UAE addresses the essence of implementing the laws relating to the VAT. The impact of increase in Value Added Tax, compulsory and voluntary registration, methods of payment, the required amount of payment, even the items not subject to VAT Law in UAE – collectively impact individuals.
Moreover, sudden transformations in the Tax Policies and VAT Law in UAE make it essential for those taxpayers in the region to review the new tax scheme.
Value Added Tax – Meaning:
Value Added Tax (or VAT), being one of the most common types of consumption tax found around the world, which is an indirect tax, which is also referred to as a type of general consumption tax.
VAT is Consumption centric than income centric in nature. It is a widespread practice in more than 160 countries and mostly has its inclination in the European Countries.
Moreover, it is the ultimate consumer that bears the VAT cost. Therefore, businesses collect and account for the tax, acting as tax collectors on behalf of the government.
According to Article 3 of the Federal Decree-Law number (8) of 2017, a standard tax rate of five percent (5%) on import and supply and goods and services. Supply of goods includes but is not limited to the transfer of a contract for the exchange of goods and services.
Filing of VAT Return in UAE:
It is mandatory to have all the tax requirements ready before the filing of the VAT return filing. The guided procedure for filing is to file through the FTA portal: eservices.tax.gov.ae.
Criteria for Registering for VAT:
- Article 13 of the UAE VAT Law mandates, if the taxable supplies and import of a business (natural or legal) exceed AED 375,000 per annum, it must get VAT Registration. Compulsory registration threshold in the next thirty days.
- Moreover, according to Article 19 of the said law mandates, that if the taxable supplies and imports exceed AED 187,500 per annum and are less than the mandatory registration threshold, it is optional for the business to get registered. In case, if they anticipate that the total amount of supplies will exceed the voluntary threshold, then within the next thirty (30) days.
- A business may register voluntarily if its expenses exceed the voluntary registration threshold.
Exemption in VAT:
The following have an exemption from VAT in the UAE-
1. The supply of some financial services as clarified in the VAT legislation
2. Residential Properties
3. Bare Land
4. Local passenger transport
Article 15 states that a taxable person could be exempted from mandatory tax registration in Article 13 if they file a request indicating that their supplies are subject to zero (0) rate, such as but not limited to international cargo or passenger transport that commence and arrive in the UAE: supply of land, sea and air transport for passengers and cargo, supply of aircraft and vessels: import of precious metals: firstly supply (sale or lease) or residential buildings in whole or part: supply of crude oil and natural gases.
Implications of VAT:
Implications of VAT in UAE is divided into two categories-
1. On Individuals
2. On Business
A. The Implication of VAT Law on Individuals:
As a general consumption tax, VAT applies to most transactions in goods and services, hence, only limited exemptions may be granted.
Consequently, the living cost increase depending on an individual’s lifestyle and spending behaviour. However, if the spending is specifically on goods relieved from VAT, then it is unlikely for the individual to witness any significant increase.
B. The Implication of VAT Law on Business:
Subsequently, to be careful in documenting the business income, costs, and related VAT charges, businesses will be held responsible. Thereafter, it will be the business’s responsibility.
Although the VAT Law is extensive in nature, the application and implementation are evidently seen in the UAE. Moreover, in addition to exploring the best VAT software, it is imperatively suggested that businesses understand the fundamentals of business implications for VAT Law in the UAE.
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