Vikash Kabra & Co. | UAE VAT | Chartered Accountants Firm In Kolkata, WEST BENGAL, INDIA, UAE, DUBAI

UAE VAT

The UAE will implement five per cent value-added tax (VAT) from 7am on January 1, 2018, with a few goods and services zero-rated and exempted as part of the GCC-wide agreement.
Being an indirect tax on consumers, VAT will be applicable on most daily usage goods and services that residents consume, helping the government to boost its coffers to further improve infrastructure and offer better facilities.

What is VAT?

Value Added Tax is an Indirect Tax imposed on the supply of most of the goods and services. It is one of the most common types of consumption taxes found around the world. More than 150 countries, including all 29 EU Member states, as well as Canada, New Zealand, Australia, Singapore and Malaysia have implemented VAT.

How it works?

VAT is charged at each step of the supply chain. In general, it is the consumers that ultimately bear the VAT Costs. The businesses charge VAT to their customers by adding VAT to the value of the goods and services that are supplied to the customers. These types of businesses are also entitled to reclaim VAT which they have paid to their suppliers on purchase of goods or services in the normal course of business.
Businesses pay the government the tax that they collect from consumers. In some case, they may reclaim from the government the VAT they have paid to the suppliers. Thus, the net result of tax revenues received by the government is tax on that “value added” throughout all stages of the supply chain.
In case of Imports, VAT is levied at the point when the goods first enter into the country in which it will ultimately be consumed.

Example:

Steps in the supply chain	Sale price without VAT	VAT charged on sales	VAT reclaimed on purchases	Net VAT payable
Farmer sells Wool to manufacturer	AED 200	AED 10	AED 0	AED 10
Manufacturer makes sweaters and sells to wholesaler	AED 300	AED 15	AED 10	AED 5
Wholesaler sells to Retailers	AED 400	AED 20	AED 15	AED 5
Retailer sells to the customers	AED 500	AED 25	AED 20	AED 5

Overview-Basic Concepts

VAT is charged on supply of any taxable goods or services by a registered business in the normal course of its business activities.
The point of taxation in context of VAT basically means the point at which a business becomes liable to pay VAT on supply of goods or services it has acquired to further its business operations. The tax point can basically be defined as earlier of the following :

• Goods made available to customers/services are performed.
• Tax invoice is issued by the supplier of goods or services.
• Supplier receives consideration from the customer either in full or partially.

Place of Supply - Goods

In case of goods that are supplied to customers without being transported to another place then in such a scenario the place of supply will be the place at which the goods are made available to customers after being produced by the supplier.
If the goods are supplied to customers after being transported to another place then the place of supply for goods like these will be the place where goods are sent after being produced by the manufacturer.

Place of Supply - Goods

In case of goods that are supplied to customers without being transported to another place then in such a scenario the place of supply will be the place at which the goods are made available to customers after being produced by the supplier.
If the goods are supplied to customers after being transported to another place then the place of supply for goods like these will be the place where goods are sent after being produced by the manufacturer.

Place of Supply - Services

In case of business to business transactions the place of supply would be from where the recipient of the service belongs.For business to consumer transactions the place of supply would be from where the supplier of the service belongs.

Rate of VAT in UAE

VAT will be levied at the standard rate of 5% on supply of all kinds of goods and services in the UAE baring supplies that are :
• Exempt from VAT
• Zero rated
• Out of the scope of VAT in UAE.

Categorized in three segments - five per cent standard rate, exempt and zero-rated - VAT is one of the most common types of consumption taxes in the world as it's levied in more than 150 countries.
As per the regulations, the sectors that will be subject to five per cent VAT include food and beverages, utility bills, private transport services, hotel services, entertainment, electronics, school uniforms, commercial rents, cars and jewellery, among others.

The following supplies are exempt from VAT:
• Bare Land
• Interest received
• Life Insurance
• Local Transportation
• Lease of residential property
• Second Sale of residential property
• Medicines
• Tuition Fees
• Surgery
• Certain Government Services

Zero rated supplies are those supplies on which VAT is charged at rate of 0% by businesses. Following are the supplies that are considered to be zero rated in the UAE:
• Exports of goods/services outside the GCC
• Education
• Healthcare
• International Transportation
• First sale of residential property
• Investment in specific precious metals.

