's financial stability, as well as provide information and support to businesses and consumers to ensure that they satisfy their obligations and properly comprehend the country's taxes system. Thus, we at Dhanguard pioneer at providing you with exemplary services and guidance to help you learn about every important information relating to VAT in United Arab Emirates.Do exempt few minutes to read the below mentioned information which has been carefully devised by our Experts to provide you up to the mark services.

Shape Shape

Free Consultant For More Banking Services

So what is Value Added tax?

VAT (Value Added Tax) is a type of indirect tax. It's sometimes referred to as a kind of general consumption tax. A VAT is imposed on most purchases and sales of goods and services in a country that has one.

  • VAT is a sort of consumption tax that can be found all around the world. Over 150 nations, including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore, and Malaysia, have implemented VAT (or its counterpart, Goods and Services Tax).
  • Each step of the "supply chain" is subject to VAT. The VAT cost is usually borne by the final customer, while businesses collect and account for the tax, thereby functioning as a tax collector for the government.
  • A company pays the government the tax it collects from customers, and it may obtain a return from the government on the tax it pays to its suppliers. As a result, the "value add" along the supply chain is reflected in tax collections to the government.

The distinction between Value Added Tax (VAT) and Sales Tax (Sales Tax)

Just like VAT, sales tax is a consumption tax. Although there may be no discernible difference in how the two forms of taxes operate to the general public, there are some significant variances. In many nations, sales taxes are solely applied to goods transactions. Furthermore, sales tax is only applied to the final sale to the customer. VAT, on the other hand, is a tax on products and services that is levied throughout the supply chain, including at the point of sale. Imports of products and services are also subject to VAT in order to preserve a level playing field for domestic providers of the same goods and services.

How does VAT works?

Consider the following scenario to see how the VAT system works:

  • A plasma television set is sold to a wholesaler for AED 1000 by a manufacturer. The manufacturer collects a 5% VAT (AED 50) from the distributor on behalf of the government under the new tax structure. After then, the wholesaler pays a total of AED 1050.
  • The wholesaler raises the price to AED 2000 before selling it to a retailer. On behalf of the government, the wholesaler collects 5% VAT (AED 100) from the retailer, as well as obtaining a reimbursement of the VAT paid to the manufacturer in the previous phase. AED 2100 is paid in total by the retailer.
  • The vendor raises the selling price to AED 3000 before selling it to the end user. The merchant receives a reimbursement of the VAT paid to the wholesaler in the previous phase, as well as a VAT of 5% (AED 150) from the end client.
  • The plasma TV set costs a total of AED 3150 to the final customer.
  • Every step of the sales process is subject to VAT, and the registered business receives a return (or tax credit) for the VAT paid before. For the sale of goods and services in the UAE, the Federal Tax Authority (FTA) has set a fixed VAT rate of 5%.

Implementation of VAT in the United Arab Emirates& GCC Countries

Hospitals, roads, public schools, parks, trash management, and police services are among the various public services provided by the UAE Federal and Emirate governments. These services are funded by government funds. VAT provides a new source of revenue for our country, allowing us to continue to deliver high-quality public services in the future. It also assists the government in achieving its goal of lessening reliance on revenue from oil and other commodities. On the 1st of January 2018, VAT was implemented in the UAE at a standard rate of 5%.

The United Arab Emirates is a member of a group of countries that are linked by "The Economic Agreement between the GCC States" and "The GCC Customs Union." Because we recognize that a collaborative approach is beneficial for the area, the GCC group of states has traditionally worked together in establishing and implementing new public policies.

How to make a VAT registration?

Depending on the amount of revenue earned, registration may be required or optional.

Mandatory Registration

If the total value of taxable sales and imports inside the UAE for the past 12 months or the next 30 days exceeds the necessary registration level of AED 375,000, the business must register for VAT.

Voluntary Registration

  • If the total value of taxable sales and imports inside the UAE for the past 12 months or within the next 30 days reaches the voluntary registration level of AED 187,500, a business can voluntarily register for VAT.
  • Startups and small enterprises can choose to voluntarily register if their expenses surpass the voluntary registration threshold, making them eligible for a tax credit.

Who will be subject to taxation?

Companies

Businesses with yearly income of more than AED 375,000 that provide taxable products or services will be required to register for VAT. Businesses with taxable supply of less than AED 375,000 but more than AED 187,500 will be entitled to register. Businesses that provide health and education services can get VAT back from the government. All firms in the UAE must keep track of their financial transactions and keep accurate and up-to-date financial records. Businesses must register for VAT if their yearly turnover falls below a certain threshold (as determined by their financial records). Businesses that do not believe they should be registered for VAT should keep their financial documents in case we need to determine whether they should be.

Customer

You'll pay more for any non-essential item, but at 5%, you might not notice the difference. However, if you're a regular buyer of sugary drinks, soft drinks, or tobacco, you'll undoubtedly feel the pain, as these items will see the worst price increases.

Developers

Developers and the first sale of new homes will be exempt from taxation. This means that property developers will be entitled to reclaim any VAT they owe the government.The VAT treatment of real estate is determined by whether the property is commercial or residential. Commercial property supplies (including sales and leases) are subject to the regular VAT rate (i.e. 5 percent).

Residential property supplies, on the other hand, are normally VAT-free. This ensures that VAT is not an unrecoverable expenditure for those who purchase their own homes. The initial delivery of residential properties within three years after completion at the time of VAT introduction is zero-rated to ensure that real estate developers can collect VAT on residential property construction.

