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Federal Decree-Law No. 8 of 2017 was published by the Federal Tax Authority (FTA) to enact Value Added Tax in the United Arab Emirates (UAE). In the UAE, VAT went into effect on January 1st, 2018.
The fundamentals of VAT, such as VAT rate, registration, input tax, VAT returns, penalties, and many other topics, are covered in this article.
What is VAT in the UAE?
VAT is an indirect tax on the provision of goods and services levied at every supply chain stage. The end consumer bears the VAT, whereas registered taxpayers collect the tax on behalf of the government.
Why was VAT implemented in the UAE?
The UAE government already provides great public services such as education, health care, social services, and public transportation. The VAT implementation helps the government to diversify its revenue streams. Furthermore, this significant funding stream ensures that the UAE’s high level of living remains intact.
In this case, VAT is applied at all stages of the sale, and the registered seller receives a tax credit (or refund) for the VAT paid on the purchases.
VAT registration in the UAE
VAT law in the UAE requires enterprises to seek VAT registration if the total amount of taxable supplies and imports in a year exceeds AED 375,000. Furthermore, enterprises in the UAE can voluntarily register if the total value of supply, imports, or expenditures in a year exceeds AED 187,500.
Businesses in the UAE can complete their VAT registration using the FTA’s website
Types of Supplies Under UAE VAT Law
In the UAE, VAT applies to many sorts of supplies. The VAT rates are determined according to the nature of the goods or services
- Standard-rated supplies: These products and services will be subject to 5% VAT.
Zero-rated supplies are subject to 0% VAT. Taxpayers can, however, claim any applicable input tax. These supplies include a few education services, healthcare supplies, commodities and services exported from the GCC, precious metals such as gold and silver, and international transportation, among others.
- Exempt supplies: According to UAE VAT law, certain supplies are exempt, thus enterprises do not collect VAT or claim input tax. You cannot collect input tax when selling or delivering exempt goods or services. Exempt goods include residential properties, undeveloped land, public transportation, life insurance, and certain financial services.
- Deemed supplies: These are supplies that do not meet the definition of supply, but enterprises must charge VAT.
- Deemed supplies in the UAE include: Business assets were sold without regard. Transferring commercial assets between UAE and other GCC Implementing States, as well as claiming input tax on goods used for non-business purposes.
- Supplies that are outside the scope of the project: The FTA excluded certain supplies from the scope of VAT regulation.
Input tax under the UAE VAT
Input tax refers to the VAT paid or payable for the supply of goods or services, or during an import. Businesses in the UAE must preserve the invoice and import documentation to collect the input tax paid on purchases.
VAT records in the UAE
All businesses, registered or unregistered, must maintain documents such as
- Balance Sheet
- Profit & Loss
- Fixed asset records.
- Maintain payroll, inventory, and accounting records for sales, purchases, payments, receipts, revenues, and expenses.
Additionally, UAE VAT-registered enterprises must preserve records for five years from the transaction date.
VAT returns in the UAE
VAT-registered firms are required to submit a VAT return and pay their VAT burden to the FTA every quarter. Registered taxpayers must file and pay their VAT returns by the 28th day of the quarter. However, the FTA may designate a distinct tax period for a certain category of taxable persons.
The impact of VAT on individuals and enterprises in the UAE
The implementation of VAT affects both individuals and businesses in the UAE. Here's how
Individuals may experience a minor increase in living costs, although this will depend on their lifestyle and spending habits. Assume they spend primarily on items exempt from VAT; they will not perceive a large increase in cost.
VAT-registered firms must charge and collect VAT from all consumers at the stated rate. In addition, they must pay VAT when purchasing goods and services. When completing a VAT return, they must calculate the net tax liability (the difference between VAT collected and paid) and pay it to the government.
All of this may be accomplished if all transactions are carefully recorded. As a result, businesses must document all transactions including sales, purchases, income, costs, and associated VAT taxes.
The UAE FTA can impose penalties and fines on taxpayers who violate VAT laws and guidelines. The Federal Law No. (7) of 2017 on Tax Procedures outlined the consequences for breaking UAE VAT law and tax evasion.
The table below illustrates the nature of the offense and its associated punishments.
Frequently Asked Questions
Tourists can return 87% of their VAT paid, with an AED 4.80 fee removed for each tax-free tag attached to the receipt. The maximum cash refund is AED 35,000. Refunds can be issued in cash (up to the maximum), to a credit card, or via digital platform like WeChat, depending on the tourist's request.
Apply the calculation to subtract the VAT on purchases from the VAT on sales.
- The difference becomes the VAT payable if the output VAT exceeds the input VAT.
- If the input VAT exceeds the output VAT, the difference will be reimbursed, with no VAT due.
The ultimate consumer bears the VAT expense, while businesses collect and account for the tax, thereby serving as tax collectors on behalf of the government.
Login to the FTA e-Services Portal with your account and password. To access the Refund form, navigate to the 'VAT' tab and then the 'VAT Refunds' tab. Access the form under the 'Request VAT Refund' box by clicking the 'VAT Refund Request' button, as seen in the screenshot. Please complete each field on the form.
You can file your VAT return in a variety of ways, including online, via VAT return software, or through accountants or tax agents. As you can see, it makes little difference who files the return as long as it is completed on time and includes all required information.
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