The value-added tax (VAT), which came into effect from January 1, 2018, in UAE, is a consumption based tax which will be applicable at each stage of the ‘supply chain’. That means, any UAE business making a taxable supply of goods and services will have to pay VAT on that supply. The UAE VAT is based on the same concept as followed by the other countries which use this tax system, however, the standard rate of VAT is fixed at 5% for all taxable supplies in UAE.
As per the VAT rules and regulations, some basic services (and goods) like food, public transport, and some healthcare services are exempt from the VAT, while some other services will be taxed at zero percent. You can find out more about VAT-exempt and non-exempt supplies on our blog. The VAT shall be levied at each stage of the supply chain, but there is a concept of input credit through which businesses can claim their taxes back from the government, and the ultimate VAT cost is borne by the end consumers.
VAT has been implemented in UAE with the aim to reduce the country’s dependency on oil resources for revenue. It will create a new and stable source of income for the government, which will be utilized to provide better and more advanced public services. So, the ultimate benefit of VAT is to the general public.
The standard VAT rate in UAE is 5%, that means most of the taxable supplies will be taxed at 5%. However, some services are zero-rated under VAT while some others are kept free of tax. Click to review full VAT rate list
The VAT will be paid by a business (with annual turnover above Dh375,000) in UAE on any of their taxable supplies of goods and services. The tax is applicable at each stage of the supply chain. The VAT cost is ultimately borne by the end consumer when they pay the actual price (base price + VAT) at the time of purchasing a taxable product/service.
VAT was officially launched on January 1, 2018 in UAE and has been implemented on all eligible supplies across the country. The registrations for VAT started in 2017.
A farmer grows cotton which is plucked and sold to a factory
The factory processes the cotton and manufactures clothes which are sold to a retail chain
The clothes are stocked in stores and placed for sale to consumers.
A consumer buys a new dress.
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