11 Things you Must Know About VAT in UAE
11 Things you Must Know About VAT in UAE
The United Arab Emirates’ tax laws underwent a transformation in 2018. VAT has been imposed by more than 150 nations to increase revenue, and the UAE followed suit to boost overall revenue. The important facets of VAT in the UAE will be clarified by this blog.
Value Added Tax, or VAT, became operative on January 1st, 2018. According to UAE VAT law, the rate of value-added tax (VAT) is 5%. The rate is applied to the goods and services that are delivered.
In many regions, the indirect tax known as VAT is referred to as the Goods and Services Tax (GST) or Consumption Tax. In the UAE, value added tax is applied at every stage of the supply chain, with the final customer bearing the cost. Conversely, companies serve as the government’s agents in terms of tax collection and accounting.
1. When to Register VAT in UAE?
In the United Arab Emirates, there are two types of VAT: mandatory VAT registration and voluntary VAT registration.
The two primary methods for registering a VAT in the United Arab Emirates are as follows:
Voluntary VAT Registration:
If a business’s taxable turnover surpasses AED 187,500, it may choose to register for voluntary vat.
Mandatory VAT Registration:
Businesses generating more than AED 375,000 in taxable revenue are required to register for VAT.
Note: Companies in the UAE are exempt from registering for VAT if their taxable turnover is less than 187,500.
2. Why are UAE-based zero-rated supplies important?
The term “zero-rated supplies” describes taxable supplies that have zero-rated VAT rates applied to them. For goods and services that are at zero-rated suppliers, there is an input tax credit available. Additionally, any exports of goods and services into the United Arab Emirates that meet the requirements outlined in the UAE Executive Regulations shall be regarded as zero-rated supply, according to UAE VAT Laws.
3. Which products are subject to VAT in the United Arab Emirates?
In the United Arab Emirates, retail goods such food, drinks, jewelry, and non-essential consumer goods are subject to VAT.
In addition, things including stationery, school supplies, after-school programs, automobiles, gas and oil, electronics, cellphones, used goods, imports, and insurance products like health, auto, property, reinsurance, water, and electricity are all subject to VAT.
Unless specifically zero-rated or exempted, all products and services are subject to VAT under UAE VAT Laws.
In the UAE, the following products and services are subject to VAT:
Services that are subject to Value Added Tax (VAT) include plastic, cosmetic, or elective surgery; private higher education; fee-based financial services; automobile servicing, repairs; catering; hotels and restaurants; telecoms; and electronic services, among others.
6. What are the Exemptions to VAT in the UAE?
The exempt supplies that are not taxable are listed in the UAE Executive VAT Regulations.
In accordance with the UAE’s VAT Law, a supplier of exempt goods and services is not eligible to receive an input tax credit for his purchases.
Let’s take an example where a business creates tax-exempt goods and purchases raw materials at a 5% tax rate. He won’t be able to claim the input tax credit in that scenario, thus he will be responsible for paying the 5% input tax on raw materials.
In addition, a number of financial services, residential construction, the supply of bare land, etc., are excluded from UAE VAT.
7. Which two UAE real estate VAT categories are there?
The two types of real estate for the purposes of the UAE VAT process are as follows:
1. Commercial
2. Residential
Therefore, VAT is applied to transactions involving residential commercial property, such as office space, retail, public parking, mobile homes, rental and sale agreements, and so on. Furthermore, residential property that is temporarily leased to non-residents is likewise liable to VAT, as are hotels, motels, and other serviced lodgings.
8. How can one verify their Tax Registration Number (TRN) in the United Arab Emirates?
Businesses that are registered for VAT are given a unique Tax Registration Number (TRN) by the Federal Tax Authority. As a result, only companies that are VAT registered and have a current TRN are authorized to charge VAT on supplies.
TRN Number Verification is required when the buyer is unsure of the supplier’s VAT Registration status.
Purchase-related VAT would be recognized as an input tax credit. Nevertheless, the supplier’s TRN Number needs to be active.
Any business’s TRN Number can be confirmed by going to the Federal Tax Authority (FTA) website. The authenticity of the provider can also be determined with the use of a TRN Verification.
A VAT-registered company submits a quarterly VAT Return. As a result, the authorities could request that some companies submit a return each month in order to guarantee adherence to the VAT Laws and lower the possibility of tax fraud.
Purchase-related VAT would be recognized as an input tax credit. Nevertheless, the supplier’s TRN Number needs to be active.
Additionally, through unique legislative features, the UAE VAT law lessens the administrative burden and compliance burden. These provisions provide certain firms an extension for filing their VAT returns.
A registered business is required to furnish the information in the VAT Return Format, which has been established by the UAE VAT Executive Regulations. Since the return filing procedure is conducted online, all VAT-registered companies in the United Arab Emirates submit their returns by signing in to the FTA portal.
• Preserve financial documents while guaranteeing the veracity of the account details.
• If the minimum turnover requirements are met, register for VAT.
• If turnover is below the minimum criteria, maintain accurate financial records to demonstrate why VAT registration is not required.
• If a service or commodity has a valid TRN, charge VAT on both.
• Submit an Input Tax Credit claim for the VAT you paid when buying taxable supplies.
• Submit VAT returns on time.
• In the event that the amount of VAT charged beyond the amount of VAT paid, pay taxes to the government.
• Comply with UAE VAT laws
11. How Do VAT and Tax Audits Operate in the United Arab Emirates?
A field tax audit is when the FTA conducts a VAT audit or tax audit in the United Arab Emirates at the company’s or individual’s place of operation.
Generally, the taxable person submits all of the data in an FTA Audit File (FAF), which is a format that is prescribed. In order to file periodic VAT reports, registered businesses in the UAE are required to keep comprehensive financial records of all transactions.
As a result, a taxable person determines their own amount of payable VAT and potential input tax credit.
FTA chooses which companies to audit for taxes at its sole discretion. Furthermore, the purpose of a VAT audit is to confirm that the tax due of a taxable person is accurate.
The FTA is entitled to obtain original copies of all records during the tax audit, to confirm the business’s assets and inventories, and even to confiscate them for audit purposes.
In addition, the taxable individual, his tax agent, or his legal representative must give the tax authority any required documentation proof.
Furthermore, the FTA has the authority to issue a notice requesting payment of the VAT and penalties if it discovers anomalies after reviewing the taxable person’s financial records.
Tax Assessment
In accordance with UAE VAT Laws, FTA will issue tax assessments in the subsequent scenarios:
• Not finishing VAT registration within the allotted time
• Not submitting a tax return by the deadline
• Not making the timely payment of the tax due in accordance with the VAT Return
• Submitting an inaccurate VAT return
• The registered business’s failure to file tax returns on behalf of another individual when obligated to do so by UAE VAT Laws.
• A gap in Tax Payable results from tax avoidance.
In addition, the taxable person would be responsible for paying any applicable VAT penalties under the Federal Decree-Law. It completely complies with UAE VAT regulations in the interest of a taxable firm in order to prevent fines and reputational damage.
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