Value Added Tax (VAT) came into force in the UAE on 1st January 2018. As per UAE VAT Law, the current rate of VAT in UAE is 5%, and it applies to most supplied goods and services. VAT is an indirect tax, and it is also known as a consumption tax or Goods and Services Tax (GST) in different parts of the world. Over 150 countries have implemented VAT as a means to raise revenue. As a renowned VAT Consultancy in UAE, N R Doshi and Partners provides a whole gamut of VAT related services.
Value Added Tax in UAE is charged at each stage of the supply chain. It is the end consumer who bears the burden of VAT in UAE while businesses act as an agent to collect and account for tax on behalf of the Government.
You may use our VAT Calculator for UAE to arrive at the value of VAT that you should charge to your customers.
11 things to know about UAE VAT Law
- Voluntary VAT Registration
A business can opt for voluntary vat registration if its taxable turnover is more than AED 187,500.
- Mandatory VAT Registration
Mandatory VAT Registration is for those businesses whose taxable turnover is more than AED 375,000.
Businesses having a taxable turnover of less than 187,500 need not register for VAT in UAE.
2. VAT Applicability
As per UAE VAT Laws, VAT is levied on the supply of all goods and services unless they are explicitly zero-rated or exempted.
3. Exempt Supplies
VAT in UAE provides for exempt supplies. UAE Executive VAT Regulations notify about the exempt supplies on which there’s no tax levy. If one supplies such goods and services, then VAT is not charged.
As per UAE VAT Law, if one supplies exempted goods and services, then he will not be entitled to the input tax credit on the purchases he makes. Say a manufacturer buys raw material at a 5% rate of tax and produces items that are exempt from tax, then the burden of 5% input tax paid on raw materials will be on him as he will not be able to claim the input tax credit.
Certain financial services, residential buildings, and supply of bare land, etc. are exempt from VAT in UAE.
4. Zero-rated Supplies
As per UAE VAT, Zero-rated supplies refers to the taxable supply on which VAT is charged at zero rates. The input tax credit is available on the purchase of goods and services, which are supplied as zero-rated supplies. VAT Laws in UAE specify that all export of goods and services in UAE subject to conditions laid down in UAE Executive Regulations will be treated as zero-rated supplies.
5. Products subject to VAT in UAE
VAT in UAE is levied on retail products such as food, beverages and jewelry, and all non-essential consumer items. It is also levied on stationery, school uniforms, after-school activities, cars, oil and gas, electronics and smartphones, second-hand goods, imported products, insurance products such as health, motor, property, and reinsurance, water and electricity, etc.
6. Services subject to VAT in UAE
Services like plastic, cosmetic, or elective surgery, education provided by private higher educational institutions, fee-based financial services, vehicle services, and repairs, catering services, hotels and restaurants, telecoms and electronic services, etc.
7. VAT on Real Estate
Real Estate is bifurcated into two categories for VAT purposes:
Commercial property transactions, including rental and sale agreements, office space, retail, public parking, and mobile homes, will attract VAT. Further, hotels, motels, and other serviced accommodations are also subject to VAT, including residential property leased to non-residents on a short-term basis.
8. TRN Verification
Federal Tax Authority issues a unique Tax Registration / TRN Number to businesses registered for VAT. Only businesses registered for VAT and having a valid TRN should charge VAT on supplies. TRN Number Verification is required when the buyer is not sure of the VAT Registration status of the supplier because any VAT paid on purchases would be available as Input Tax Credit only if the supplier has a valid TRN Number. One can verify the TRN Number of any business by visiting the FTA portal. TRN Verification helps in knowing the genuineness of the supplier.
9. Tax Return Filing
A VAT-registered business files a Tax Return quarterly. The authority may ask certain businesses to file a return every month to ensure compliance with the VAT Laws and reduce the risk of tax evasion. Further, to reduce compliance burden and administrative load, the UAE VAT Law is provisioned to allow certain types of businesses with a longer VAT return filing period.
UAE VAT Executive Regulations have issued the VAT Return Format in which a registered business must provide the information. The return filing process is online, and all VAT-registered businesses in UAE file their Return by logging in on the FTA portal.
10. VAT Audit/ Tax Audit in UAE
VAT Audit / Tax Audit in UAE is carried out by the FTA at the business premises of the taxable person known as ‘field tax audit’ or in the offices of the FTA. The taxable person is required to provide all the information in a prescribed format known as FTA Audit File (FAF). VAT in UAE requires a registered business to maintain all the financial records of transactions and file a periodic VAT Return. A taxable person is required to self assess the amount of VAT Payable and the Input Tax Credit available.
FTA, at its discretion, selects businesses for Tax Audit. The VAT audit aims to verify the correctness of a taxable person’s tax liability. In the course of the tax audit, the FTA has a right to obtain original copies of any record, verify inventories and assets of the business, and even seize them for the audit purpose. The taxable person or his Tax Agent or Legal Representative shall provide all the necessary documentary evidence, help, and assist to the tax authority. After examining the financial records of the taxable person, the FTA is empowered to issue a notice asking him to pay the VAT along with penalties if it finds discrepancies.
As per the VAT Laws in UAE, FTA will issue tax assessment in the following cases:
- Failing to complete VAT Registration within the specified time
- Failing to file a Tax Return within the specified time
- Failing to pay for the tax payable as per the VAT Return within the specified time
- Filing an incorrect VAT return
- Failure on the part of the registered business to account for tax on behalf of another person when he was required to do so as per the UAE VAT Laws
- Tax evasion causing the shortfall in Tax Payable
Further, the taxable person would also be liable to pay VAT Penalties applicable under the Federal Decree-Law on VAT. It is in the interest of a taxable business that it fully complies with the provisions of VAT in UAE to avoid penalties and loss of reputation.
11. Responsibilities of a Business in UAE
- Maintain proper financial records and keep its accounting information accurate and up to date.
- Register for VAT if it meets minimum turnover criteria
- Keep proper financial records if the turnover is less than the minimum threshold to prove why it need not register for VAT
- Charge VAT on Taxable goods and services if it holds a valid TRN
- Claim Input Tax Credit for VAT paid on the purchase of taxable supplies
- File VAT Returns on a timely basis
- Pay taxes to Government if the amount of VAT charged exceeds the amount of VAT paid.
- Obey VAT Laws of the UAE
VAT Consultancy in UAE
N R Doshi and Partners is well-equipped to provide VAT consultancy in UAE and help your business handle VAT related matters, including VAT Bookkeeping, VAT Compliance, VAT Registration, VAT Return Filing, VAT Audit, and VAT Tax Agent Service. Contact us, and our VAT Consultants in UAE will be at your service.