UAE has been a tax-free country all these years. It has reached its supreme development through oil reserves. Now that they are declining and the country has to find new sources of income to diverse it from oil-dependent economy to non-oil dependent one. Among many measures being taken up by the government – the introduction of VAT is also one of them.
VAT is effective since 1st Jan 2018 by Federal decree-law no 8. It has also given the framework of how it will be implemented. There has been new UAE VAT LAW and guidelines about the same.
What is VAT?
VAT is a consumption tax levied by the government at every stage of the supply chain. The tax is added by the producer while it is selling to the distributor and the same tax is carried forward by the distributor to the retailers and then to customers. A customer is the one who will be paying tax on all goods and services used by them apart from exceptions.
The current value of the vat is 5% on all goods and services apart from exemptions. The businesses act as tax collectors for the government. The tax they are collecting from the people is transferred to the government.
For a collection of VAT from the customers and paying the same to the Government, a taxpayer needs to first get himself register with Federal Tax Authority.
There are many rules and exceptions for getting registered for VAT.
In first phase, companies having an income or expenses of AED 375,000 per annum must register for vat. There are no exceptions in this rule. You may be in any industry but if your taxable goods and services exceed the said amount, then it should be a registered business. Failing to do so may invite penalty by the government.
Companies whose turnover or expenses exceed AED 187,500 has the option to wait until AED 375,000. But reaching AED 187,500 they can apply for voluntary registration if they want. For registering your business for VAT, you have to submit legal documents such as trade license copy, AOA, bank statements, identification documents of owners and other documents as and when asked for by the Authority in the process of registration.
Though it may sound easy hearing about online registration, it involves a lot of steps in which you would need professional help which we provide.
When you are registered for VAT, you become eligible to add tax value to your products.
For example, you sell a good for AED 100, by adding tax to the value it may become AED 105 for the customer. This 5 AED will be payable to the government by you irrespective of the same whether it is collected by you from the customer. In the same way, if you have made purchases in relation to the said sales of let’s say AED 80 on which you have paid or payable AED 4 as VAT to your supplier, then your final VAT liability payable to government would be Output VAT – Input VAT ( AED 5 – AED 4 ) = AED 1
VAT registration of your company also makes it mandatory to keep all your accounting details updated and correct. You need to report to the government about how much tax you have collected from customers and how much you have paid to the government on regular basis.
You have to submit periodic VAT returns to Federal Tax Authority clearly showing the VAT position whether payable/refund. There are penal provisions regarding non-filing and nonpayment imposed by the authority and such penalties can affect a business considerably if not taken seriously.
Hiring an expert is always good for business as then he will take care of all the hurdles and complications imposed by the government thereby keep away the business from cumbersome fines and penalties.
All these transactions make it necessary for the business to hire experts for carrying out their VAT registration process.
VAT is not generally applicable to each industry, it has some exceptions also which are financial services, bare land, local transport, and residential buildings etc. VAT treatment pertaining to these industries are specific and should be treated as per specific requirements.
Two or more individuals who are related financially can also get registered as a tax group if you meet the criteria set by the government. Through online registration, federal tax authority takes 15 to 20 days to process your registration request.
Get your business registered now with Federal reserve now with our help.