Value Added Tax (or VAT) is an indirect tax. VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while registered Businesses collect and account for the VAT, in a way acting as a tax collector on behalf of the government
VAT will be implemented across the UAE on January 1 2018. The rate is 5%.
Businesses with net sale over Dh 375,000 will be required to register for VAT.
Business owners in the UAE can start registering for VAT on 1st October, 2017.
Businesses will be able to register online using e-services.
The thresholds for businesses to register for VAT are based on the value of their taxable supplies, which include standard-rated supplies, zero-rated supplies.
A business must register for VAT if the total value of their taxable sales and imports within the UAE exceeds the mandatory registration threshold of AED 375,000 .
A business can voluntarily register for VAT if the total value of their taxable sales and imports within the UAE exceeds the voluntary registration threshold of AED 187,500 .
Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government
Registered businesses will be expected to submit VAT returns on a regular basis. It is expected that the default period for filing VAT returns will be three months for the majority of businesses.
Registered businesses will be able to file their returns online using e-services. Quarterly returns will be submitted and paid one month after the quarter end via electronic filing only. Tax payments and refunds will be electronic (cheques will not be issued or accepted).
One VAT return for a group of companies who are eligible to form a VAT Group.
Intercompany transactions will not be subject to VAT.
VAT group is only for domestic entities – foreign company can join VAT group if they have an entity in the UAE.
Companies can claim VAT on following expenses, but cannot charge VAT to customers:
Health (essential medical, not cosmetic) Local Transport (for passengers only) Education – full scope to be determined but school fees to be zero rated (education provider must be an educational entity/institution) Investment in precious metals (platinum, gold, and silver).
Companies cannot claim VAT on Rental income on the residential property.
Companies cannot charge VAT to the customer for residential properties.
Non-essential goods, such as tobacco and beverages will not only be subject to VAT but excise taxes as well. The GCC tax code( Excise tax) includes 50 per cent taxes on soft drinks and 100 per cent taxes on power drinks, tobacco, and its derivatives.
Businesses will be required to keep accounting records which will enable the authorities to identify the details of the business activities and review transactions.
Excise tax is a form of indirect tax levied on specific goods. These goods are typically those that are harmful to human health or the environment. Such goods include carbonated drinks, energy drinks and tobacco products.