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Value Added Tax
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VALUE ADDED TAX – VAT
Value Added Tax (or VAT) is an indirect tax. Occasionally, it might be referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
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 way acting as a tax collector on behalf of the government.
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VAT implementation in UAE
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for using government budgets. VAT provides our country with a new source of income, contributing to the continued provision of high quality public services in the future. It also helps the government move towards its vision of reducing dependence on income derived from oil and other hydrocarbons. VAT was introduced across the UAE on 1st January 2018 at a standard rate of 5%.
VAT for Businesses
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Registering 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.
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VAT-related responsibilities of businesses
All businesses in the UAE 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) are required to register for VAT.
Businesses that do not think they should be VAT-registered should maintain their financial records in any event in case we need to establish whether they should be registered.
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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 are 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 must pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.
Zero-rated sectors
Exports of goods and services to outside the GCC
International transportation, and related supplies
Certain investment grade precious metals (e.g. gold, silver, of 99% purity)
Supplies of certain sea, air, and land means of transportation (such as aircrafts and ships
Supply of certain healthcare services, and supply of relevant goods and services
Supply of certain education services, and supply of relevant goods and services
Newly constructed residential properties, that are supplied for the first time within three years of their construction.
VAT- exempt sectors
The following categories of supplies will be exempt from VAT:
The supply of some financial services (clarified in VAT legislation)
Residential properties
Bare land
Local passenger transport
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The VAT team at FRG possesses extensive knowledge of regional VAT laws and has substantial experience and professional accreditation in helping clients from various industries comply with VAT obligations. At FRG, we offer private entities and family conglomerates a platform to gain a clear understanding of VAT legislation, ensuring smooth business operations in compliance with VAT regulations.