Value Added Tax

Value Added Tax

Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. VAT is imposed on most supplies of goods and services that are bought and sold.

  • What is TAX?

    Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for things such as public hospitals, schools and universities, defence and other important aspects of daily life.

    There are many different types of taxes:

    • A direct tax is collected by the government from the person on whom it is imposed (e.g., income tax, corporate tax).
    • An indirect tax is collected for the government by an intermediary (e.g. a retail store) from the person that ultimately pays the tax (e.g., VAT, Sales Tax).
  • What is VAT?

    Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. VAT is imposed on most supplies of goods and services that are bought and sold.

    VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.

  • VAT-How does it work?

    VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a wayacting as a tax collector on behalf of the government.A business pays the government the tax that it collects from the customerswhile it may also receive a refund from the governmenton tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain. Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at theprevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

    VAT, as a general consumption tax, will apply to the majority of transactions of goods and services unless specifically exempted or excepted by law.VAT will be introduced across the UAE on 1 January 2018 at a standard rate of 5%.

  • Who should register for VAT?

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

    Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

    Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

  • What are the VAT-related responsibilities of businesses?

    All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.

    VAT-registered businesses generally:

    • must charge VAT on taxable goods or services they supply;
    • may reclaim any VAT they’ve paid on business-related goods or services;
    • keep a range of business records which will allow the government to check that they have got things right

    If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.

    If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.

  • What does a business need to do to prepare for VAT?

    Concerned businesses will have time to prepare before VAT will come into effect in January 2018. During that time, businesses will need to meet requirements to fulfil their tax obligations. Businesses could start now so that they will be ready later. To fully comply with VAT, We believe that businesses may need to make some changes to their core operations, their financial management and book-keeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT now and once the legislation is issued make every effort to align their business model to government reporting and compliance requirements. We will provide businesses with guidance on how to fully comply with VAT once the legislation is issued. The final responsibility and accountability to comply with law is on the business.

  • FRG –Can Help You ToBe VAT Ready

    Businesses will have to identify the impact of VAT on their business and adapt to the changes.

    • 1. Preparing for the projectBusinesses need to prepare a project plan and secure the necessary internal and external resources and ensure the stakeholders in the business are informed. VAT affects all transactions and so touches every aspect of the organisation.

      FRG can help you for:

      • Resource planning
      • Assign roles and responsibilities
      • Assist with VAT awareness workshop
    • 2. Assess the Impact Businesses need to complete an impact assessment to understand VAT and its commercial effects, prioritise issues and prepare for implementation. This is a key step as it sets the foundation for implementation. The assessment looks at its various effects on the organisational, operational and financial levels.

      FRG can help you for:

      • Map the transactions
      • Review the contracts
      • Legislation review
      • VAT approach recommendations
      • IT impact assessment report
    • 3. Registration, Design and implementation Businesses need to register for VAT and test their business systems to ensure they are capable of compliance and reporting. Businesses need to design the systems and train their staff on the process requirements for VAT. They must implement necessary changes to systems, controls, reporting and governance. Based on the impact assessment, they need to develop a road map for identifying the changes required, understanding the scheduling requirements and planning for work.

      FRG can help you for:

      • Registration
      • Prepare VAT implementation plans
      • IT testing
      • VAT process maps and manuals
    • 4. Post implementation Businesses need to integrate the changes made into the operations and train relevant staff about their new roles and responsibilities to achieve the desired result. Testing the VAT system, processes and controls during a “live” phase (expected from January 1, 2018) is important to allow for the complete and accurate completion of the first VAT return.

      FRG can help you for:

      • Support throughout the process of submission
      • Review VAT returns prior to submission
      • Monthly, quarterly or other periodic reviews and assistance
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