Value Added Tax (VAT) came into effect in the UAE on 1 January 2018. VAT is one among the indirect taxes which is more generally a consumption tax applicable to transactions of mainly goods and services, with limited exceptions like local transportation, healthcare, education, and basic food items. The UAE, along with other GCC (Gulf Cooperation Council) countries, introduced VAT at a standard rate of 5 percent. With the implementation of this tax system, the governments of GCC nations expect to generate more additional revenue in the current year.
It is the end customer who bears the costs at the end of a transaction and the role of the businesses is to account and collect the tax on behalf of the government. The government of UAE plans to include rules on businesses in order to analyze and obtain a clear understanding of VAT charges to be paid by individuals on each transaction. Hence it becomes the responsibility of the businesses to document all their transactions, income, costs and most necessarily the VAT charges associated with each transaction.
What will be taxed and what are the exemptions?
All electronics items, smartphones, cars, jewelry, watches and all sorts of entertainments fall under the category of taxable goods and services.
The exemptions, according to the UAE government include social services, 100 basic food items, health, education, and local passenger transportation.
In UAE it is obligatory for the resident businesses with annual revenues over Dh 3.5 million to be VAT registered in the first phase and for the companies whose annual revenue falls between Dh 1.75 million and Dh 3.5 million, there is an option for VAT registration at the first phase and if not done, it needs to be compulsorily done in the second phase. While considering the case of nonresident businesses, VAT registration is required only if they supply any taxable goods to UAE. For businesses to register for VAT in UAE, the first thing to do is to navigate through the website of Federal Tax Authority (FTA). You can do your VAT registration in the eServices section of the FTA website.
Read on and explore more about VAT registration in this guide published by the Federal Tax Authority of UAE: Here
In case you have any doubts regarding VAT registration or any other queries related to the application you may contact the Federal Tax Authority using this link: here or use email and phone given in their website for further communication.
Tax return filing for VAT
A tax return is a summary of the supplies, purchases and tax liability a business or a tax person has made during a tax period, which needs to be submitted at the end of the tax period to FTA. The submission of tax returns should be done online via the FTA portal. Here are some of the key concepts related to tax return filing of VAT:
VAT Liability and its calculation
The tax liability, in simple words, is the difference between output tax payable and the incurred input tax during a tax period. The difference amount shall be paid to FTA, in case if the output tax is greater than the input tax. On the other hand, the taxable person can opt for VAT refund whenever the input tax is greater than the output tax.
The time period, a period of three calendar months, during which the payable tax amount is calculated as well as paid is referred to as the tax period. The submission date, as well as the standard tax period, is determined by the FTA.
Output tax is the VAT calculated and charged on the supplies of goods and services of a registered business or a tax person.
Input tax is the value-added tax related to the purchase of products and services liable to the VAT.
When to file the VAT Return
VAT Returns must be submitted with the FTA on a regular basis, and the failure of which might lead to serious legal issues to your businesses. The timeframe for filing VAT return is the last 28 days of a standard tax period. The standard tax period is calculated monthly for businesses with annual turnover above AED 150 million, and quarterly for the ones below AED 150 million.
Steps to submit a VAT Return
- Login to the eServices portal of the FTA website
- Fill in all the necessary details
- Submit the form
- Payment of VAT (if applicable ) via E-Dirham platform
Read on more about the requirements and steps for filing VAT Return by going through this link provided by FTA : Here
VAT Refund Claims
The taxable persons can submit a request for VAT Refund if the input tax is greater than the output tax. The refund claims need to be submitted to FTA at any point whenever there is a credit to your business or in other words when the input tax of your business exceeds the output tax. The review of the submitted claim is done by FTA within 20 days of the submission of the application. The taxable persons are notified about the acceptance or rejection of their claims within this timeframe.
Steps to submit VAT Refund Claims
- Login to the eServices portal of FTA
- In the ‘VAT tab’ go to ‘VAT Refunds’ tab and click on the ‘VAT Refund Request’ to initiate the form.
- Complete the Refund form, make sure you entered correct information and submit the claim by clicking the ‘Submit’ button.
- Verify your balance through ‘My Payment’ tab under the Transaction History section, once you receive the confirmation email regarding the refund.