VAT Regime in UAE

How does VAT Regime work in Dubai?

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INTRODUCTION

Value Added Tax or VAT in Dubai is an indirect tax imposed on the ultimate consumption of any goods or services. As it is collected on consumption of goods therefore it also a type of consumption tax. In this tax regime, the tax cost is borne by the end customer though charged on each stage of supply chain. This taxation system was introduced in the n 1st of January, 2018. Before that, VAT has been implemented successfully in over 180 Countries. As it is know that U didn’t had any kind of taxation laws before, therefore  VAT was applicable at a standard rate of 5%.

The UAE’s main or the major source of income is from oil and other forms of hydro carbons. But since a long time UAE was looking into to diverse it’s Source of Income. Federal Tax Authority (FTA) introduced VAT as a new source of income as all the tax collected by the business houses from the end customers will be paid to the Government. The taxes collected in the form of VAT and other federal taxes will be used for various public amenities.

REGISTRATION

A business entity must get itself registered under VAT laws if its aggregate taxable supplies including imports exceed AED 375,000 in a year. However, a business entity may get itself registered under such law voluntarily its aggregate taxable supplies including imports exceed AED 187,500 in a year.

A business entity may also get it register voluntarily under VAT in Dubai if its expenses exceed the threshold of AED 187,500.

A business can get itself register for VAT through e-services section on the FTA Website. The steps for the same are :

  1. Sign up or Login into e-services account in the FTA website
  2. If, you are a new user then, register yourself first by following the registration procedure and verifying your e-services account. (Note: You have to verify your account within 24 hours of receiving the link, otherwise the link will expire and you need to login again).
  3. If you already have an account or after creating one, simply login to your account.
  4. With time and again, you can change your e-mail address on the portal by attaching some supporting documents as stated in the site.
  5. After login, you will see a box with a message to click on the button if you want to “register under VAT”.
  6. In order to get the registration done, fill up all the 8 sections by following the stated
  7. Registration can also be amended without any approval as and when required. However, there are some amendments which require approval from FTA.

By creating such an account of e-services under FTA website, one user can add or remove a new taxable person, assign online user to a taxable person, shifting between taxable persons accounts and so on.

COLLECTION OF TAX

The authority of FTA is the in charge of collecting and managing taxes in the UAE.  Such tax is to be collected by business entities on behalf of Government at a rate of 5% at each step of supply chain. Tourists in the UAE also pay VAT at the point of sale.

VAT REGISTERED BUSINESS

Whether registered or not, every business in the UAE are required to maintain their financial records up-do-date and also as per VAT tax laws. The registered business must:

  1. Charge VAT @5% on supply of goods or services.
  2. Claim VAT paid by them on goods or services used by them for business purpose.
  3. Maintain proper records that will enable Government to check.

VAT RATES 

  1. Following goods are charged NIL tax rate under VAT :
    1. Export to outside GCC.
    2. International transportation and services thereto.
    3. Supplies of aircrafts and ships.
    4. On precious metal of gold and silver (99% pure).
    5. Newly constructed residential properties (supplied for the first time within 3 years of their construction).
    6. Educational services.
    7. Healthcare services.
  1. Following goods are exempt under VAT :
    1. Some financial services.
    2. Residential properties
    3. Bare land.
    4. Local passenger transport.

Otherwise, a tax rate of 5% is to be charged on supply of goods and services.

Supplies by Government entities are also subject to VAT (except some).

 VAT RETURN 

Every registered person under VAT, are required to submit VAT RETURN to FTA, within 28 days after the end of the tax period. Tax period being:

  • Quarterly for businesses with an annual turnover <AED150 million.
  • Monthly for businesses with an annual turnover >= AED150 million.

If failed to pay under the time given, then the business entities are liable to pay fine.

A VAT Return is comprised of a summary of all supplies (output tax) and purchases (input tax) made during the tax period.  Such return is filed electronically through the FTA portal.

Before filing its return, tax payer needs to pay its tax liability, which is the difference between output taxes less input tax. However, if input tax exceeds output tax then the taxpayer is eligible to get a refund of the difference amount from the government.

VAT AUDIT

As per Federal Law, VAT Audit is required to conduct regularly to ascertain its compliance. Such Audits are conducted either at the workplace or any other place as per FTA guidance. However, a 5 days’ notice need to be given before such checking.

The procedure for Vat Audit is enumerated below:

  1. FTA authorities will check the returns filed and records maintained by the tax payer, after giving a 5 days prior notice.
  2. The auditor/s and also the taxpayer can meet at the scheduled place at the scheduled time and the process can begin.
  3. The tax audit is to be conducted during the official FTA operating hours. (Except some exceptional cases)
  4. The taxpayer subject to a tax audit, in conjunction with his legal representatives and tax agents, are advised to participate and help the auditors performing their task.
  5. If something suspicious is found within the results of the audit which may impact the tax return, the authority might order a re-audit for more analysis.
  6. The audited person has the right to ask for the notification copy and connected documents and be present throughout the auditing procedures that are conducted outside of the official places.

CONCLUSION:

VAT, though leads to increase in the work of business entities due to maintaining of records and also filing for periodic returns, yet is a boon in the long run. VAT paves the way for more revenue generation and creates a ray for growth of business to the next level. Meeting the compliance timely will also avoid penalty and fines and in turn increase reputation of business in the eyes of government.

Also, VAT being new also brings opportunities for various professional experts all over the world and creates more employment. Initially through a little hardship, VAT is certainly the future of tax regime in UAE for getting the clear and bigger picture of the financial progress of the country.

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