VAT – Real Time Auditors and Consultants
General Overview of Value Added Tax (VAT) in the UAE
On 1st January 2018, VAT was effectively inducted into business transactions in the UAE and Saudi Arabia. This agreement forms the basis for most of the already existing VAT laws and regulations in GCC member countries, including the UAE. Adding to the VAT agreement, UAE also adopted a federal decree-law No. 8 of 2017 on VAT which provides guidelines as regards how VAT laws and regulations will be implemented in the UAE. As of 1st January 2019, all the Member Countries of the Gulf Cooperation Council (GCC) were expected to have enforced VAT in their respective countries. But before that, all the members of GCC did sign an agreement which is referred to as The Unified VAT Agreement. This urges them to implement VAT in their countries.

What does the Value Added Tax (VAT) mean?

Generally, VAT is a kind of consumption tax placed on the use of goods and services in more than 180 countries of the world. Currently, it falls within the category of indirect taxes. It is usually charged by VAT registered individuals or businesses involved in the provision of goods and services to customers. It is charged on the price of goods and services at each stage of production, distribution, and sales. Meanwhile, registered businesses under VAT act as government agents, therefore they can collect tax first and then later give reports on those taxes collected, to the government.

How does VAT work in UAE?

In UAE, VAT is accounted for on businesses related to goods and services to customers. How is VAT accounted for? The charge is added to the amount of money paid for goods and services which are supplied to businesses or for individual consumptions. VAT registered businesses are responsible for documenting VAT charges ever charged, expenses, and their business income.

Know the Fundamentals of VAT

With respect to VAT, taxation point is the stage when a VAT registered business is obligated to pay for VAT on goods purchased or services provided to the business. Tax point can be seen as the starting point of the following:

  • Tax Invoice issued against goods and services supplied to a customer
  • On goods or services provided to customers
  • Recognition or consideration received by a supplier on the goods he/he supplied or services provided

Common VAT Terms and their definitions

  • Goods: Products purchased needed for personal consumption or business use.
  • Services:Job or work done in exchange for money
  • Taxable Person: An Individual obligated to register for VAT in fulfillment of the federal decree – law No. 8 of 2017 on VAT
  • Tax Invoice:This contains all the tax details for goods sold and services provided
  • Payable Tax: Amount due to be paid to the concerned authority as tax by the taxable person
  • Tax Period:A period at which the calculated tax payable to the authority covers
  • Taxable Supply:This covers all the goods and services in the state except for those goods and services considered as being outside the scope of VAT
  • Due Tax:Amount calculated as tax, and charged to the pursuant based on the provisions from the federal decree-law No. 8 of 2017 on VAT.
  • Input Tax:The amount incurred as tax, added to the value of goods or services which the business buys from their supplier
  • Output Tax:The amount incurred as tax, added to the value of goods or services supplied to customers
  • Exempt Supply:VAT exempted goods and services
  • Date of Supply:The particular date on which VAT charges are incurred on any goods or services

VAT Rates in the UAE

In UAE, businesses registered under VAT are obligated to charge VAT at the rate of 5% on supply of all types of goods and services provided in UAE with exception of the following:

  • – VAT exempted goods or services
  • – Supplied goods or services that fall outside the scope of VAT in UAE
  • – Goods and services that fall under the category of zero-rated supply.

Goods and Services categorized under zero-rated supply in the UAE:

  • – Healthcare Services
  • – Education Services
  • – Direct and Indirect supply of goods or services outside the Gulf Cooperation Council (GCC) member countries
  • – Structures and building built for charity purposes
  • – International Transportation
  • – The first sale of residential property
  • – Good investments done on precious metals
  • – Exported Telecommunication services

VAT exempted supplies in the UAE include:

  • – Local Transportation Services
  • – Second Sale of residential property
  • – Life Insurance
  • – A lease on Residential property
  • – Transfer of debt or equity security ownership
  • – Financial services not done against explicit fee, commission, discount, rebate

 

How places of Supply affect VAT?

