Value-added tax (VAT), also known in other countries as Goods and Services Tax (GST), is an indirect consumption tax imposed on goods and services at the following stages:
- Supply; and
Effective 1sr January, 2018, VAT will be applied in the UAE at a standard rate of 5%, on all taxable supplies and services.
As per the VAT regulations, there are two main categories supplies and services:
How we can help with VAT implementation
- Conduct VAT readiness and capabilities assessment
- Conduct VAT sessions and workshops on awareness and planning
- Review business policies, procedures, and transactions to provide a plan for required amendments and classifications
- Review continuous long-term contracts and propose VAT-specific amendments and changes
- Undertake a VAT cost financial analysis, and advise on its impact on margins and pricing
- Provide and present a VAT implementation plan
- Advise and support on systems, compliance and, training.
1. Taxable supplies and service
5% is the standard rate on taxable supplies and services. VAT paid by different parties, except the end user, is an Input tax and can be deducted and claimed by filing a tax return.
Generally, the following are the taxable supplies and services at the standard rate, in accordance with the UAE’s VAT regulations:
2. Zero rated supplies and service
Zero rated supplies and services are those that are taxable but at the rate of 0%. They will still need to be reported as input tax by the payer when filing the tax return, however, there impact is going to be Nil.
According to the UAE VAT regulations, the following supplies and services are taxed at the zero percentage:
3. Exempted supplies and service
Exempted from VAT supplies and services represents certain categories that are not subject to VAT, and therefore, no tax will be charged on these supplies and services, accordingly no input tax can be claimed under tax return for these items.
Based on VAT regulations, the following are exempted supplies and services categories:
How is VAT going to affect your business
Margins: VAT will have a direct impact on your business cost structure, which will eventually mean impact on margins. Therefore, businesses will have to apply certain changes to their pricing methodology and strategy, business’ operations, financial management, and so other business function.
Readiness: Businesses should understand the impact of VAT so as to be ready for when legislation is issued in order to comply with the government’s requirements.
Compliance: Businesses will have to file VAT returns and pay VAT or claim refund on a regular monthly or quarterly basis.
Registrations: First compliance step is registering for VAT in the UAE, for all taxable persons or organizations, registration is as per the below thresholds: For resident business of person;
Threshold is determined as total value of turn over for the past twelve months, or expected or estimated for the next twelve months, in case of expected next twelve exceeds the actual past twelve.
For non-resident taxable person or business, no threshold is applicable and registration is mandatory.
Business’ VAT-related responsibilities:
- Record financial transactions and make sure financial records are accurate and up to date
- Charge VAT on taxable goods or services
- Keep business records as to allow the government to ensure things are right
- If you have charged more VAT than paid, you have to pay the difference to the government, and if you have
paid more VAT than charged, you can reclaim the difference
- Ensure that your company’s ERP is equipped to capture the above and able to report and produce required VAT reports
A reliable VAT consultant in Dubai, and the UAE, we at XB4 will ensure a smooth transition for your business when registering to VAT and will help you adapt to the changes by identifying the impact of VAT on your business, in addition to:
- Creating a VAT implementation strategy
- Identifying and preventing tax risks
- Managing tax accounting issues
- Meeting compliance obligations
- Training staff and executives on dealing with and planning VAT and its impact on the business and pricing
- Developing roadmaps and a resourcing plan to identify the work necessary for regular reporting and submission of required VAT returns
Are you certain your company will not be overpaying VAT?
Do you really know the real impact on your cost structure due to VAT?
With an appropriate planning and assessment at the implementation stage of VAT, you may be able to save yourself some VAT being charged to you, and hence control your cost. This is critical at this stage whilst the preparation for VAT implementation is taking place. There are some important tax and legal issues that you should be aware of in terms of how to deal with.