The year 2018 witnessed a change in the Taxation laws in the UAE. Over 150 countries implemented VAT to raise revenue. Like others, UAE implemented the same to raise revenue. In this blog, you’ll know important things about VAT in UAE.
Value Added Tax is also known as VAT did come into force on the 1st of January 2018. The rate of VAT as per the VAT Law in UAE is 5%. The rate is levied upon the supplied goods as we as services.
Being an indirect tax, VAT is also known as a Consumption Tax or Good and Services Tax (GST) in distinct parts of the world. Value Added Tax in UAE is 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.
1. When to Register VAT in UAE?
VAT in UAE is categorized into the following two types-
Firstly, into Voluntary VAT Registration and,
Secondly into Mandatory VAT Registration.
The following are the two essential ways in which a VAT is registered in UAE-
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.
Note: Businesses having a taxable turnover of less than 187,500 need not register for VAT in UAE.
2. For which Transactions are the VAT in UAE Changed?
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. What are the Exemptions to VAT in the UAE?
The UAE Executive VAT Regulations notify the exemption supplies on which there is no levy of tax.
As per the VAT Law in UAE, if one supplies exempted goods and services, then he will not be entitled to the input tax credit on the purchases he makes.
For example, if a manufacturer buys raw material at a 5% rate of tax as well as 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.
Moreover, certain financial services, residential buildings, and supply of bare land, etc. are exempted from VAT in UAE.
4. Why are Zero-rated Supplies Important in the UAE?
Zero-rated supplies refer to the taxable supply on which VAT is charged at zero rates. The input tax credit is available on the purchase of goods as well as services, which is at zero-rated supplies. VAT Laws in UAE specify that all export of goods as well as services in UAE subject to conditions in UAE Executive Regulations will be treated as zero-rated supplies.
5. What are the Products on which VAT in UAE is Levied?
VAT in UAE is levied on retail products such as food, beverages, jewelry, and all non-essential consumer items.
It is also levied on stationery, school uniforms, after-school activities, cars, oil and gas, electronics as well as smartphones, second-hand goods, imported products, insurance products such as health, motor, property, reinsurance, and water, electricity, etc.
6. What are the Services Subject to VAT in UAE?
The services which are subject to VAT in UAE are as follows:
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. are indeed services subject to VAT in UAE.
7. What are the two Categories of VAT in UAE on Real Estate?
For the process of VAT in UAE, following are the two categories of Real Estate:
Commercial property transactions, including rental and sale agreements, office space, retail, public parking, and mobile homes, thus 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. What is the Procedure for TRN (Tax Registration Number) Verification in UAE?
The Federal Tax Authority issues a unique Tax Registration / TRN Number to businesses registered for VAT. Therefore, only businesses registered for VAT as well as 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 (Federal Tax Authority) portal. TRN Verification also helps in knowing the genuineness of the supplier.
9. What is the Procedure for Tax Return Filing in the UAE?
A VAT-registered business files a VAT Return quarterly. The authority may consequently 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 has provisions 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 hence all VAT registered businesses in UAE file their Return by logging in on the FTA portal.
10. How does VAT Audit/Tax Audit in the UAE System Work in the UAE?
FTA carries our VAT Audit / Tax Audit in UAE at the business premises of the taxable person known as ‘field tax audit’ or in the offices of the FTA.
In general, the taxable person provides 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. Therefore, a taxable person is self-assessing 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. During 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. Moreover, the taxable person or his Tax Agent or Legal Representative shall provide all the necessary documentary evidence, help, and assist the tax authority.
Further, after examining the financial records of the taxable person, the FTA has the power 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 assessments in the following cases:
- Failure of VAT Registration completion within the specified time
- Failing to file a Tax Return within the specified time
- Failing to pay 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 causes 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. What are the Key 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 as well as 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 the Government if the amount of VAT charged exceeds the amount of VAT paid.
- Obey VAT Laws of the UAE
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