This has to do with the place or location at which delivery of particular goods or services occurred. The location where transactions are carried out is one of the factors considered when one wants to charge for VAT.  It is divided into two categories:

  • – Place of Supply for Goods
  • – Place of Supply for Services

Place of Supply for Goods: In UAE, whether a supply is made in UAE or abroad, is accounted for during the calculation of VAT. However, VAT is not charged when the supply of goods is carried outside the UAE. But in a case where the goods are delivered within the UAE. Then, VAT charges may be incurred. Still, it depends on the nature of the supply.

Business to Business or Business to Consumer transactions done in UAE will attract VAT charges placed at zero or standard rates.

As regards supplying goods to another GCC member state that implements VAT, the place of supply will be the state at where the goods were supplied, so far the receiver of the good is registered under VAT. But if the receiver is not registered for VAT, then the place of supply will be UAE

In a situation whereby goods are supplied outside or within the GCC state that is yet to enforce VAT. In this case, the place of supply will be UAE whereas the VAT will charge at zero or standard rate

Place of Supply for Services: Considering the place of residence of the supplier as the place of supply for services is a rule. Though some exceptions to this rule include:

  • – The place where the service will be performed is considered the place of supply for services as regards to installation or transaction of the goods and services.
  • – If the service provider or supplier is a registered VAT individual staying in another GCC enforcing state. Then, the place of supply for service will be the GCC state. But if the service provider is not registered under VAT, then the place of supply will be the UAE
  • – When the service provider who is not resident in the UAE, supplies a service to a business resident in the UAE. Then, the place of supply will be the UAE. Usually, in a case like this, the Reverse Charge Mechanism (RCM) is applied by the resident business. However, when a supply is made to a business registered under VAT in another GCC member state, then the place of supply will be the GCC state.

How does the Date of Supply affect VAT?

Basically in business, the date of supply is considered to be the date on which taxes were deducted or charged on the goods or service provided. It is divided into two basic categories.

  • – Date of Supply for goods
  • – Date of Supply for services

Date of Supply for Goods: the date of supply is considered to be the date at which goods are supplied to a customer, using a means of transportation. But when the supply of goods doesn’t involve using any means of transportation, then the date of supply will be the date when the goods were provided to the customer for possession.

Date of Supply for Services: Tax point on services is considered to be the date on which services were provided by the service provider. However, the date of supply for services for a specific time is regarded as

  • – Date when tax invoice was issued
  • – Payment receipt from the customer

Difference between Zero-rated and Exempt Supplies

A zero-rated supply can be referred to as a taxable supply at which tax is charged at 0%. Then, an exempt supply is simply the supply of goods or services at which VAT is not charged. Entities registered under VAT can get their input tax on the goods or services when the supplies are being made. Whereas, input tax can’t be charged on goods and services provided on exempt supplies.

Who is Liable to pay for VAT?

Usually in the UAE, a VAT invoice is issued by a business that is obligated to pay VAT charges to the tax authorities. However, in a scenario where the provider of the goods or services is not residing in a GCC member state but made a supply to a customer in the UAE. The recipient of the goods or service is the one required by the law to pay VAT charges to the authorities

VAT charges on Imports

Goods brought into the UAE from outside or abroad is regarded as Imports. In a situation whereby the provision of the goods and service is from a registered business in one of the GCC implementing States to a VAT registered business entity in the UAE. The place of supply would be the UAE. This is because the receiver or owner of the goods and services resides in the UAE. However, the UAE government will be the authority to charge for in this case.

But if the goods or service is provided by a business that is not from a GCC member state to a business in UAE. Then, the place of supply will still be UAE.

