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The UAE Ministry of Finance has introduced VAT from 1st January 2018 under the governance and control of the Federal Tax Authority.

By law, companies with a turnover of at least AED375,000 per annum must register for VAT, prepare and file VAT returns on a timely basis; and maintain documentation to support their VAT returns. Preparing for VAT will require companies to carefully managetheir business to minimize cash flow impacts, avoid additional costs and potential penalties.

Under the GCC Agreement, all countries have agreed on the general framework for VAT but each country will issue its own detailed legislation.

Our FAQs will help you gain the fundamentals to VAT in the UAE.

General Questions

It is a consumption tax that is added to the price of the products and services sold by the supplier to the buyer.

VAT is applied on affected products and services through the complete value chain with eligible businesses able to recover their VAT paid on most but not all purchases.  

Sales Tax is a consumption tax added ONLY in final sales of the product, while VAT is included throughout the supply chain, from production to final consumption.

Businesses will collect VAT on behalf of the Government acting as a Tax collector. This places responsibility on businesses to accurately manage the collection of VAT and submit accurate returns.

    

 

VAT-registered businesses must generally:

  • charge VAT on taxable goods or services they supply;
  • may reclaim any VAT they’ve paid on eligible business-related goods or services;
  • keep a range of business records which will allow the government to check their returns are accurate

  

Penalties will be imposed for:

  • failure to register when required to do so;
  • failure to submit a tax return or make a payment within the required period;
  • failure to keep the records required under the issued tax legislation;
  • Tax evasion offences

Yes. If the Business satisfies the requirements covered under the legislation they will be able to register as a VAT group. Request for VAT Grouping is an additional application process set up in the FTA portal. 

The FTA will provide confirmation for VAT Grouping subject to their assessment.

     

Yes. Nonresident is required to register for VAT if he is engaging in making taxable supplies and if there is no UAE resident person who is responsible for accounting VAT on these supplies.

Depending on the size of your business. Most companies must submit their returns on a quarterly basis.

In order to help businesses get ready for their first filing, the FTA has delayed most registrants date for their first submission. If you have registered you should check the revised date.

 

Yes. Businesses are required to show sales and related VAT for each Emirates in their returns. 

Taxable person must retain copies of their VAT invoices for a minimum of 5 years.

     

No. VAT is an additional consideration to customs duty paid by the importer for goods entering the UAE mainland. The Customs and FTA have aligned their processes to ensure eligible VAT is paid or accounted for before goods are cleared.

No. FTA have released the list of products and services that are standard rate 5%, Zero and VAT exempt. 

    

VAT will be charged at 0% in respect of the following main categories of supplies:

  • Exports of goods and services
  • International transportation, and related supplies;
  • Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
  • Supply of certain education services, and supply of relevant goods and services;
  • Supply of certain Healthcare services and supply of relevant goods and services.

  

  The following categories of supplies will be exempt from VAT:

  • The supply of some financial services (clarified in VAT legislation);
  • Rentalof residential properties;
  • Bare land; and
  • Local passenger transport

Where taxable supplies are Zero rated for VAT, seller is allowed to reclaim the incurred input tax in full; whereas VAT exempt supplies restricts the ability to claim input VAT.

 

VAT on recoverable expenses that were incurred by a business can be deducted in the following circumstances:

  • Business is VAT Registered
  • Supplier has correctly charged VAT
  • Purchases are shown on a valid Tax invoice
  • The goods or services acquired are used or intended to be used for making taxable supplies / for business use
  • Input VAT can only be claimed on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment.

Input VAT on purchases relating to Taxable supplies can be claimed in full. VAT on Exempt supplies is not recoverable.

However, VAT related to common costs incurred for business purposes, will be recoverable on apportionment basis based on Taxable and Non-taxable Supplies.  

    

Yes in specific cases upon fulfilling the required conditions as stated in the Law. VAT Registered Businesses can reduce their output tax liability by writing off the amount of VAT that relates to bad debt.

    

Yes. VAT on personal expenses will not be recoverable, including VAT on company provided vehicle leases or purchases if used for private use as well as business use. 

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • They are VAT Registered
  • Correctly charged for VAT
  • Purchases are on a valid Tax invoice
  • The goods or services acquired are used or intended to be used for making taxable supplies.
  • Input VAT can only be claimed on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment.

Yes, VAT can apply based on the margin earned by Registered tax payer buying and selling used cars/vehicles/sale of second hand items as per the Law where purchases are made from unregistered persons. Subject to satisfying the conditions noted in the Law, margin earned by the Registered Tax payer will be deemed to be VAT inclusive.

    

Yes. Transitional rules have been issued – some of the scenarios are listed below: 

  • Payment for supply of goods and services received before the introduction of VAT, but delivered after the introduction of VAT - these supplies will have to be charged with VAT.
  • Prices may be considered as VAT INCLUSIVE in some cases unless contracts have specific clauses relating to VAT. Transitional provisions also provide details of when prices may be deemed to be Exclusive of VAT so these must be considered carefully by any Tax Paying company     

    

No. Cash receipts can be issued, but this does not replace the need for issuing valid TAX invoices, which follows a specific format as mentioned in the legislation.

Note that Simplified Tax invoices can be issued where total invoice cost is less than AED 10,000. 

Yes. VAT is paid on taxable imports; Import VAT is generally calculated on Cost of Insurance, Shipping and Freight plus on Custom Duty and Excise Duty if applicable. On Low Value Goods, VAT is applicable on the Manifest value.

VAT Registered businesses will assume the VAT and use reverse charge mechanism to pay and claim back correct amount of VAT.  Non-VAT registered businesses and individuals will not be able to recover the VAT paid on imports.

Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.

     

FTA will issue rulings upon formal request to provide clarification of the issued Law and its Implementing regulations.

FTA will not provide tax advice generally as this should be obtained from your tax advisors based on the nature of your business and supplies.

Refunds are subject to the FTA process and will be made after the receipt of the application depending on the nature of the refund, your supplies and proper documentation being provided to the satisfaction of the FTA.

No special rules for SMEs are provided by the FTA and all registrable businesses are required to be in full compliance of the UAE Law.

No. Monetary assistance to buy new technologies or hire tax specialists and accountants for businesses will not be provided by the government.

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