The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for using government budgets. VAT provides our country with a new source of income, contributing to the continued provision of high quality public services in the future. It also helps the government move towards its vision of reducing dependence on income derived from oil and other hydrocarbons. Federal Tax Authority (FTA) issued Federal Decree-Law No. 8 of 2017 to implement Value Added Tax in United Arab Emirates (UAE). VAT was introduced across the UAE on 1st January 2018 at a standard rate of 5%.
What is VAT in UAE
VAT is an indirect tax imposed on the supply of goods and services and is charged at each stage of the supply chain. The end-consumer bears the VAT while registered taxpayers collects the tax on behalf of the government.
What is the VAT rate in UAE
FTA announced a standard VAT rate of 5%. However, the FTA categorized a few goods and services under zero-rated supply and exempt supplies where no tax is charged. Below is a simple, illustrative example explaining how VAT works based on a VAT rate of 5% :
Total VAT paid by Final Consumer AED : 250Zero-rated sectors
VAT will be charged at 0% in respect of the following main categories of supplies:
- Exports of goods and services to outside the GCC
- 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 three 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
VAT- exempt sectors
The following categories of supplies will be exempt from VAT:
- The supply of some financial services (clarified in VAT legislation)
- Residential properties
- Bare land
- Local passenger transport
VAT for Businesses
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
VAT Return in UAE
VAT-registered businesses shall submit the VAT return and make payment of VAT liability every quarter to the FTA. The registered taxpayers must complete VAT return filing and VAT payment before the 28th day from the end of the quarter. However, the FTA may assign a different tax period to a certain group of taxable persons.
Penalties for VAT offences in UAE
FTA has a right to impose penalties and fines on taxpayers whenever there is any violation of VAT law or rules. The Federal Law No. (7) of 2017 on Tax Procedures listed the penalties for violating UAE VAT law and tax evasion in UAE.
The below table explains the nature of the offence and its related penalties:
|
Nature of Offence
|
Penalty or Fine
|
|---|---|
|
Not displaying price list in the business place
|
AED 15,000
|
|
Failure to issue a tax invoice, credit note or an alternative document during a supply
|
AED 5,000 for each tax invoice, credit note or alternative document
|
|
Failure to notify FTA regarding the charge of tax based on the
|
|
|
Not keeping goods in a Designated Zone or moving them to another Designated Zone
|
|
|
Tax evasion
|
300% of the tax evaded
|
Summing It Up
Value Added Tax (or VAT) is an indirect tax. Occasionally, it might be referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold. VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia. VAT is charged at each step of the “supply chain”. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
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