Basics of VAT

Value Added Tax (or VAT) is an indirect tax applied on the sale of goods and services. It is imposed on a product at each point of sale.

It is important to understand the history of UAE wherein the major source of revenue has been from Oil Sector and thereafter tourism. With the increase in worldwide recession, to maintain the quality of life and development of infrastructure additional revenue is required. VAT is one such source of revenue.

VAT will impact individual’s cost of living depending on his usage of goods and services. For normal necessary items, there is no VAT
The Federal Tax Authority has decided to introduce VAT in the UAE by 01 January 2018.
The tourist will have to pay VAT at each shop/store while purchasing goods/services on which VAT is applicable.
However, if the value of goods purchased is (single Invoice) more than AED 250, they can ask the shop/store to give them a VAT refund Invoice. The shop/store will scan the tourist’s passport and issue a tax free sticker with the Invoice.
The tourist while exiting the country can go to the VAT refund counters at the airport and collect the VAT refund by showing the passport, Invoice and original goods. In case of gold or high value items, it is advisable to carry them in cabin baggage to show them at the airport.
Output VAT = VAT on the Sales/ Service Invoice (A)

Input VAT = VAT on purchase of goods (B)

VAT = Output VAT (A) – Input VAT (B)

Let’s take a simple example:

Shop A purchased a HP Printer from a supplier at 200 AED and sells it for 300 AED.

Output VAT = 5% of 300 = 15 AED (A)

Input VAT = 5% of 200 = 10 AED (B)

VAT = (A) – (B) = 5 AED
A business should register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of 375,000 AED.
A business can also choose to register for VAT voluntarily under two conditions:
  • If the supplies and imports of the business are less than the mandatory registration threshold, but greater than the voluntary registration threshold of AED 187,500.
  • If expenses of the business exceed the voluntary registration threshold. This opportunity is designed to enable start-up businesses with no turnover to register for VAT.
The proposed standard rate of VAT in the UAE will be up to 5%. Certain supplies of goods and services may be either exempt (meaning VAT will not be applicable at all), or zero-rated (meaning 0% VAT will be applied to goods and services). The standard rate will be applied to all goods and services that do not fall under an exempt or zero-rated goods and services category.
The sectors will come under Zero-rated category are:
  • Exports of goods and services to outside the GCC.
  • International and intra-GCC transport
  • Supplies for certain sea, air, and land means of transportation (such as aircraft and ships).
  • Supply of precious metals for investment (gold, silver, and platinum)
  • Newly constructed residential properties that are supplied for the first time within three years of their construction.
  • Supply of certain educational services and relevant goods and services.
  • Supply of certain healthcare services and associated goods and services.
  • Certain eatables (a standard list will be ratified across the GCC by the Financial and Economic Cooperation Committee)
  • The oil sector and the oil and gas derivatives sector (at the discretion of emirate)
Additionally, each emirate can zero rate or VAT-exempt:
  • The educational sector
  • The medical sector
  • The real estate sector
  • The local transport sector
The following categories of supplies that will be exempt from VAT are:
  • The supply of certain financial services
  • Sale of bare land
  • Lease or sale of residential property
  • Local transport
To check the validity of your TRN:
  • Log in to the FTA e-services portal.
  • Click the TRN Verification tab at the top of the page.
  • Fill out the TRN field.
  • Click Validate.
If your TRN is valid, you will see the message ”TRN is available in the system” at the bottom of the screen.

When a taxpayer violates any provisions set forth by the Federal Tax Authority, the authority will issue an Administrative Penalty Assessment and notify the person within five business days.

The business will face a penalty of AED 10,000 for the first time and AED 50,000 for each repeat violation.

The business will face a penalty of AED 20,000.
The business will face a penalty of AED 20,000.
The business will face a penalty of AED 5,000 for the first time and AED 15,000 for each repeat violation.
The business will be charged with a fine of AED 1,000 for the first violation and AED 2,000 for a repeat violation within 24 months.
Tax Groups

A tax group under UAE VAT is when two or more businesses have registered as a single taxable person. These businesses must comply with certain eligibility criteria to be allowed to form a tax group. One VAT Tax Registration Number (TRN) is issued for each tax group, to be used by all of its members, and the group must file only one tax return collectively.

