Value Added Tax (or VAT) is an indirect tax. The United Arab Emirates has issued legislation and regulations, based on the GCC VAT Treaty, the launch of Value Added Tax from 1 January 2018.
The standard VAT rate will be 5%, with a nil VAT rate for some goods and services. Businesses making taxable supplies must register with the UAE VAT Tax authorities if turnover exceeds AED 375,000 (around $100,000). VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the UAE VAT Tax, in a way acting as a tax collector on behalf of the government.
A business pays government the tax it collects from customer while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
Taxpayers must file VAT returns with the Federal Tax Authority (FTA) on a regular basis (quarterly or for a shorter period, should the FTA decide so) within 28 days from the end of the tax period in accordance with the procedures specified in the VAT legislation. The Tax returns shall be filed online using eServices.
All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case FTA needs to establish whether they should be registered.
VAT-registered businesses generally:
- must charge VAT on taxable goods or services they supply;
- may reclaim any VAT they’ve paid on business-related goods or services;
- keep a range of business records which will allow the government to check that they have got things right
If you are a VAT-registered business you must report the amount of VAT you have charged and the amount of VAT you have paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online. If you have charged more VAT than you have paid, you have to pay the difference to the government. If you have paid more VAT than you have charged, you can reclaim the difference.
For further enquiries regarding VAT Compliance, please email at email@example.com or call 00 971 4 3464 064.