If you are running a VAT-registered business in UAE and you know exactly the rates that apply to different products and services, then you are ready to begin charging Value Added Tax or VAT in Dubai / UAE.
Charging Output Tax
The tax that you charge to clients and customers is referred to as output tax or output VAT. With a business that is registered for tax, you’ll need to add the correct VAT rate for every taxable item that is on every sales invoice of your business. Taxable items are the goods and services which are subject to VAT, may it be at the standard rate or zero rates.
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The VAT rate that is applied to every item is what the Federal Tax Authority or FTA stipulates a business needs to charge with a specific item. To give you an example, the export of certain goods outside GCC and the sale of a building or real estate for charity are both charged at zero percent VAT, while goods bought at grocery stores are taxed at the standard rate. In the UAE, the current standard rate for VAT is at five percent.
The tax authority in the country refers to sales invoices that contain VAT charges as VAT invoices. There’s a couple of rules that have to be followed in the creation of VAT invoices. Businesses are to make sure that they are fully compliant with relevant regulations so as not to get a surprise audit from the tax authorities and get penalized for violations of local tax laws. Businesses in the UAE are advised to seek the help of regulated tax agents in UAE to be aware of the information that the FTA requires. There is also the need to charge the correct rate for VAT when adding items on VAT invoices.
VAT Refunds for Business Purchases
Now that you already know how you should charge your customers with output VAT, you should also take into account the VAT which you see on your bills that suppliers have charged you. As your business is VAT-registered, you’ll be able to get refunds from the FTA as input tax or input VAT.
When can’t a business get VAT refunds for business purchases?
There are some kinds of costs on which VAT refunds or VAT reclaim in UAE isn’t allowed. An example of this is business entertainment. When non-employees are taken out for meals, a restaurant most likely charges VAT. However, the FTA says the VAT paid in such a case can’t be claimed as input VAT. The business will have to take a meal’s full cost.
When a supplier of your business does not provide you with a valid tax invoice, you won’t be able to claim VAT back. When a tax officer of the FTA visits your place of business and check your suppliers’ bills, you need to make sure you have valid tax invoices for what you claimed as input tax. If you are in any doubt regarding the matter, you should always consult with regulated tax agents in Dubai or your tax account prior to taking any action. This is so you can avoid getting penalized for errors in your tax reporting.
If an invoice does not include any VAT charge on it, which is possible with a supplier that is not registered for VAT in Dubai / UAE, then you would not be able to get a refund for VAT. There wasn’t any VAT charge. Also, the same applies to when the tax invoice relates to a VAT-exempt product or service.
Can I charge and reclaim VAT if my business is not registered in UAE?
If your business is not registered for VAT in UAE, you would not be able to charge tax to your clients or customers. This also means you would not be able to claim back VAT. Take note that if the current and prospective clients of the business are the public, then it may be worth staying below the mandatory threshold for VAT registration as the majority of your customers won’t be able to claim back VAT as they’re not registered for it.
For instance, a gardening business in UAE is VAT registered and charges AED 70 for a job. The service would apply the five percent standard rate for VAT to the tax invoice. This means a customer of the business who is a member of the general public and is not registered for VAT would have to pay AED 73.5 instead of just AED 70 for a particular service. As a result, the gardening business may experience struggles in winning business against competitors that are not registered for VAT in Dubai or UAE.
Remember that there are also many situations wherein being VAT-registered in UAE brings more advantages to a business. Charging and reclaiming tax, however, can be very complicated. If you want to know what regulated tax agents in Dubai think about tax and your business, call us here in VAT Registration UAE today!