VAT charges on Exports

However, exports generally fall in the category of zero-rated supplies. Therefore, VAT on exports are charged at 0%.  In UAE, exporters are expected to provide the following as proof of export

  • – Delivery Note
  • – Purchase Order
  • – Insurance Document
  • – Sales Invoice
  • – Airway bill
  • – Consideration Evidence
  • – Purchase order

VAT Reverse Charge Mechanism (RCM)

In RCM, for certain specified supplies, the recipients of goods or services are obligated to pay tax to the government. However, this is different from the other type – forward charge in which the provider of the goods and services are the ones that pay the amount charged for tax. The only difference between forward and the reverse is the change on the payee of the tax

In the UAE, the authorities introduced a reverse charge mechanism (RCM), in the bid to ensure that VAT charges are still collected on the provision of goods and services when the supplier or provider is not a taxable individual. With RCM, the recipient of the goods and services can then pay for the VAT charges.

Supplies Where Reverse Charge Mechanism Can Be Initiated When Charging for VAT

  • – Supply of Crude oil or refined petroleum oil
  • – Hydrocarbon supply for resale
  • – Supply of any form of energy
  • – Goods and services supplied by someone who is not resident in the UAE to a person resident in the UAE
  • – Goods imported into UAE for business purposes

The Requirements for UAE VAT Compliance

In the UAE, businesses that up to the limit needed for VAT registration are expected to fulfill the following requirement in full compliance with the VAT laws. Some of these requirements are as follows.

  • – Business exceeding the annual turnover threshold of AED 375,000 as per the VAT law in UAE
  • – Ensure to file VAT returns regularly as determined by the Federal Tax Authority (FTA)
  • – Ensuring to pay the amount charged for VAT to the authority at a specified date
  • – Maintain thorough documentation as regards the entity’s business transaction
  • – The VAT registered business should also maintain all the accounting records with other information need for five years.

What is a Tax Group?

A tax group is formed when two or more taxable persons or entity comes together to form a single taxable entity. To form a Tax group; the entities that make up the tax group must be related, each of the member entities must have a branch or an office in the UAE. And then finally, the tax group should have a single entity or more among the member entities that will have control over others.

Cash Flow Management

To ensure a successful and long lifespan of a business, a business registered for VAT should manage its cash flow for its VAT system. The business can consider or check various options to manage their cash flow effectively. The options are as follows

  • – Reducing time at which they collect for VAT on purchases
  • – Shifting VAT payment on expenditure and purchases

Why should I hire Real-Time Auditors and Consultants VAT services?

At Real-Time, we have well-experienced tax / VAT experts and professionals who are ready to give your business the best of VAT services in the whole of UAE. These amazing professionals can conduct a well-detailed tax audit on all your business transactions within a specific tax period before filing your return with the FTA. We can also provide VAT registration services, VAT return filing, VAT implementation services. In the whole of the United Arab Emirates, Real-Time tax experts have already garnered a reputation for their outstanding VAT services.

Why Don’t You Contact Us Right Now?

With Real-Time Tax experts, you are sure of the successful implementation of VAT compliant services to your business. In addition to that, we understand every bit of the FTA regulations as regards full UAE VAT compliance. As an accounting firm, with well-experienced VAT experts, we will also help audit your VAT returns before it’s been filed to the concerned authority. This is to check whether the returns fulfill all the requirements needed. On the other hand, Real-Time Auditors and Consultants will extend a helping hand through our concerned and experienced professionals all through the process of transitioning into the new VAT compliant system. We also pay good attention to the tiniest bit of details. With our VAT implementation services, you will not miss any requirement. Another reason to hire us is because of our outstanding staff training program. We understand the different approach we need to take for all personnel to clearly under VAT and how it works with the new system in their company. As per FTA regulations that all VAT-registered business should file their tax returns on or before the 28th of every month within a specified tax period, our services will serve as a reminder to you for you not to miss the deadline.  And finally, we will bring out the best system or strategy that will best suit your business for successful VAT adoption. We will also give you a helping hand during the registration process.

So why don’t you contact us today? Visit our contact page today and get in touch for the best VAT services in Dubai and other Emirates of the UAE.