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Understanding VAT (Value Added Tax) in The UAE

The implementation of VAT regulations in The UAE has brought changes in how business accounting operates. If you are still trying to navigate your way through these changes, this resource will help you understand the basics of VAT in The UAE.

What is VAT?

Value Added Tax,or VAT,is a tax that’s levied on consumption or use of goods and services.In other words, it’s a consumption based tax.

How VAT works?

VAT is charged at every stage in thesupply chain — right from the production tothe final purchase.

For example, Hafeez,a VAT-registered fruit grower,sells his produce to a supplier, who pays 5% VAT on the purchase. Supermarkets and retail chains buy the fruits from the supplier, who collects 5% VAT. At the same time, the supplier receives a refund on the VAT paid to the farmer (also called “recoverable input tax”). Finally, consumers pay VAT on purchasing the fruits, while the retailer collects it on behalf of the government.The retailer also receives a refund on VAT paid to the supplier. Thus, VAT is payable only for the value addition at each stage.

VAT rates and exceptions

TheFederal Tax Authority (FTA) has placed a fixed VAT rate of 5% on goods and services in the UAE.However, VAT is not chargedfor the following supplies:

  • Zero-rated supplies

    The following supplies fall under the 0% VAT category :
    • Exports
    • International passenger transport
    • Transport of international goods, for instance containers and vessels
    • Rescue aircrafts or sea vessels
    • Certain medicines and healthcare devices
    • Certain education services
    • Visa charges
    • First sale/rent of residential buildings
    • Certain precious metals considered as investment
  • Exempt supplies

    Exempt supplies are those goods and services that are totally exempted from VAT. The following supplies fall under this category :
    • Goods in designated free zones and financial free zones
    • Local passenger transport
    • Financial services including life insurance and reinsurance of life insurance
    • Salaries and bonus of employees
    • Bare land
    • Residential buildings (except for those that are zero-rated)

VAT registration in The UAE

Whether a business should register for VAT is broadly based on the value of their taxable supplies. The classification is as follows:

  • Mandatory registration

    A supplier must register for VAT if the total value of its taxable supplies (which includes zero-rated supplies) and imports within The UAE surpasses AED 375,000 in a 12-month period, or is expected tosurpass AED 375,000 in the next 30 days.

    Businesses that deal exclusively with exempted supplies can request an exception from registration. They will not be required to file VAT returns with the FTA and will not be eligible to claim any input tax credits.

  • Voluntary registration

    A supplier can also voluntarily register for VAT if its total taxable turnover (including zero-rated supplies and imports within the UAE) exceeds AED 187,500, either during the last 12 months or is expected to exceed AED 187,500 in the next 30 days.

  • Non-resident registration

    If a non-resident supplier or business entity makes taxable supplies within the UAE, it needs to register for VAT and file tax returns with the FTA.

    It’s vital for businesses to understand VAT-related rules and regulations to stay compliant and steer clear of any legal problems. To make this easy and affordable, Manage My VAT provides comprehensive VAT Services in The UAE taking care of everything, from UAE VAT consultation and registration to filing and refunds in few simple steps. to keep your business VAT-ready with ManageMyVat.com.