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.
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.
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 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.
- 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)
- The educational sector
- The medical sector
- The real estate sector
- The local transport sector
- The supply of certain financial services
- Sale of bare land
- Lease or sale of residential property
- Local transport
- 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.
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.
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.
- 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.
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.
- Go to the VAT tab to review your VAT returns.
- Open your VAT returns.
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 all the information in the VAT return and click Submit.
- You can view any payable VAT and pay it (before the deadline) in the My Payments tab.
- e-Dirham card or credit card
- bank transfer
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
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)
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.