- June 29, 2020
- Posted by: Dhivya Krishna
- Category: vat
Value-Added Tax (VAT), the current tax regime for businesses in UAE, took charge from January 1st, 2018. VAT is imposed on the registered businesses and organizations whose taxable supplies and imports exceed AED 375,000 per annum. Also, the standard rate of VAT in the UAE and other Gulf countries is 5%. However, the tax amount is imposed on each stage of the supply chain.
VAT return filing in UAE can be very demanding, as every organization expects to maintain the documents and records for future reference. We, at KGRN, help our clients maintain their tax documents and records and also provide the necessary assistance in filing their VAT returns.
Who needs to pay VAT?
- Any business whose taxable supplies and imports exceed AED 375,000 per annum.
- Businesses having taxable supplies and imports whose value exceeds AED 187,500 per annum can also pay VAT, but it is totally optional.
Who is exempted from VAT?
The suppliers of zero-rated goods and services needn’t pay Value Added Tax to the government, but they still have the provision to reclaim their input VAT. Some Zero-Rated sectors are listed below:
- Export of goods and services outside the UAE
- International transport and certain sea, air and land transportation
- Investment-grade precious metals like gold and silver of high purity
- Residential properties that are newly constructed and handed over within three years of their construction
- Certain education and health care services and related goods
VAT exempt sector:
The suppliers of VAT exempted goods and services are not necessary to register under VAT and even if they do, they cannot reclaim their input VAT. However, some of the VAT exempted goods and services are listed below:
- Certain financial services that are clarified in Value Added Tax legislation
- Residential properties that do not come under the zero-rated sector
- Bare land
- Local passenger transport
How to calculate VAT?
The standard rate of VAT in the UAE is 5%. Indeed, the government doesn’t collect tax directly. And the businesses should collect the tax and show the account for the tax. Moreover, you can calculate the Value Added Tax amount as follows:
|VAT amount = Output tax – Input tax|
Here, output tax is the tax amount which the company collects, by supplying goods and services to its customers. Input tax is the tax amount which the company pays while procuring raw materials for the production of its goods.
Every organization is liable to pay Value-Added Tax if the total Output tax collected exceeds the Input tax paid. On the other hand, when the input tax exceeds the output tax, the organization can reclaim the excess amount.
What is the procedure for VAT return filing in UAE?
The process of VAT filing in UAE is entirely online. However, you can file your Value-Added Tax returns by logging into the FTA (Federal Tax Authority) portal and entering the details.
The FTA portal requests some details for Value-Added Tax filing are below:
- Details of the taxpayer/ organization
- Value of sales
- VAT return period
- Additional required reports
- The value of purchases
- Value of Output VAT
- Final declaration and authorized signature
- Value of Input VAT
- Value of the net VAT amount liable (This includes the payable VAT and the VAT recoverable)
Indeed, after entering the above-mentioned details, you can submit your VAT returns. You will then receive a confirmation email after which you can proceed to make your final payment.
VAT return filing in UAE works on a quarterly basis. And the taxpayers are necessary to file their VAT returns within 28 days from the end of the tax period in order to avoid penalties.
Benefits of Value-Added Tax return filing:
The VAT amount collected in UAE is way lesser than the tax amount collected in other countries. Additionally, there are also a lot of tax concessions granted to the taxpayers in the UAE. Other than that, there are a lot of benefits you could gain by filing your VAT returns promptly. They include:
- Your business gains a good reputation among your contemporaries.
- Large organizations hesitate to conduct business with companies that haven’t registered themselves under VAT.
- The VAT tax regime is uncomplicated when compared to other tax systems.
- Your business image gets accentuated.
- Most importantly, the VAT regime allows you to reclaim your input tax.
Penalties for non-compliance:
- The penalties for non-compliance are severe in UAE. If you are late in filing your VAT returns or making the payment, then 2% of the liable tax amount has to be settled immediately.
- The penalty amount will increase to a rate of 4% of the liable tax amount if the VAT amount hasn’t been paid within seven days following the previous deadline.
- If the liable VAT amount remains unpaid for a month after the deadline, 1% daily penalty will be charged on the original tax amount.
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Frequently asked questions:
- How do businesses prepare for VAT?
Businesses have to fulfill certain requirements in order to fulfill their tax obligations. Businesses need to consider the impact of VAT on their core operations, financial management and book-keeping, technology, etc. You need to try to understand the implications of VAT and, evidently, make an effort to align your business model to make yourself VAT compliant.
2. How will real estate be treated?
It varies based on whether the property is for commercial or residential purposes. Furthermore, the sale or lease of commercial property will be taxable at a standard VAT rate of 5%. On the other hand, residential properties are generally exempted from VAT.
3. Are there any special schemes for SMEs?
No special schemes are currently available for small or medium-sized enterprises. Your VAT liability depends on the value of your taxable supplies and imports. You will have to oblige to file your tax returns, once it exceeds 375,000.
4. Are the goods exempted from custom duties also exempted from VAT?
Not exactly. Some imported goods might be exempted from custom duties but they are still subjected to VAT.
5. Do tourists also pay VAT?
The purchase of goods and services by tourists in the UAE will be subject to Value-Added Tax. However, tourists are still eligible to reclaim the VAT incurred on their purchase of goods and services under certain conditions.