Tenants

The leases of residential tenants will not be taxed, while commercial tenants would have to pay VAT. It will apply to offices, shops, and other commercial property. VAT will be charged at a set rate on all commercial property sales made by VAT payers.

Importers/ Re-exporters

Due to the fact that the GCC is a customs union, tariffs are only paid once at the point of entry. Duties are not due as long as the items are delivered to their final destination within a certain time frame. But here's where things become complicated. If items are imported into the UAE and then set for re-export (with documentation to verify it), they will be liable to customs charges in the UAE but merely VAT in their final destination. However, if the items entering the UAE have an undetermined eventual destination, VAT must be paid in the UAE as well. This is designed to be a reclaimable resource.

Accountancy is required

The VAT system will have a significant impact on corporate account maintenance. Businesses that generate a certain amount of annual revenue must register for VAT. In any case, businesses who are not registered for VAT should save their financial records in case the government wants to determine whether they should be. Every VAT-registered business owner must keep the following records

Invoice

An invoice is a piece of paper that documents the specifics of a taxable transaction. Tax invoices can only be issued by VAT-registered firms. The primary documentation proof supporting the purchaser's VAT recovery is the receipt of a valid tax invoice. Business owners must provide separate invoices for purchases made from vendors or suppliers, in addition to bills for supplies made. The following information must be included on a valid tax invoice:

  1. A sequential number that is unique.
  2. The publication dates.
  3. Name, address, and Tax Identification Number of the supplier (TRN).
  4. Name, address, and Tax Identification Number of the consumer (TRN).
  5. The description of the goods or services that were provided.
  6. The total cost does not include VAT.
  7. Each item's price and quantity.
  8. Per-item discount rate.
  9. Rate of VAT per item - if an item is exempt or zero-rated, state that it is not subject to VAT.

Credit Notes

Credit notes are issued when products are returned for a refund, when an invoice amount is inflated, or when a business must issue a refund to a client in other reasons. It's a document given by a seller to a buyer informing them that their account has been credited for goods returned by the buyer.

Debit Notes

When a buyer's liability to a seller increases, debit notes are issued (due to extra goods delivered or goods already delivered charged incorrectly). These can be written in the form of a letter or a formal document, and they indicate future liability.

Invoices that have already been issued cannot be changed. When a modification to an existing transaction is made, credit/debit notes are issued, as mentioned above.

Exemptions from VAT in various sectors

Sectors with no rating

The following key types of supplies will be subject to a 0% VAT charge:

  1. Exports of goods and services to countries beyond the Gulf Cooperation Council
  2. Transportation and related supplies on a global scale
  3. Certain sea, air, and land modes of transportation (such as planes and ships) are in short supply.
  4. Precious metals of investment grade (e.g., gold, silver, of 99 percent purity)
  5. Residential properties that are newly developed and supplied for the first time within three years after their completion.
  6. Provision of some educational services, as well as the provision of related goods and services
  7. Provision of specific healthcare services, as well as the provision of related goods and services

Sectors exempted from VAT

VAT exemption will be granted to the following types of goods and services:

  1. The provision of some financial services (clarified in VAT legislation)
  2. Residential real estate
  3. Vacant land
  4. Passenger transport in the local area

Partially exempted

  • Input tax paid on business costs by a VAT registered person can be reclaimed in full if the tax is related to a taxable supply made or proposed to be made by the registered person. In contrast, if the expense is for a non-taxable supply (such as exempt supplies), the registered person will not be able to recoup the input tax paid.
  • A cost may relate to both taxable and non-taxable supplies provided by the registered person in certain circumstances (such as activities of the banking sector). In these situations, the registered person must divide input tax between taxable and non-taxable (exempt) supplies.
  • In the initial instance, businesses would be expected to utilize input tax (the ratio of recoverable to total) as a foundation for apportionment, however other techniques will be allowed if they are fair and agreed upon by the Federal Tax Authority.

Get Instant Advice

VAT FAQs

  • What is Value Added Tax?

    The Value Added Tax (VAT) is an indirect tax imposed on the consumption or use of goods and services. It is billed at each stage of the supply chain. The costs of VAT are borne by end consumers, while registered enterprises collect and account for VAT on behalf of the government.

  • What method is used to collect VAT?

    • VAT is collected on behalf of the government by VAT-registered firms; consumers pay the VAT in the form of a 5% increase in the cost of taxable products and services purchased in the UAE.
    • VAT is levied at a rate of 5% on taxable supplies of goods or services at each step of the supply chain for tax-registered enterprises in the UAE.
    • Tourists in the United Arab Emirates must also pay VAT at the time of purchase.

  • When is it necessary for businesses to file a VAT return?

    VAT returns must be filed with FTA on a regular basis, usually within 28 days of the end of the 'tax period' that is designated for each type of business. A 'tax period' is a set of dates for which the amount of tax due must be calculated and paid. The regular tax year runs from January 1 to December 31.
    • Firms with an annual turnover of less than AED150 million must report quarterly; businesses with an annual turnover of AED150 million or more must report monthly.
    • The FTA has the authority to apply a different tax period to specific types of firms at its discretion. According to the terms of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE, failure to file a tax return within the required time limit would result in fines.

  • What are the requirements for VAT registration?

    • If a company's taxable supplies and imports total more than AED 375,000 per year, it must register for VAT.
    • It is optional for enterprises with annual supplies and imports of more than AED 187,500.
    • The tax that a company obtains from its consumers is paid to the government. At the same time, the government reimburses it for the tax it has paid to its suppliers.
    • Foreign enterprises may also be able to reclaim the VAT they pay while in the UAE.