VAT in the UAE: A Comprehensive VAT FAQ

The UAE is introducing VAT to provide our country with a new source of income revenue and fund public services, contributing to the continued provision of high-quality public services in future. Also helps government move towards its vision of reducing dependence on Income derived from oil and other hydrocarbons.

VAT is introduced in 1st January 2018 in UAE, it is form of Indirect Tax imposed by government on most services or products. The FTA of UAE categorized VAT into three Segments: a) Standard Rate 5% b) Zero-rated c) Exempted

VAT will be collected by businesses and account for the tax on behalf of the Government on a taxable supply of goods or services at each step of the supply chain which will charge VAT (Output Tax) to customers and incur VAT (Input Tax) on their expenses. The difference will be either paid to or reimbursed by the government.

VAT will apply to most goods and services transactions, includes Entertainment, Electronics, Food & Beverages, Cars, Jewellery, except those services which are exempted by law, it includes: Local passenger transport, Bare Land, Residentials buildings (which are not covered under Zero Tax, Rent for Residentials Units.

The impact on the cost of living will vary based on individual spending habits. As the final price of the product is equal to the sum of the values added at each preceding stage. The final VAT paid is made up of the sum of the VAT paid at each stage. Those primarily spending on VAT-exempt items may not see a significant increase.

Rules will be in place to ensure transparency in displaying VAT on transactions, and also various kind of Penalties imposed by FTA if there is violation of Vat rules and policy by any businesses.

Businesses must register for VAT if their taxable supplies and imports exceed AED 375,000 in last 12 months. As per the UAE VAT law, businesses with taxable supplies and imports between AED 187,500 and 375,000 are allowed to make a voluntary application for VAT registration. However, those businesses whose taxable supplies and imports are below AED 187,500 are not required to file for VAT registration.

If you are VAT registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve 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.

VAT-registered businesses must submit a VAT return to Federal Tax Authority. A VAT return summarises the value of the supplies and purchases a taxable person has made during the tax period and shows the taxable person’s VAT liability. VAT return should be filed online on the respective portals.

Businesses should prepare by aligning their operations, financial management, technology, and human resources with VAT requirements, ensuring readiness for the legislation. Businesses will need to meet requirements to fulfil their tax Obligations.

Businesses required to register for VAT and charge VAT from January 1, 2018, must register before that date. Electronic registrations open in mid-September 2017 to avoid last-minute rushes.

VAT returns must be filed with the Federal Tax Authority (FTA) on a regular basis quarterly or monthly depends on customer only. Monthly filing will be done every month e.g. filing for the month of 1st Jan to 31st Jan, last date will be 28th Feb and Quarterly filing will be e.g. filing for first quarter 1st Jan to 31st March, last date will be 30th April respectively.

Businesses must retain their Ownership records such as business formation documents, Annual meeting minutes, by-laws, stock ledgers and property deeds should be retained permanently. Accounting service records should be retained for a minimum of Five years.

The place of Supply will determine whether a supply is made within the UAE or outside the UAE for VAT purpose. For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (eg. Water and energy, cross border supplies). For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses)

VAT is payable in addition to customs duties paid by the Importer of the goods and cannot be deducted from them. VAT shall be computed on the value that includes the customs duties.

The VAT treatment of Real estate depends on whether it's commercial or residential property. Supplies of Commercial properties will be taxable at the standard VAT rate i.e 5%. On the other hand, supplies of Residential properties will generally be exempt from VAT. The first supply of residentials properties within 3 years from their Completion will be zero rated.

Life insurance and reinsurance of Life contracts will be considered an exempt financial service. All other forms of insurance (including reinsurance of non-Life contract) will be subject to VAT @ 5%. Most insurance types, like vehicle and medical insurance, will be taxable.

Yes, special rules are in place for supplies spanning the introduction of VAT, ensuring a smooth transition. If the supply of goods/services takes place on/after January 1, 2018, but the payment for the supply had been completed before January 1, 2018, then VAT is Applicable on the Supply.

No specific rules are planned for Small or medium sized Enterprises, but the FTA will provide resources and guidance for their VAT compliance.

Businesses attract penalties if they do not follow rules and regulation in filing VAT returns. Follow below: a) If the tax return is not submitted within the prescribed timeframe, then there will be a fine of AED 1000, but if there is a repetition of the Violation within 24 months again then there will be a fine of AED 2000. b) If in the prescribed time, there is a failure to register for tax, the fine will be AED 20000. c) If there is a miscarriage to settle any taxes payable will result in a late payment penalty of 2% of the unpaid tax due immediately. d) If anyone file Incorrect tax return, then fine will be AED 3000 for first time, but if there is a repetition the fine will be AED 5000. e) If in VAT records amendments were made the authorities should be informed about it, if not, first time the fine will be AED 5000, the second violation fine will be AED 15000. f) If there is not issuing tax invoices and tax credit notes, fine will be AED 5000.