Registering for VAT

In the UAE, the Federal Tax Authority has asked all entities and individuals crossing the threshold of AED 375,000 to register and get approval before January 1, 2018, to ensure that they don't face any penalties.
Businesses having annual taxable supplies between AED 187,500 and AED 375,000 can voluntarily register for VAT in the UAE. Businesses that are not registered under VAT do not have the right to charge VAT on supply of goods/services to their clients and also cannot reclaim VAT paid on their purchases.

Persons Liable to Pay VAT

In general, the person who issues a tax invoice containing VAT will be the one liable to pay VAT to the tax authorities. In circumstances, where reverse charge mechanism is applicable and goods/services are being supplied in a GCC member state and supplier is not the resident of the particular member state, then the taxable customer will be the one responsible for paying VAT.

Reverse Charge Mechanism(RCM)

Normally the supplier charges VAT to customers and therefore are liable to pay VAT but in case of RCM it is the opposite as under this mechanism the customer becomes liable to pay VAT. In simple words the customer levies VAT to itself. This mechanism basically eliminates the requirement for supplier to be VAT registered in the country in which supply is made.
When a buyer using RCM makes a taxable supply, then that buyer is responsible for making declaration of purchases (Input VAT) and also sales (output VAT) in the same VAT return. In this way, both the entries cancel the effect of each other from a cash payment perspective in the same VAT return.

Treatment of Imports

If goods/services are being provided by a registered business in any GCC state to a VAT registered business in the UAE then the place of supply in the context of such a transaction would be the UAE as the goods/ services will be used in the UAE by a registered business for the furtherance of its business operations. In situations like these the right to tax will remain with the UAE government.
If goods/services are being provided by a supplier outside the GCC to a registered business in the UAE then the place of supply in such a transaction would be the UAE and the goods/services supplied will be subject to import VAT as the goods/services will be used by in the UAE.
Usually the supplier charges and collects VAT on behalf of the tax authorities but in both the cases mentioned above VAT will be charged through RCM which would see the buyer (business in the UAE) not only accounting for VAT but also paying it to the tax authorities.

Treatment of Exports

In the UAE, export of goods or services are classified as zero rated supplies which means VAT on export of goods or services will be charged at the rate of 0%.
The exporter is required to provide the following documents so that to provide evidence of the information regarding the export of goods:
• Purchase order
• Sales invoice to client
• Packing list/Delivery Note
• Evidence of consideration received from customers
• Insurance documents (Where applicable)
• Instructions from client regarding delivery of goods
• Bill of lading/Airway bill.

Compliance Requirements under VAT

One of the inherent features of VAT is its self-assessment nature, which means that every VAT registered business must account for and report its VAT entitlements and obligations in compliance with the relevant laws and regulations, to the tax authorities.
Some other requirements of VAT are as follows:
1. Businesses exceeding VAT registration threshold to be registered for VAT.
2. Filing of VAT returns on a regularly either on monthly basis or quarterly.
3. Remitting VAT, if any, that is due to be paid to the tax authorities by a specific date.
4. Maintaining records with reference to all types of business transactions.

Some of the records which a business is required to maintain for VAT tax purposes are as follows:
    • Tax invoices received in case of purchases
    • Tax invoices issued in sale transaction
    • Export and import documents
    • Evidences of Vendor payments
    • Filed returns and back up data
    • Inventory records
    • Contracts with clients and vendors
    • Evidence of payment of VAT
    • Credit or Debit notes
    • Reconciliation of figures in accounts with those mentioned in tax returns.
5. Businesses are required to keep and maintain accounting and other records for a minimum of 5 years. The minimum time period in the Real Estate sector however is 15 years.

Calculation and Reporting of VAT

After business gets registered for VAT then the business becomes responsible for charging VAT and also for remitting VAT collected from customers to the tax authority on timely basis. The total amount a business is liable to remit to the tax authority is determined by the VAT charged on sales less the figure of VAT that has already been paid on purchases.
In most jurisdictions and regions, the reporting process of VAT is completed when a VAT return is filed with the tax authority. VAT registered businesses are required to file VAT return either monthly or quarterly.

Tax Return Filing & Payment:
• VAT return submissions to be made online
• Due date of payment of VAT tax is set at 28 days following the end of the return period. In case the return filing date falls on a public holiday or weekend the deadline in that case is extended to following first working day.

Penalties

• Administrative Penalties: Penalties shall be up to 3 times the amount of tax for which the penalty was levied.
• Tax Evasion Penalties: Up to 5 times the relevant tax at stake and a prison sentence.

