In this article, we will deal with the frequently asked questions about VAT in UAE issued in accordance with Federal Decree Law (8) of 2017.
It is an indirect tax imposed on most goods and services that are supplied.
VAT makes a new source of income for the government that will contribute to its continued provision of high-quality services to its citizens and residents.
It has been applied since January 1, 2018, and its rate is 5%.
The final consumer is the one who must pay this tax.
Businesses undertake the task of collecting and calculating tax for the government.
It is imposed on the supply of all goods and services, including food, commercial buildings and hotel services, except in the case where the tax is zero-rated or exempted.
The difference between Zero-Rated Supplies and Exempt Supplies is that the Zero-Rated Supplies can recover the tax it incurs on its purchases, while the Exempt Supplies can’t, as it is not subject to tax registration. Read more about this here: Difference between Zero-Rated and VAT-Exempt.
The zero rate applies to the following goods and services:
We differentiate here between two cases: the case of renting a residential building, which is exempt from tax, and the case of renting a commercial building, which is subject to VAT.
In the case where the building has dual use (residential and commercial)?
Regarding the sale and rent related to the residential part, we differentiate between two cases: the case of the first supply, in which it is subject to a zero rate, and the case of the subsequent supply, in which it is exempt.
As for the commercial part, it is subject to tax, whether in the sale or purchase process.
VAT is due for products and services including imported goods and services. The recipient has to pay vat under the reverse charge mechanism.
The mandatory registration limit is 375,000 AED, and registration occurs if supplies and imports from abroad exceed this limit. The voluntary registration limit is AED 187,500, and registration occurs if the supplies and imports from abroad are less than the mandatory registration limit and more than the voluntary registration limit.
Read more about this: VAT Registration Threshold.
This is done through the Federal Tax Authority’s website or though contact VAT Registration UAE team.
The registration form is available in both English and Arabic.
In this case, a fine of 20 thousand UAE dirhams will result. Read more about this: VAT Late Payment Penalty in UAE
Vat registration will help businesses in UAE to claim back input tax paid on their business expenses and purchases. If your business is not vat registered, then it means you are losing all input tax costs. This can result in an increase in the selling price of goods and services, stagnant business growth, and/or loss of competitiveness in UAE market.
Apart from that, businesses that haven’t registered for VAT even after reaching the mandatory threshold may face vat fines as per the country’s law.
A tax registration number is required as it enables goods or services supplier to provide an invoice. Every invoice with a VAT charge has to include the TRN of the supplier or taxable person supplying goods/services.
This is in specific cases:
Read more about this: Guide on Deregistering or Cancelling VAT Registration in UAE.
Businesses that meet the requirements will be able to satisfy the taxation law requirements by registering as a VAT tax group in UAE. Such requirements include similar business types and having business premises in the country. For certain businesses, a tax group would be beneficial as it simplifies the vat accounting process in UAE.
Read more about this:
UAE may introduce a scheme wherein a UAE national can reclaim VAT on goods and services related to residential construction.
The reverse charge mechanism for VAT is applied to imported goods and services in UAE. Under this, the supplier need not pay the vat whereas the recipient is responsible to pay the vat which he can claim back under input vat returns.
All registered and unregistered businesses must maintain records such as the balance sheet, profit and loss accounts, fixed asset records, and salaries and wages records, and they must also maintain accounting books.
This is done periodically within 28 days of the end of the tax period, which is three months, or on any other date determined by the Authority.
The person subject to the tax who evades its payment shall be punished with imprisonment and a fine not exceeding (5) times the amount of the tax that was evaded, or with one of these two penalties.
We know you have more questions regarding VAT in UAE as it can be a complicated subject. Call us here in VAT Registration UAE for more information!
We at Farhat & CO, are certified public accountants and tax consultants. We have a team of specialists and qualified tax agents who are experienced in UAE VAT law, and we are ready to represent our clients before tax dispute committees or the courts.