VAT is a transaction-based indirect tax on the consumption or use of goods and services, which is levied at each step of the supply chain and ultimately borne by the end consumer. The UAE introduced and implemented Value Added Tax with effect from 01 January 2018. The registered businesses collect and account for the VAT, in a way, acting as a tax collector on behalf of the Federal Tax Authority
VAT is levied on the supply of all goods and services, including food, commercial buildings, and hotel services if no explicit provision is made to impose a Zero rate or an Exemption. The standard VAT Tax rate is 5%. There are certain supplies that are subject to a 0% vat rate or have an exemption from VAT. Businesses that supply goods or services that are subject to a zero rate are also required to register for VAT. Certain free zones have been specified as Designated Zones for VAT purposes and enjoy special benefits.
Benefits of VAT Services
- On-time and accurate tax filings
- Increasing stakeholder confidence
- Availing of proper tax deduction
- Mitigating the risk of double taxation
- Updates over changing tax regulations
Does VAT apply to all goods and services?
VAT, as a general consumption tax, is applied at 5% to all transactions of goods and services unless specifically exempt in Article 46 of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of 0% as per Article 45 of the Federal Decree-Law.
What kind of records are businesses required to maintain, and for how long?
Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them are prescribed in Federal Law no. (7) of 2017 on Federal Tax procedures and Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No. (7) of 2017 on Tax Procedures. Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.
Will there be VAT grouping?
Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. VAT grouping would generally simplify accounting for VAT.
What are the cases that would lead to the imposition of penalties?
Penalties will be imposed in cases of non-compliance with tax legislation.
Examples of actions and omissions that may trigger penalties include:
- A person failing to register when required to do so;
- A person failing to submit a tax return or to make a payment within the required period;
- A person failing to keep the records required under the issued tax legislation;
- Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.
Can UAE nationals claim VAT incurred on building new residences?
A scheme has been introduced to allow UAE nationals to reclaim VAT paid on goods and services relating to constructing new residences which will be privately used by the person and his family. This will allow the recovery of VAT incurred on such expenses including contractor’s services and building material.