Basic VAT Introduction​

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VAT was introduced in the United Arab Emirates on 01 January 2018. The rate of VAT is 5% for all taxable supplies except exempt and zero-rated supplies. Every business, which meets specific criteria stipulated by Federal Tax Authority (FTA), must register for VAT.

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VAT-registered businesses generally:

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• must charge VAT on taxable goods or services they supply

• may reclaim any VAT they have paid on business-related goods or services

• keep a range of business records which will allow the FTA to check that they have got things right.

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VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis by VAT Return filing in UAE.

 

If a VAT registered business has collected more VAT in UAE  than they have paid VAT in UAE, they have to pay the difference to the FTA. If the VAT registered business has paid more VAT than it has charged, the business can reclaim the difference.

Dubai VAT Consultants

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Applicability:

VAT will apply on the supply of goods and services in the UAE (including imports) by a taxable person for consideration and during the course of business, except on the exempt goods and services as specified under the UAE VAT Law.

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Tax Rate and Implementation:

VAT is implemented across the UAE from 1 January 2018 at a standard rate of 5% on any supply or import of goods or services.

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Zero-rated goods:

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

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• Exports of goods and services outside of the GCC countries;

• 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.

 

Exemptions:

The UAE VAT Law exempts the following supplies from VAT:

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• Financial services as specified in Executive Regulations

• Supply of residential buildings through sale or lease (except those which are specifically zero-rated);

• Supply of bare land;

• Supply of local passenger transport.

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Note that while no VAT is payable on exempted supplies, the supplier cannot claim any deduction for input tax already paid from the FTA.

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Place of Supply:

The place of supply determines whether a supply is made in the UAE or outside the UAE. As such, if the supply is treated as made outside the UAE, VAT is not chargeable. However, if a supply is made in the UAE, VAT may be chargeable.

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In relation to goods, the basic rule is that the place of supply is the location of goods when the supply takes place subject to special rules applying to certain categories such as water & energy and cross-border supplies. Accordingly, VAT is chargeable for domestic supplies and exports. In the case of business-to-business imports into the UAE from outside the UAE, the recipient accounts for VAT under the reverse charge mechanism (explained below).

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In relation to services, the place of supply is where the supplier has the place of residence subject to specific rules applying to real estate, transport, telecommunications, and cultural, artistic, sporting or similar activities. In cases where a VAT registered person imports services into the UAE which would be subject to VAT if purchased in the UAE, the VAT registered purchaser must account for VAT under the reverse charge mechanism.

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Taxable Person and Mandatory Registration:

Taxable person means any person (corporation or not) conducting an economic activity for the purpose of generating income and whose value of the annual supplies in the UAE exceeds the mandatory registration threshold over the previous 12-month period or is expected to exceed the mandatory registration threshold in the next 30 days. Currently, the threshold for mandatory registration is set at AED 375,000.

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Voluntary Registration for VAT in UAE:

A business may still apply to register for VAT if they do not meet the mandatory registration criteria if value of annual supplies in the UAE exceeds the voluntary registration threshold over the previous 12-month period or is expected to exceed the voluntary registration threshold in the next 30 days. Currently, the thresholds for voluntary registration is AED 187,500.

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VAT Groups:

Under the UAE VAT Law, businesses that are related or associated parties may be able to register as a VAT group which could be a useful tool to simplify accounting for VAT.

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Reverse Charge Mechanism:

This is a mechanism under which the recipient of goods or services is required to pay VAT instead of the supplier, when the supplier is not a taxable person in the UAE where the supply has been made. This would generally apply to cross-border business-to-business transactions to relieve a non-resident supplier from the requirement to register and account for VAT in the country of the purchaser. As such, the taxable person will account for VAT on its normal VAT return and may be able to claim that VAT back on the same return, subject to the normal VAT recovery rules.

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 Stay up-to-date: The FTA has launched a website, www.tax.gov.ae, which sets out the key updates in relation to the VAT.

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