The whole world believes to have heard of Value-Added Tax (VAT) and have an idea of what it means for them as a patron. But your knowledge of VAT in UAE should range far beyond additional pennies if you’re a businessman. Your business’ handling of VAT may be different. For that, you would need to have a vast knowledge of VAT.
All you need to know about VAT (Value Added Tax) in Dubai
1: What is VAT?
The VAT is an indirect tax imposed on the domestic consumption of goods and services, excluding those that are rated zero like food and crucial drugs. It is imposed at every phase in the chain of production. And the delivery from raw resources to the final sale based on the value also added at every stage.
The VAT is a form of tax which is applied to the consumption of goods or services and also on other taxable supplies. All the businesses are liable to collect the Value Added Tax from their patrons and in return pay it to the government.
Value Added Tax (also called VAT), is an unintended tax which is imposed on all the goods and services bought and sold by many businesses, with some of the exclusions. The VAT is mostly applied in 160+ countries all over the world as a trustworthy source of income for state budgets.
VAT plays a vital role in any kind of business. It can be charged on a variety of your services and goods. For governing the VAT, charities will have different rules.
2: Why VAT (Value Added Tax) is Popular in UAE?
The VAT is very common and popular because it increases significant revenue. It is easy to administer as compared to an income tax. The VAT does not impose on the household savings and the business investment choices which increases its popularity all over the UAE.
3: How VAT (Value Added Tax) UAE Works?
Value Added Tax is a consumer-based tax which is imposed on the supply of both goods as well as services. It is designed in a way so that only the definitive and ultimate consumers accept the burden. The VAT will be payable on all the consumer goods and services by everyone with the exclusion of exempted and zero-rated supplies of goods and services. In this way, it will affect each person’s pocket to a great or a less extent. The principle applied here is,
“the more you spend, the more VAT you will pay”
An important point to note is that the marketed price of any type of goods and services will be considered to be VAT (Value Added Tax) inclusive. The seller won’t be permitted to add VAT in UAE, in addition to the promoted price of anything you are going to buy.
4: Why is VAT (Value Added Tax) Applied in the UAE?
A VAT is implemented in the UAE because the UAE government use to earn its income generally from the fuel industry. Though, the current reduction in fuel prices is forcing the government to search for substitute revenue sources so that it may be easy for the government to keep providing the high-quality facilities and services to the public.
Consequently, the VAT (Value Added Tax) is being implemented in the UAE as a new source of revenue. It will not only certify the sustained supply of the top-class public services but it will help also to reduce the dependence of government on oil resources for the revenue.
5: On Which Sectors VAT is Applicable?
Value Added Tax is applicable on almost each major or minor industry. It includes transport, food, business, education, hotel, and more. yet, some definite services or products are discharged or zero-rated under VAT (Value Added Tax).
6: What are the Zero-Rated and Exempted Supplies, how are They Different From Each other?
The official VAT (Value Added Tax) rule has clearly defined a list of zero-rated goods and also another list of exempted supplies under the VAT. It is mandatory for the businesses, who are supplying zero-rated goods or services, to register under VAT and pay the tax on their buying, that which can be recovered back. Nevertheless, the businesses making the supplies of tax-relieved goods do not have any choice of claiming the repayment for the VAT paid on buying.
7: What are the limits for mandatory & Voluntary VAT Registration and VAT Registration?
The essential registration verge for VAT is AED 375,000. It means that the businesses which are making taxable supplies and imports outside this limit must register underneath the VAT.
And the businesses whose import and supply are beneath this limit but overhead the volunteer registration limit of AED 187,500, can apply for the voluntary registration beneath VAT.
8: How to register for VAT in UAE?
The certified website of the FTA is accessible 24 x 7 for accepting the registrations from businesses. You can register for the VAT through the eService’s segment available on the FTA website.
For that, it is needed to create an account first. You can utilize the VAT registration User Guide for further understanding. Through this, you can easily register for VAT in the UAE.
Tax process can be done through the Federal Tax Authority’s website, which has been intended to meet the uppermost international standards. The registration porch is obtainable 24 hours a day, and 7 days a week.
9: Is there Any Provision of Tax Groups of VAT in the UAE?
Yes, there is a provision of Tax Groups of the VAT in the UAE. The businesses that are related through the legal means, and that have a business address in the UAE, can easily apply for the registration as a Tax group.
Tax assemblage is a valuable tool as it simplifies the accounting and the management requirements related to the VAT in UAE.
10: What Tax Records Need to be Retained by the Businesses?
