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Value Added Tax (VAT) is a tax on consumption and it applies to most goods and services. VAT is levied at each stage of transactions, i.e. on goods and services supplied in the course of business. VAT applies to most goods and services but there are usually some exceptions such as education and healthcare. The Gulf Cooperation Council (GCC) States have adopted a standard VAT system with a single rate applying to most goods and services.
The UAE have announced a 1 January 2018 implementation date .
The rate will be 5% which is low compared to most countries.
Other than exempt entities all businesses with a turnover in excess of AED 375,000 have to register. Businesses with turnover between AED 187,500 and AED 375,000 have the option to register.
Ultimately the end user or consumer, however VAT is paid at various stages and claimed back as a VAT input credit.
It is the tax that a manufacturer or service provider pays to his suppliers. This is offset against the VAT collected from his customer and the balance paid to the government. In order to support the claim, compliant VAT invoices need to be issued by your suppliers.
Usually most costs are carried by the consumer, however if your turnover is below the threshold or you are supplying exempt goods or services you will carry the cost. This cost may or may not be passed on depending on market conditions. Even if you are recovering the input credit there will be a cash flow impact.
Exempt goods or services providers are not allowed to charge VAT. Zero rated goods or services are subject to VAT at a rate of zero. This is a very important distinction as suppliers of zero rated goods or services may claim the VAT input credit whilst exempt suppliers may not.
VAT is expected to be charged on imports and is payable at the time of import. In the UAE VAT on both goods and services will be paid via the ‘Reverse Charge Mechanism’, a self-invoicing procedure which allows you to pay and claim the input via the Tax return (assuming you are entitled to the input). Exports are zero rated.
No, however you will have to maintain reliable financial records which should be prepared using reliable software.
Tax authorities will be very strict on this and consequences will be severe. UAE MOF has recently announced a long list of penalties. If your turnover is above the threshold you should prepare your business and register accordingly.