- August 7, 2019
- Posted by: Shuraa Tax Consultant
- Category: UAE Taxation
The taxation rules in the UAE underwent a modification in 2018. Over 170 nations impose VAT as a means to improve revenue with UAE also doing the same to boost overall revenue. Value Added Tax, also known as VAT, went into effect on January 1st, 2018, in UAE. According to UAE VAT Law, 5% of the price of delivered goods and services are subject to VAT.
In certain places, VAT is also called as a consumption tax or a goods and services tax (GST). The final consumer in the UAE is responsible for paying Value Added Tax (VAT) at every stage of the supply chain. Businesses, on the other hand, represent the government by acting as agents to collect and account for taxes.
Read on the points or simply watch the video to understand the UAE VAT procedures –
1.) What is VAT?
A levy known as Value-Added Tax (or VAT) is imposed on the majority of products and services that are supplied. One of the most widespread consumption taxes in the world is this one. The Goods and Services Tax (or VAT) is present in more than 170 nations, including all 29 EU member states, Canada, New Zealand, Australia, Singapore, and Malaysia. At each point of the supply chain, VAT is calculated. Typically, businesses collect and account for the Tax, but the final consumer is responsible for paying the VAT. Businesses collect the taxes on behalf of the government.
2.) When should businesses register for VAT in the UAE?
VAT registration in the United Arab Emirates falls into two categories: mandatory VAT registration and voluntary VAT registration.
The two main methods for registering a VAT in the UAE are as follows:
Voluntarily registering for VAT:
If a business’s annual (or less for new companies) taxable turnover and imports reaches AED 187,500, it may choose to voluntarily register for VAT.
Mandatory VAT Registration:
Businesses with annual (or less for new companies) taxable turnover and imports of more than AED 375,000 or expected taxable revenue is more than AED 375000 must mandatorily register for VAT.
Note: Companies in the UAE are not required to register for VAT if their annual taxable turnover and import is less than 187,500 and expected revenue is nil.
3.) What are the UAE’s VAT exemptions?
The UAE Executive VAT Regulations list the exempt supplies that are not taxable.
According to UAE VAT Law, a person is not eligible for an input tax credit on purchases they make if they supply UAE VAT exempt goods and services.
Consider a manufacturer who purchases raw materials at a 5% tax rate and creates tax-free goods or exempt goods as an example. In such a situation, he will be responsible for paying the 5% input tax on the raw materials because he will be unable to claim the input tax credit.
In addition, the UAE exempts several financial services, residential property supplies, the supply of bare land, etc. from paying VAT.
4.) Important records to retain
In addition to accounting records (payments, receipts, purchases, sales, revenues, and expenses), all firms, registered and unregistered, must keep financial records such as balance sheets, profit and loss statements, records of fixed assets, payroll, inventory, and stock levels if any.
Changes to a company’s basic practices, financial management processes, methods for maintaining accounting records and books, technology used in those practices, and human resources (accountants, tax advisors, etc.) may all be necessary.
5.) Which products are subject to VAT in the United Arab Emirates?
Most products and services in the UAE charge VAT @ 5%, which are not exempt or zero rated, or out of VAT scope. Items like office supplies, school uniforms, extracurricular activities, transportation services, automobiles, oil and gas, electronics, cellphones, second-hand goods, import goods, as well as insurance coverage for health, motor, property, reinsurance, water, electricity, etc, are liable to charge VAT.
6.) What services in the UAE are subject to VAT?
In the UAE, certain services are in fact subject to VAT, including plastic, cosmetic, or elective surgery, education offered by private higher education institutions, fee-based financial services, automobile servicing, repairs, catering services, hotels, and restaurants, as well as telecom and electronic services.
7.) UAE VAT liability payment by the deadline
In the UAE, the 28th day of the next month serves as both the deadline for filing the VAT return and the deadline for paying the VAT liability. Deadline will be shifted to the very next day if 28th is public holiday. You can pay VAT liability to FTA in a number of ways, including by bank transfer, or credit card. Processing times and fees vary depending on the mode. Charges for credit card payments are between 2 and 3 percent. The bank fees determine the cost of a bank transfer.
8.) What is the process in the UAE for filing tax returns?
A VAT-registered company submits a quarterly VAT Return. As a result, the authority may require specific enterprises to submit a return each month in order to verify compliance with the VAT Laws and lower the likelihood of tax evasion.
A registered business must fill out the VAT Return Format according to UAE VAT Executive Regulations. All VAT-registered firms in the UAE submit their returns by logging in to the FTA portal because the return filing process is entirely online.
9.) How Does the VAT Audit/Tax Audit System Work in the United Arab Emirates?
A field tax audit is when the FTA conducts a VAT audit or tax audit in the UAE at the company’s or person’s business location.
The taxable person typically provides all the data in the FTA Audit File (FAF), a format that has been prescribed. The UAE requires businesses that register for VAT to keep thorough financial records of all transactions in order to submit periodic VAT returns.
FTA chooses which companies to audit for taxes at its discretion. A VAT audit also seeks to confirm the accuracy of a taxable person’s tax liability.
The FTA has the right to request original copies of any records during a tax audit, check the business’s assets and inventories, and even confiscate them if necessary.
Additionally, the taxpayer or his tax agent must support and assist the tax authority by offering all required documentation proof.
The FTA has the authority to issue a notice to the taxable person asking him to pay the VAT along with penalties if it discovers anomalies after reviewing his financial and tax records.
10.) What are a Business’s Primary Responsibilities in the UAE?
Any business primary responsibility includes the following:
- Maintain accounting records while making sure that the account information is correct.
- Register for VAT within the deadline if the minimum or mandatory turnover requirements are met.
- In case the turnover is below the minimum criteria, keep accurate financial records to demonstrate why it is not required to register for VAT.
- If it has a valid TRN, it can charge VAT on both taxable products and services.
- Declare an input tax credit for the VAT you paid when buying taxable suppliers.
- Timely submission of VAT returns.
- If the amount of VAT charged exceeds the amount of VAT paid, you must pay taxes to the government.
- Comply with UAE VAT laws.
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