All the listed and unregistered businesses in the UAE are obligatory to preserve the following archives:
- Expenditures
- Revenue and cost
- Records relating to the fixed assets
- Personnel
- Secretarial records
- Receipts
- Buying
- Account and stock levels
- Revenues
- Costs
11: How Much will be Taxed and which Business must Apply the Tax?
The VAT will be implemented by the companies at a rate of 5%, in the UAE and that get the income of over AED 375,000 each year. It will be practiced on all the products as well as the services, with some exceptions.
12: What is the Procedure for Registering for VAT in UAE?
The businesses can be registered for the VAT tax in UAE through the e-services portal of Federal Tax Authority. The companies that fail to register, manface a fine of AED 20,000 fine. You can find more details about this rule in the FTA’s VAT registration User Guide.
13: Why is the UAE Implementing VAT?
The UAE government is providing its people and the inhabitants various best services related to hospitals, schools, roads, and many other city services. These services are remunerated for by the administration or the government.
So, VAT will have to offer the country a new source of income, which will ensure to provide high-quality services in the future. It is also most likely to help the government attain its dream of less dependence on the oil resource and building a best and knowledgeable economy for the future.
14: What is the VAT Rate in UAE and which Sectors are Subject to VAT?
The VAT rate in the UAE is fixed at 5% and is levied on the supply of all goods and services, including food, commercial buildings, and hotel service if no clear provision is made to execute a zero rate or an exemption.
The zero rates are compulsory on some services and goods, counting with the health and education services, the first supply of residential buildings, the supply of speculation gold, and the supply of international transport of travelers as well as goods, and exports.
The activities exempted from the tax comprise bare land, local conveyance of passengers, the supply of the inhabited buildings, and supply of some monetary services.
15: What is the Difference Between Exempt Supplies and Zero-Rated Supplies?
The businesses that supply services or goods that are subject to a zero rate, are obligatory to register for the VAT in the UAE but can recover the VAT that they experienced on their consumptions.
For the meantime, businesses that supply exempted goods or services, cannot recover the VAT that they experienced on their purchases.
16: Are There Specific Dates for Businesses to Register for VAT in UAE?
All of the businesses must submit an application for the registering as soon as possible, in order to avoid the danger of non-registration by the specific date, which would require fines as postulated in Cabinet Decision No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.
17: Will there be Tax Grouping?
The businesses that gratify the confident supplies covered under the Legislation, such as having a place of residence in the UAE, will be able to register as a Tax group. For some of the businesses, Tax grouping will be a beneficial tool that would simplify the accounting for the VAT in UAE.
18: What are the Records to be Retained?
All the businesses, whether registered and unregistered, must keep records such as the balance sheet, profit and loss, and also the records relating to the fixed assets, workforce, record, and stock levels, as well as accounting records including expenditures, receipts, buying, sales, incomes, and expenses.
The businesses may be obligatory to make the variations to their core processes, monetary management practices, the measures that they use to keep accounting books and records, and the knowledge that they use in their accounting applies, in addition to the changes in their human properties like accountants, tax consultants, etc.
The VAT is coming to the UAE and which means that you are possibly going to have to pay for it, out of your own pocket.
19: Education
The VAT will not be payable on the nursery school, pre-school, elementary school and also the government or régime-funded universities fees as these will be zero-rated.
However, non-government funded universities fees will be subject to the VAT. And while the further explanation is due in the soon-to-be-published Decision-making Guidelines, the application of the VAT to the privately-provided didactic goods and services is probable to comprise the supply of school books, stationery, and all of the extra-curricular activities.
20: Healthcare
Pre-emptive and basic healthcare services and linked goods and services, will not entice a VAT charge. But it is also important to note that cosmetic surgery and facilities are not measured preventive or basic, and, therefore, will be subject to VAT.
The medical assurance products will not be exempted or zero-rated, that’s why VAT will be billed on yearly premiums.
21: Financial Services and Life Insurance
A certain type of monetary and financial services will be exempted from the VAT in UAE, which includes loans or debts and life insurance products. Also, Islamic banking will be treated in the same way as Standard Banking.
22: Local and International Transportation
Though the VAT will be added to the price of petrol, the supply of tenant passenger transportation, such as taxis, buses and the metro will be also exempted or zero-rated, and the patrons will not be affected.
International transport, whether by air, sea or road, will also be free of VAT, though with the price of the supply of this service area is set to rise in many of the conditions, this will, no doubt, be approved on to the customer in the way of price upsurges.
23: Real Estate
The supply of residential properties for the first time, within the three years of conclusion, for both of the rental or the buying, would be zero-rated, while succeeding the inhabited leases from a ‘first time’ buyer will be exempted from the VAT.
However, the TAX will be payable at the typical rate on all of the commercial and saleable properties, both for the rent and the purchase.
