Monday, May 15, 2017

Business to Start planning for Vat in U.A.E

The VAT will be implemented in U.A.E from January 2018. The rate that is decided for VAT is 5%. The collection of VAT will be done by the government. The companies and the business owners have to maintain proper documentation for the completion of registration process. After that, they will be able to charge the specified amount of VAT on all the goods and services they are providing.

Value added tax (VAT) is a type of tax that is applied to the goods or services produced. It is a form of an informal tax that is also known as a multi-stage tax. The government of Dubai is implementing this tax for the betterment of services that are provided to the residents. With this additional source of finance, the government will be able to provide better services to the people. The VAT is applied on all the goods that are produced in the companies that are registered with VAT. It is the tax that is applied on every step of production and the total amount is calculated after the completion of the production process.

In the UAE, the registration exercise of companies that are above the yearly threshold for VAT is expected to start in less than 3 months from today, as the country gears up for implementing the 5 percent levy from January 1, 2018. Businesses that provide taxable goods or services, with annual revenue of more than Dh375,000 will be required to register, while businesses with taxable supplies below Dh375,000 but over Dh187,500 will have the option to register.

The UAE has yet to publish its VAT law but has established a Federal Tax Authority to deal with the levy. The authority will administer, collect and enforce federal taxes and will perform tax audits and administer penalties in cases of non-compliance with the tax laws.

The difference between VAT and general sales tax:

A sales tax and VAT are both a type of consumption tax. For a layman, there is no difference between the sales tax and the VAT. Some may also think that there is no difference between the working of both taxes. However, there is some key difference between both taxes. The sales tax is the one that is imposed on the customers only at the final stage. VAT, on the other hand, is imposed on each and every step of production. Moreover, VAT is also applied on the imports of services and goods to ensure and maintain a proper working of tax.

The preference is given to VAT instead of other sales taxes because, in VAT, the business owners or the companies act as the tax collector for the government. It is a more sophisticated form of tax.
 
The Ministry of Finance will start registering companies that are above the yearly threshold for value added tax in the second half of this year as the country gears up for implementing the 5 percent levy from January 1, 2018.

The ministry announced that businesses that provide taxable goods or services, with annual revenue of more than Dh375,000 will be required to register. Businesses with taxable supplies below Dh375,000 but over Dh187,500 will have the option to register, it said.
Businesses exempt from VAT will not be able to recover from the government the tax incurred on the cost of an item or a service that is not exempt, and it will be up to the business to decide whether to pass on the VAT cost to the consumer. 

1 comment:

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