What is VAT in the UAE?
Value Added Tax (VAT) was rolled out in the UAE on 1 January 2018 at a flat rate of 5%. The new tax was introduced to provide the government with an additional source of income, outside of oil revenues, with which to provide a range of high-quality public services.
Value-Added Tax (VAT) is a tax on the value added to goods and services at each stage of production and distribution. VAT was introduced in the United Arab Emirates (UAE) on January 1, 2018, as part of a larger effort to diversify the country’s revenue sources and reduce its dependence on oil.
In the UAE, VAT is levied at a standard rate of 5% on the supply of most goods and services. However, some goods and services are exempt from VAT, such as basic food items, healthcare, education, and residential properties.
Businesses with a taxable supply of goods or services above the mandatory registration threshold of AED 375,000 per annum are required to register for VAT. Once registered, businesses must charge VAT on their taxable supplies and file periodic VAT returns with the Federal Tax Authority (FTA).
VAT has had a significant impact on businesses and consumers in the UAE. Businesses must now factor in the cost of VAT when setting prices, while consumers are paying more for goods and services due to the added tax. However, the implementation of VAT has also helped improve the country’s fiscal position and increase transparency in the economy.
In conclusion, VAT is a crucial aspect of the UAE’s tax system and has helped diversify the country’s revenue sources and increase transparency. Businesses must comply with the VAT regulations to avoid potential penalties and maintain their good standing.
How is VAT calculated in the UAE?
You must register for VAT in the UAE if your taxable supplies and imports exceed AED 375,000.
You can also register to pay VAT voluntarily if your taxable supplies and imports exceed AED 187,500.
VAT is collected by a business from its customers and paid to the government. Any VAT paid by a VAT-registered business to its suppliers can be reclaimed from the government.
For the purposes of VAT, the UAE Federal Tax Authority (FTA) defines taxable supplies as supply of goods or services made by a business in the UAE that may be taxed at a rate of either 5% or 0%.
Imports are also taken into consideration for this purpose, if a supply of such goods or services would be taxable if made within the UAE.
Value-Added Tax (VAT) in the United Arab Emirates (UAE) is calculated based on the value added to goods and services at each stage of production and distribution. The calculation of VAT is as follows:
1. Taxable supply: The first step in calculating VAT is to determine whether a supply is taxable or exempt. Taxable supplies are subject to VAT at the standard rate of 5%, while exempt supplies are not subject to VAT.
2. VATable amount: The VATable amount is the value of the taxable supply, excluding VAT. This is the amount on which VAT will be calculated.
3. VAT amount: The VAT amount is calculated by multiplying the VATable amount by the VAT rate of 5%. For example, if the VATable amount is AED 1,000, the VAT amount will be AED 50 (1,000 x 0.05).
4. Tax invoices: Businesses must issue tax invoices for all taxable supplies, showing the VATable amount, VAT amount, and the total amount payable, including VAT.
5. VAT return: Businesses must file periodic VAT returns with the Federal Tax Authority (FTA), showing their taxable supplies and exempt supplies, the VATable amount, VAT amount, and any input tax (VAT paid on purchases) that can be claimed as a credit.
In conclusion, VAT in the UAE is calculated based on the value added to goods and services at each stage of production and distribution. Businesses must charge VAT on their taxable supplies, issue tax invoices, and file periodic VAT returns with the FTA to comply with the VAT regulations.
What companies are exempt from VAT in the UAE?
VAT is applicable to businesses both on the UAE mainland and within free zones outside of defined ‘designated zones’. VAT registration is mandatory if your business meets either of the following criteria:
- The total value of your taxable supplies made within the UAE exceeds AED 375,000 over the previous 12-month period.
- You anticipate making taxable supplies with a value exceeding AED 375,000 within the next 30 days.
In the United Arab Emirates (UAE), some companies are exempt from Value-Added Tax (VAT). The following categories of companies are exempt from VAT:
1. Non-profit organizations: Non-profit organizations that are established for charitable or humanitarian purposes and have been registered with the relevant authorities are exempt from VAT.
2. Healthcare providers: Healthcare providers that are registered with the relevant authorities and provide medical treatment, care, and support are exempt from VAT.
3. Educational institutions: Educational institutions that are registered with the relevant authorities and provide education, training, and research are exempt from VAT.
4. Residential properties: Residential properties, including the sale and lease of residential buildings, are exempt from VAT.
5. Certain financial services: Certain financial services, including the issuance, sale, and redemption of insurance policies, and the management of funds, are exempt from VAT.
It is important to note that while these companies are exempt from VAT, they may still be required to register for VAT and comply with other VAT requirements.
In conclusion, some companies in the UAE are exempt from VAT, including non-profit organizations, healthcare providers, educational institutions, residential properties, and certain financial services. Companies must comply with the VAT regulations, including registering for VAT and filing periodic VAT returns, even if they are exempt from VAT.
How to pay VAT in the UAE?
To pay VAT in the UAE, you’ll first need to register. You can do this on the Federal Trade Authority website.
You will be asked to complete an application form and submit the following:
- Personal details
- Contact information
- Banking information
- Business information – including those you have business relationships with
VAT returns can then be submitted via the FTA eServices portal. To submit a return:
- Log in to eServices and click the VAT tab.
- Complete the form including details of your income and VAT calculation.
- Submit your return.
- Make your VAT payment.