Being in a tax group has the following effects:

  • Members of a tax group can make supplies and purchases with each other, for which no VAT will be charged. VAT will be applicable for transactions with entities outside of the group, however.
  • A tax group is issued only one VAT registration number, as it is registered as a single entity.
  • A tax group is only required to file one return, which includes all the supplies and purchases made by the members of the group.
  • Every tax group will have to appoint one of its members as their representative member. Every supply and purchase made by the members of the group will be under this representative member’s name.
In addition to the general criteria, which are applicable to everyone, government entities must also comply with the following to form a tax group:
  • A designated government entity is to be a part of tax groups with other designated government entities only.
  • A designated government entity cannot be a part of tax groups with a non-designated government entity.
  • A government entity that is not designated can be a part of tax groups with other legal entities for which the usual tax group rules apply.
A designated government entity is one that has been designated by the Cabinet and is required to register for VAT.
If you and another business share sufficient economic, financial, and organisational ties to split the applicable VAT amongst you, then the FTA may force you to register as a tax group.

Supply refers to goods or services that are exchanged for consideration (payment). Supply occurs when there’s a transaction between two people and at least one of them is a registered taxpayer. Supply includes buying, selling and stock transfers, even if there is no exchange of money.

  • Taxable supply: A supply falls within the scope of the UAE VAT if the supply has been done with UAE. It will be considered taxable supply.
  • Out-of-scope supply: A supply which has taken place outside the UAE, it is outside the scope of the UAE VAT.
  • If an item is purchased and sold, then VAT needs to be applied on the profit margin. The VAT will be levied on the profit margin, since the seller of the pre-owned goods would have already been taxed at the time of purchase.
  • Pre-owned goods imported into UAE doesn’t qualify for this scheme. Import of pre-owned goods are always subject to VAT on the total price.
VAT Returns
Log in to the FTA eservices portal
  • Go to the VAT tab to review your VAT returns.
  • Open your VAT returns.
Fill in the appropriate details
Include the sales and purchase transactions with:
  • The net amount excluding VAT.
  • The VAT amount.
  • The system will calculate the tax payable or repayable.
Review & Submit
  • Review all the information in the VAT return and click Submit.
Settle the payable VAT (if any)
  • You can view any payable VAT and pay it (before the deadline) in the My Payments tab.
There are different ways to pay your VAT returns.
  • e-Dirham card or credit card
  • bank transfer
  • eDebit.
e-Dirham Card or Credit Card
The e-Dirham payment gateway supports payments through an e-Dirham card or a credit card (Visa and MasterCard only).
Charges for payment through e-Dirham card: AED 3 per transaction
Charges for payment through credit card: 2-3% of the total payment
Bank Transfer
Each business is provided with a unique identification number called a GIBAN, which can be used to make a bank transfer. Just add your GIBAN as a beneficiary in online banking and transfer the due VAT.
Payment through eDebit involves approvals, so it takes some time to settle the payment. This option works only for business who have access to retail or corporate online banking with one of the following banks:
  • Citibank (Retail)
  • Commercial Bank of Dubai (Corporate or Retail)
  • Dubai Islamic Bank (Retail)
  • Emirates NBD (Corporate or Retail)
  • First Abu Dhabi Bank (Corporate or Retail)
  • Noor Bank (Retail)
  • Standard Chartered (Corporate or Retail)
Charges for using eDebit through the e-Dirham payment gateway: AED 10 per transaction
The foreign businesses are eligible for VAT refunds in the following circumstances:

The business owner is a resident in a GCC where VAT has not been implemented or a foreign entity that carries on business under the following conditions:

  • It has no place of establishment or fixed establishment in the UAE or an implementing state;
  • It is registered as an establishment with a competent authority in the jurisdiction, in which it is established; and
  • It is from a country that provides refunds of VAT to UAE entities in similar circumstances.
    The period of VAT refund is 12 calendar months. The minimum amount of each tax claim that can be submitted under this scheme is AED 2,000.
Input Tax
Tax paid by an business when purchasing goods or services or while conducting an import.