Preparation For Companies

• Companies have to analysis the impact of Vat on their Businesses so that Tax Credit and Tax payable can be identified and paid.
• Accounting software’s has to be upgraded in accordance with Vat law like Modification of invoices. (tax amount should come in AED, tax invoice should be mentioned on the top of invoice)
• Tax invoice should contain TRN No., date of sale, Emirates of Sale, Clear description, Quantity of goods, Amount of sale and tax amount in AED.
• Vat payable and Vat receivable account to be created in CL/CA
• Record keeping in respect of all business transactions is a must (tax invoices, Debit/Credit note, Import/Export reports, Record of goods and services provided for free or for private use, Zero rated or Vat Exempt supplies and purchases)

Services Offered

We can help you with the following services:
• Analyze the effect of VAT on your Business.
• Help in preparing your Books as per VAT guidelines;
• Help in Registering your Business with FTA and get TRN;
• Accounts and Master Set up for VAT in accounting records
• VAT Report Preparation
• Timely filing of VAT Returns with Tax Authorities
• Claiming of Refunds
• VAT Related Consultancy and Planning

Documents and information required for VAT Registration in the UAE:

Before applying for VAT Registration, below mentioned documents are required to be kept ready. The soft copies of the documents should also be uploaded along with the application.
• Documents identifying the authorized signatory e.g. passport copy, Emirates ID.
• Trade license copy of the company.
• Other official documents authorizing the entity/individual to conduct activities within the UAE e.g. certificate of incorporation, articles of association, power of attorney etc.
• Description of business activities.
• Turnover for the last 12 months in AED.
• Supporting document for 12-month sales.
• Expected turnover in next 30 days.
• Estimated value of imports for one year from each GCC countries.
• Estimated value of exports for one year to each GCC countries.
• Whether you expect to deal with GCC suppliers or customers.
• Supporting documents for customs registration in each Emirates if applicable.
• Details of Bank Account.

FAQ ON VAT-UAE

What is VAT?

VAT - Value Added Tax - is a tax levied on sale goods and services. Think of it as a tax on the value you add to products and services.(Difference between what you've paid and what you charge for a product/Service. - Also, on the price difference)

When will VAT be implemented in UAE?

VAT will be introduced in UAE from January 1, 2018.

Who is required to register for VAT in UAE?

Mandatory Registration - Businesses with taxable Goods and services are more than AED 375,000 for a Previous year need to register for VAT. Voluntary Registration - Businesses with taxable Goods and services between 1, 87,500 to AED 375,000 for a Previous year can register for VAT.

Will everything be taxed?

The UAE will remain tax-free in many ways even after the implementation of VAT as there is no income tax on salaries in the country. Free zones in the country also offers tax free environment including 100 per cent foreign ownership in free zones, ease of doing business.
The government is likely to use its ability to either zero-rate or exempt many supplies most likely to impact the common man to ensure that the impact of VAT is kept to a minimum? Essentially, the intentions of most governments when introducing a VAT is to focus more on taxing discretionary spend by consumers, while ensuring that those at the lower end of the spectrum are protected and assisted.

What will be exempt from the tax?

The UAE government has already announced that 100 food items, health, education, bicycles, and social services would be exempted from VAT.

What will be taxed?

Electronics, smart phones, cars, jewellery, watches, eating out, and entertainment will fall under the taxed category. GCC countries are also expected to introduce excise duties on certain beverages that are deemed to be harmful to health, including those with high sugar content.

Will VAT be a cost to the business?

Where you are engaged in the supply of goods or services that are subject to VAT (including at the zero rate) you will be entitled to reclaim VAT you incur on costs. Where you are engaged in activities that are exempt from VAT and you cannot reclaim VAT incurred on costs, VAT will be a cost to your business (as suppliers will charge VAT that you cannot reclaim).

Will it affect prices/margins?

VAT is a tax on consumption and is levied on the price charged to the customer. Therefore it is expected that prices will increase by the amount of VAT. However, it is ultimately a matter for suppliers to determine the price of their goods/services. The price will need to take account of VAT, i.e. whether you charge Dh100 or Dh105, the amount will be deemed to include VAT.

Do I need to start preparing for VAT? What should I be doing now?

There is a relatively short time to consider the implications of the introduction of VAT and to make the necessary changes. The amount of work required will depend on the size and complexity of your business and it is essential you consider the impact now and determine how best to deal with it.

UAE VAT

UAE VAT

Example:

About Us

Menu

Contact Us

useful Links