Definition of VAT

• VAT is an indirect tax applied to the supply of most goods and services.
• Charged at each stage of the supply chain.
• The end consumer bears the costs.
• Businesses collect and account for the tax on behalf of the government.

Reasons for UAE VAT Implementation

• UAE provides high-quality public services funded by the government.
• VAT introduces a new income source for sustaining public services.
• Aim to reduce reliance on oil and build a sustainable knowledge economy.

Sectors Subject to VAT

• VAT applies to all goods and services, unless explicitly zero-rated or exempt.

Difference between Exempt and Zero-rated Supplies

• Businesses supplying zero-rated goods or services can recover incurred VAT.
• Those supplying tax-exempt goods or services cannot recover incurred VAT.

Mandatory and Voluntary Registration Limits

• Mandatory registration threshold: AED 375,000 for taxable supplies and imports.
• Voluntary registration threshold: AED 187,500 for businesses below the mandatory limit.
• Voluntary registration is allowed if expenses exceed the voluntary threshold.

VAT Registration Dates

• Businesses must register promptly to avoid non-registration fines by January 1, 2018.

How to Register for VAT

• Registration is available on the Federal Tax Authority’s website 24/7.
• All communication means with the Authority accessible on the website.

Tax Grouping Possibility

• Businesses meeting specified requirements can register as a Tax group.
• Tax grouping simplifies VAT accounting for eligible businesses.

Pre-Implementation VAT Charging

• Businesses prohibited from imposing VAT on goods or services before January 1, 2018.

Records to Retain

• All businesses, regardless of registration status, must retain various records.
• Records include Balance sheets, Profit and Loss, Fixed Assets, Payroll, Inventory, Tax Invoices (related to sales and expenses) and accounting records.
• Changes in core operations, financial management, technology, and human resources may be necessary.

Disclaimer

The content provided here is a partial summary and not the complete guide. The information has been paraphrased and expressed in our own words for clarity. It is recommended to refer to the original guide for comprehensive details and accuracy. This summary is intended for general understanding and should not be considered a substitute for the complete guide’s content.

Summary

VAT, or Value Added Tax, is an indirect tax applied to goods and services at each stage of the supply chain, with the end-consumer bearing the costs. In the UAE, VAT was implemented to fund high-quality public services, diversify income sources, and reduce reliance on oil. It applies to all goods and services, except for those explicitly zero-rated or exempt.

The difference between zero-rated and exempt supplies lies in the recovery of incurred VAT by businesses. Mandatory and voluntary registration thresholds exist, and registration must be done promptly to avoid fines. Businesses can register as a Tax group to simplify VAT accounting. Pre-implementation charging of VAT was prohibited before January 1, 2018.

All businesses, regardless of registration status, must retain various records, including balance sheets, profit and loss statements, fixed assets, payroll, inventory, and accounting records. It is advisable to refer to the original guide for comprehensive details and accuracy.

For understanding more about VAT Updates, Tax Law and Registration reach out to us on: contact@itc-tax.com | +971 523205619

Follow us on: Instagram, Facebook, and LinkedIn.