Value Added Tax

Value Added Tax, or commonly known as VAT is an incremental tax that is levied on services and products in a supply chain at every stage of appreciation. The VAT tax is calculated only on the next appreciated value at each stage of the chain. By this method, all the entities involved in a product or service supply chain need to submit the tax based on their “net income” in the respective process.

Why Value added tax (VAT) REGISTRATION?

Hence it is important for entities to get a VAT registration done and keep accounts and financial records as transparent and clear as possible. For VAT registration in UAE, the Federal Tax Authority is the governing body for VAT registration and filing. Not all entities are required to do a VAT registration, however. The Federal Tax Authority has set a threshold based on the turnover of the entity, crossing only which it is required to file and do a VAT registration.

Not all entities are required to do a VAT registration, however. The Federal Tax Authority has set a threshold based on the turnover of the entity, crossing only which it is required to file and do a VAT registration .

There are several factors such as place of supply, the location of the supplier, and location of recipient etc. which are critical in determining the applicability of VAT. On this basis, we have classified supplies into different categories and have detailed applicability of VAT in the following table:

Type of Supply in VAT

Domestic Taxable Supplies:

A VAT registered supplier must charge VAT on all local supplies of goods and services within UAE.VAT collected from the customer is called output tax and it must be reported in the VAT return.Standard Rate of VAT at 5%

A-One Spare Ltd based in UAE supplies spare parts to a customer who is based in the UAE. Here, VAT at 5% is levied on the supply of spare parts.

Reverse Charge Supplies:

Businesses registered in UAE are required to pay VAT on certain notified supplies like import of goods and services from overseas / other VAT implementing GCC States on Reverse Charge basis. In the same tax period, they are allowed to reclaim the VAT as an input tax such that no extra tax is payable / reclaimable for the transaction.

Standard Rate of VAT at 5%

For Ex: A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai, imported spare parts worth AED 5500 from Speed Motors Ltd, located in India. Here, AOne Spare Ltd, being a registered importer, is required to pay VAT @ 5% on AED 5500 i.e. AED 275 to the government and claim AED 275 as Input Tax in the same month. As a result, there is no extra tax payable on the transaction

Zero-rated Supplies:

A VAT registered supplier can charge VAT at zero-rate (i.e. charge VAT at 0%) on the supply of certain notified goods and services such as export of goods and services, international transportation services etc.

For Example: A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai exported spare parts to a customer in India. Here, the export of spare parts will be at 0% VAT.

Exempt Supplies: Certain notified goods and services such as financial services, residential buildings, bare land, local passenger transport etc. are exempted from VAT.

  • Intra-GCC Supplies - B2B: A supplier registered in UAE is not required to charge VAT on the supply of goods and services to the recipients who are registered in other GCC implementing states. The reason being the place of supply in the above cases is considered to be in the other GCC implementing state.

  • Intra-GCC Supplies - B2C: For a supplier registered in the UAE, supplying goods or services to a recipient who is not registered in another implementing state, VAT at 5% will be applicable. It is applicable only if the value of all the exports made by the supplier from UAE to that implementing state does not exceed the mandatory registration threshold of that implementing state.

Conclusion

Standard Rate of VAT would be at 5%. For ex: A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai, supplied spare parts to an unregistered customer in Saudi Arabia. Here, the supply of spare parts will attract 5% UAE VAT.