Value Added Tax in UAE can be a huge administrative burden for lots of people and businesses. It can be both time-consuming and complex, plus you can incur heavy costs should you get your VAT obligations wrong.
What’s VAT in UAE and how does it work?
VAT is a type of consumption tax that’s collected when value is assigned to a good or service. In other words, it is a tax that is charged on the products and services which people and businesses purchase. It is also an indirect tax as businesses collect VAT charges on behalf of the UAE government. VAT is collected by businesses from customers or clients than paid to the Federal Tax Authority or FTA during the tax return filing season.
Businesses are liable for not only tax collection, but also paying VAT for business purchases. Rather than transferring collected VAT onto the FTA every single time a business transaction occurs, businesses their VAT return that indicate the total that they have collected, including the total they have paid out in a certain period.
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What is input and out VAT?
VAT collected from customers and VAT paid by the VAT-registered entity is differentiated as output tax and input tax. Input tax s the VAT that a business has paid to suppliers for all business-related materials, equipment, and expenses. It includes acquiring professional services like accounting and bookkeeping fees, costs for VAT registration in UAE and VAT return filing in Dubai or anywhere in UAE. Business phone calls and all other items that are bought to resell qualify as input tax.
As for output tax, it refers to VAT that is charged by a VAT-registered entity in UAE on goods and/or services that it supplies to customers or clients. A business charges output tax then collects for each taxable sale. A business that is registered for VAT in UAE measures input tax against the output tax.
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What are the current VAT rates in UAE?
Before a business undergoes VAT registration in UAE, it must be aware of VAT’s applicability on offered goods and services to be able to measure the value of its annual taxable supplies. There is also a need to be aware of all VAT rates which are applicable to different products and services so that the business can charge VAT correctly.
In UAE, there are three different VAT rates. The rate which applies to you will depend on your offerings or the products and/or services that you provide. You’ll add the VAT to the value or price of your goods and services whenever they are sold to customers, regardless of whether they’re non-business or business clients.
A standard rate of five percent
The standard rate for VAT in UAE is at five percent, which is applied to the majority of products and services. Anything that is deemed as a luxury item most definitely falls in this VAT rate, too.
The zero rates for VAT are applied to goods and services that the UAE government deems to be essential. Although the zero-rating for the purpose of VAT in UAE doesn’t add any charge onto the price of products and services, businesses must still keep track of the transactions with zero-rating. This is because they still have to be reported during the VAT return filing in UAE.
If you are trading exclusively in goods and services that are zero-rated, you will still have to undergo registration in UAE. Zero-rated items include experts both direct and indirect, international transport, air passenger transport, sea/land/air transport, charitable building supplies, and oil and gas among others.
For the VAT exempt category, there is no VAT that is charged on the applicable supplies. This covers financial services which aren’t conducted for a return or fee, residential buildings, and bare land among others. Exempt items don’t have to be taken into account in the taxable turnover of a business. When a business purchases items, there’s also no VAT that can be reclaimed with the FTA on the goods.
As the business isn’t allowed in claiming tax for VAT-exempt goods and services, there’s no need in keeping particular documents.
Read also about: How to find TRN number by company name in UAE
Do I need tax-regulated agents in Dubai (VAT Consultation Dubai)?
Tax regulated agents in Dubai are certified tax professionals that specialize in VAT and all forms of tax in the UAE. Businesses typically hire professional VAT consultants in helping them with their tax obligations and ensuring proper compliance with the applicable regulations. The majority of businesses also hire tax professionals for help in categorizing goods and services under the different VAT rates. Call us here in VAT Registration UAE today to talk to our seasoned tax specialists!