Basics of Taxes in UAE
UAE – Tax Free? If you think yes, please continue reading to have a better reality check and update yourself on this aspect.
UAE does not have Income Taxes but “The Federal Tax Authority (FTA)” does levy two types of taxes as below –
VAT & UAE :
After a glimpse of the above structure, this article is going to focus on Value-added Tax in UAE. VAT is the GST equivalent levy. It is a consumption-based tax and the burden of the levy is ultimately borne by the end-consumer. VAT is levied at each step of the supply chain transaction.
This means that the VAT is collected at each of the below stages :
Manufacturer >>> Wholesaler >>> Retailer >>> End Consumer
And the credit for VAT collected at each subsequent stage is availed for in the next stage and any additional VAT liability is to be collected by the seller from the purchaser and to be paid to the account of the government by the seller of the goods/ services.
Q1. Is VAT applicable to only goods?
A1. No, VAT is applicable to both goods and services. It is GST equivalent levy.
Q2. Is VAT levied on imports and exports?
A2. Yes, VAT is levied on imports so as to ensure that the local goods and imported goods have a fair play.
However to ensure that the exports are globally competitive, the same are liable to VAT @ 0%.
Q3. Is VAT levied only in UAE or (Gulf Course Countries) GCC?
A3. With efforts under-pipeline, the same is expected to be levied in the whole GCC but for now, the same pertains to UAE and majority of GCC. There are certain exceptions when countries in GCC might not comply with the VAT levy.
Q4. Who is liable to register for VAT?
A4. Any business whose taxable supplies and imports exceed the annual threshold of AED 375,000 is liable to obtain registration from FTA.
Q5. Can I obtain voluntary registration for VAT?
A5. Voluntary registration for VAT is permitted Only If –
1. Their supplies and imports are below the threshold limit of AED 375,000 but exceed AED 187,500. Or
2. The expenses exceed the voluntary registration threshold limits i.e. AED 187,500.
Q6. What are the responsibilities of VAT-registered business?
A6. VAT registered businesses must –
1. Charge VAT on taxable goods or services supplied
2. Re-claim VAT already paid by them and
3. Maintain business records allowing government to check the accuracy
4. File online VAT reports as prescribed by FTA
Q7. At what rate is VAT levied?
A7. VAT is levied at a standard rate of 5%.
Q8. Which other sectors are liable to VAT @ 0%
A8. Certain Investment grade precious metals, supply of newly constructed residential properties (first time sale and within 3 years of construction) and certain supplies of educational and healthcare services are liable to VAT @ 0%.
Q9. Are some services exempt from VAT?
A9. Yes, local transport, supply of bare land and residential properties are exempt from VAT. Also certain specified financial services are exempt from VAT.
Q10. Are Zero-rated and exempt categories different?
A10. Yes, though in effect no VAT is to be paid under either category both the categories are different. Zero-rated goods/services are the ones wherein VAT is applicable but at a “0” rate. Correspondingly exempt goods/services are outside the ambit of VAT. This means if the rates on zero-rated category changes, they are liable to VAT at the revised rate.
Q11. Is VAT levied on government transactions?
A11. Supplies made to the government are liable to VAT for ensuring a fair play. However if the supplies are made by the government, i.e. supplier is the government, then certain categories of supplies are excluded from the scope of VAT.
The suppliers are generally so excluded if they are the only player in the industry. Further certain government entities are also liable to refunds for the supplies made by them.
Wrapping Up :
With slight variations to adopt to the local scenario, the VAT in UAE has a widely replicated and generic version of the global indirect taxes. For more details on Selective Taxes, please stay tuned for the next article in the same series.
Meanwhile if you have any concerns, ideas or opinions, please do feel free to voice out the same to me. I am happy to discuss.
Thanks for reading my article on “Basics of Taxes in UAE”
Disclaimer : IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION. THIS HAS BEEN SHARED FOR KNOWLEDGE PURPOSES ONLY.
AUTHOR : CA HEER GAJJAR (CLICK HERE TO VIEW PROFILE)
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