Value Added Taxes is essentially a consumption tax levied on goods and services and benefits the government as a form of revenue. As a general consumption tax, the VAT will apply to the vast majority of goods and services transactions. In contrast to income tax, UAE Value Tax Authority is the same for everyone and anyone consuming goods and services.
How Does Value Added Taxes Work In the UAE?
Value Added Taxes is applied at every stage of the value chain process, whilst the registered business selling the goods and services receives a tax credit on the paid VAT by the consumer of the good or service. On the other hand, the Federal Tax Authority of Dubai also receives an income of 5% because of the VAT imposed. With Dubai’s reputation for having a consumer-oriented business environment, the introduction of a UAE Value Added Taxes Authority allows the Dubai government to focus their resources on creating a good standard of living with happy citizens.
Value Added Taxes implementation in the UAE
The UAE Federal Tax Authority and Economic Diversification UAE provide citizens and residents with many different public services including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for using government budgets. UAE Corporate Taxes Authority provides our country with a new source of income, contributing to the continued provision of high quality public services in the future.
Value Added Taxes Exempt Sectors in the UAE
Let’s now look at the categories where we see exemptions from UAE Value Tax Authority. These may include:
Certain financial services
Local passenger transport
In addition, there are what’s called zero-rated sectors where VAT is 0% on the main categories of supplies. This may include:
- Export where goods/services go outside the GCC region
- Supplies for certain forms of transportation as well as international transport
- New constructed residential properties under certain conditions
- Some investment grade precious metals
- Some education services and the relevant goods/services
- Some healthcare services and the relevant goods/services
Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply, the registered person may not recover the input tax paid. In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person.
Liability of VAT
The liability of VAT is the difference between the output tax payable for a given tax period and the input tax recoverable for the same tax period.
Where the output tax exceeds the input tax amount, the difference must be paid to the Federal Tax Authority and UAE Government Revenue. Where the input tax exceeds the output tax, a taxable person will have the excess input tax recovered; he will be entitled to set this off against subsequent payment due to the Federal Tax Authority.
Value Added Tax or VAT is a tax on the consumption or use of goods and services. A VAT of 5 per cent is levied at the point of sale. It also helps the government move towards its vision of reducing dependence on income derived from oil and other hydrocarbons. VAT is the same for everyone and anyone consuming goods and services.
How do you calculate VAT in the UAE?
Based on the invoice you receive for the purchase of either a good or service, multiply the cost price by 5% in order to calculate the UAE Value Added Taxes Authority amount.
How to file a VAT return in UAE?
The Federal Tax Authority portal can be accessed at eservices.tax.gov.ae. Make sure you meet all tax return requirements before filing the VAT return form.