In 2018, there was a change in the tax laws of the United Arab Emirates. More than 150 countries have introduced VAT to increase their revenue, while the United Arab Emirates has increased its total revenue. This blog sheds light on the important aspects of VAT in the UAE.
Value added tax came into effect on January 1, 2018. The VAT rate according to the UAE VAT law is 5% and is levied on the goods and services supplied. Sales tax is an indirect tax, known in various parts as consumption tax or goods and services (GST). UAE VAT is levied at every stage of the supply chain, while the final consumer bears the VAT. On the other hand, corporations act as agents that collect and pay taxes on behalf of the government.
When to register for VAT in the UAE?
UAE VAT is divided into two types:
1)Voluntary VAT registration: A company can opt for voluntary VAT registration if its taxable turnover exceeds AED 187,500.
2)Mandatory VAT registration: VAT is mandatory for companies with a taxable turnover of more than AED 375,000.
Note. Companies with a taxable turnover of less than 187,500 do not need to register for VAT in the UAE.
Which transactions are subject to VAT changes in the UAE?
Under the UAE VAT laws, VAT is levied on all goods and services unless they are specifically taxed or exempted.
What are the UAE VAT exemptions? The UAE VAT Code lists exceptional supplies that are not taxable. According to the UAE VAT law, he is not allowed to enter VAT credit if a person supplies exceptional goods and services. For example, suppose a manufacturer buys raw materials at a tax rate of 5% and produces products that are tax-free. In this case, the 5% input tax payable on the raw material is for him because he cannot claim input tax credit. In addition, certain financial services, residential and transfer of vacant land, etc. are exempt from VAT in the UAE.
Why are zero-rated accessories important in the UAE? Tax-free transfer means a taxable transfer that is subject to zero tax. Refunds are available for zero-rated goods and services. In addition, the UAE VAT Law provides that all exports of goods and services to the UAE are treated as zero-rated supplies under the UAE Executive Regulations.
What are the products that are subject to VAT in the UAE? VAT in the United Arab Emirates In the UAE, VAT is levied on retail goods such as food, beverages, jewelry and non-essential consumer goods. In addition, VAT applies to stationery, school uniforms, afternoon activities, cars, oil and gas, electronics, smartphones, used goods, imported products and insurance products such as health, motor vehicles, real estate, reinsurance, hydroelectricity, etc.
Which services are subject to VAT in the UAE? UAE VAT applies to the following goods and services: Cosmetic, cosmetic or elective surgery, education in private universities, paid financial services, vehicle services, repairs, food services, hotels and restaurants, telecommunications, electronic services, etc. are indeed services subject to VAT. United Arab Emirates.
What are the two categories of property tax in the UAE? The UAE VAT process includes the following two asset categories: commercial residential Commercial real estate transactions, including lease and sale agreements, office space, retail, public parking and caravans are therefore subject to VAT. In addition, hotels, motels and other serviced accommodation, including short-term rental accommodation abroad, are also subject to VAT.
What is the procedure for the verification of TRN (Tax Registration Number) in UAE? The Federal Tax Office issues a unique tax registration/TRN number to VAT payers. Therefore, only VAT registered businesses with a valid TRN should collect VAT on supplies. TRN number verification is required if the buyer is unsure of the supplier's VAT registration status. Any VAT paid on purchases was treated as input tax credit. However, the condition is that the supplier must have a valid TRN number. You can check the TRN number of any company from the FTA (Federal Tax Agency) portal. TRN verification also helps to ensure the authenticity of the supplier.
What is the procedure for submitting tax returns in the United Arab Emirates? A company registered as liable for VAT submits a VAT return every month. The Agency may therefore ask certain companies to submit a declaration every month to ensure compliance with VAT laws and reduce the risk of tax evasion. In addition, the UAE VAT law reduces the compliance and administrative burden through special provisions. These laws allow certain companies a longer time to submit a VAT return. UAE VAT regulations have prescribed a form of VAT declaration where a registered company must submit information. The return process is online and therefore all UAE VAT companies submit their returns by logging into the FTA portal.
How does a VAT audit/tax audit work in the UAE system? When an FTA conducts a VAT audit/tax audit in the UAE at its offices or premises of a company/individual, it is referred to as a field tax audit. The taxpayer usually submits all the information in a prescribed format called an FTA audit file
UAE VAT requires registered companies to keep full financial records of transactions in order to file regular VAT returns. Therefore, the taxpayer calculates the amount of VAT payable and the VAT credit available. The FTA selects companies for tax audits at its discretion. In addition, the purpose of the VAT audit is to ensure the correctness of the tax payment by the taxpayer. During the tax audit, the FTA has the right to obtain original copies of all information, to check the shares and finances of the company,
Further, after examining the financial records of the taxable person, the FTA has the power to issue a notice asking him to pay the VAT along with penalties if it finds discrepancies.
Tax Assessment:As per the VAT Laws in UAE, FTA will issue tax assessments in the following cases:
Failure of VAT Registration completion within the specified time
Failing to file a Tax Return within the specified time
Failing to pay the tax payable as per the VAT Return within the specified time
Filing an incorrect VAT return
Failure on the part of the registered business to account for tax on behalf of another person when he was required to do so as per the UAE VAT Laws.
Tax evasion causes a shortfall in Tax Payable.
Further, the taxable person would also be liable to pay VAT Penalties applicable under the Federal Decree-Law on VAT. In the interest of a taxable business, it fully complies with the provisions of VAT in the UAE to avoid penalties and loss of reputation.
What are the Key Responsibilities of a Business in UAE?
Maintain financial records while ensuring the accuracy of its account information.
Register for VAT if it meets minimum turnover criteria
Keep proper financial records if the turnover is less than the minimum threshold to prove why it need not register for VAT
Charge VAT on Taxable goods as well as services if it holds a valid TRN
Claim Input Tax Credit for VAT paid on the purchase of taxable supplies
File VAT Returns on a timely basis
Pay taxes to the government if the VAT amount charged exceeds the amount of VAT paid.
Obey VAT Laws of the UAE
Worldwide the VAT/GST rates range from as high as 27% to a low
|
United Arab Emirates |
0%-5% |
|
Nigeria |
5% |
|
Malaysia |
6% |
|
Singapore |
7% |
|
United States |
0%-7.5% |
|
Japan |
8% |
|
Switzerland |
8% |
|
Lebanon |
10% |
|
Russian Federation |
18% |
|
Germany |
19% |
|
United Kingdom |
20% |
|
Ireland |
23% |
|
Greece, Finland, Iceland |
24% |
|
Norway, Sweden, Denmark |
25% |
|
Hungary |
27% |
|
India GST |
0.25%, 1%, 3%, 5%, 12%, 18% and 28% |
