Impact of VAT in UAE [1 Year and Counting]

vat in uae in one year

UAE recently celebrated its first VAT anniversary. The country, known for its rich oil reserves and a booming global tourist hub, had introduced VAT to open up a new source of non-oil revenue for offering efficient and much improved public services, including medical facilities, good roads, transportation facilities, public schools, parks, waste control, and more.

The VAT in UAE was introduced on Jan 1, 2018. More than a year later, tax experts acknowledge the role of FDA (Federal Tax Authority) and UAE public for the successful implementation. Reportedly, the 5 percent VAT was the first of any form of TAX introduced in the Emirates.

The Role of FTA in VAT UAE Success

FTA was at the realm of all VAT related decisions in UAE. Their principle role includes key functions like :

  • Clearing all impending ambiguities (if any).
  • Issuing timely circulars and guides on VAT related provisions.
  • Ensuring compliance from UAE traders, business owners and the public at large.

The UAE VAT rates are one of the lowest in the world right now. VAT UAE provisions mandate VAT registration for all natural and legal UAE person with taxable business supplies exceeding Dh375,000 ($100,000) during the previous 12 months.

In case the total taxable supplies have not exceeded Dh375,000 ($100,000) but expected to cross the threshold within 30 days of the succeeding year, VAT registration must be done.

While registration is key for a robust VAT, filing VAT returns are also equally important. VAT UAE norms mandate large businesses to file monthly returns. Other business can file quarterly returns based on revenues.

FTA must be applauded for ensuring maximum registration and easing compliance burden with timely guides. This ease of process coupled with companies embracing VAT readily by restructuring business processes and systems have made the transition period smooth and frictionless. FA is yet to release tax revenue figures but the recent increment in federal budget spending surely hint towards better days ahead.

The role of FTA is particularly more prominent considering the fact that VAT UAE was in itself the first among any form of tax introduced in the emirates. However, UAE and FTA exempt precious metals such as gold, silver, and platinum as well as sectors such as healthcare, education, and transport from the VAT ambit.

The Tourist VAT Refund Scheme

The VAT Tourist Refund Scheme has now been completely put into place. The first phase was launched on November 18. The second and final phase was introduced on December 16. The achene now facilitates international tourists in UAE to make timely VAT refund claims against purchases made by them on the UAE soil.

Tourists visiting UAE can make claims while leaving the country from any of the following international airports – Dubai, Abu Dhabi, Sharjah, Al Ain International Airport, Al Maktoum International Airport and Ras Al Khaimah International Airport.

In addition to this, tourists can also claim refunds via two ­sea ports – Zayed Port in Abu Dhabi and Port Rashid in Dubai; and four land ports – Al Ghuwaifat Border Post in Abu Dhabi, Hili Border Port and Al Madeef Border Crossing in Al Ain and Dubai’s Hatta Border Exit. Refunds are transferred within 90 days of the claim.

The Projections

The first UAE VAT accrues are projected to touch the Dh12 billion mark in 2018. For 2019, the prediction is a whopping Dh20 billion. Amidst years of the dependence of fledgling crude prices as the primary revenue source, the VAT UAE not only opens new diverse revenue sources but also shows the way ahead for other GSS states and oil producing nations.

The Audits

As the new year slowly sets in, businesses in UAE are gearing up for VAT Audits. The FTA Audits will ensure that businesses stick to fair book-keeping. FTA Audits will be carried out over a period of five working days starting with the day following the particular emails release date.

The Audit periods will include two phases for January 1, 2018-to-April 30, 2018 and May 1, 2018-to-July 31, 2018 tax periods. Businesses must ensure that their expense claims are backed by legitimate and appropriate documents. Last but not least, businesses must also ensure robust book-keeping with timely payment of due tax.

Input Tax Recovery in UAE [Process and Conditions]

A registered dealer is liable to pay input tax on every purchase for further course of business. Input Tax Recovery is a key feature of VAT reform in UAE. Under this, the UAE government has allowed registered persons (taxpayers) that they can recover the input tax paid by them on the purchases to avoid the confusion of double taxation in the supply chain.

It simply means that an individual can lessen the figures of input tax by claiming (recovery) the tax payable on inputs and he has to pay the balance amount of tax. Make sure that that tax is to be payable on each stage of the supply chain as value addition.

So, the amount of input tax recovery in UAE plays a significant role in the cash flow and operating expenses under VAT.

Firstly, let’s understand the process of input tax recovery-

Process of Input Tax Recovery

In Abu Dhabi, Vaah & Co has purchased 10 laptops in February 2018 and the price of per computer is AED 1,000.

In the similar month, Vaah & Co supplies 20 laptops to its customers at a price of AED 2,000. A 5 percent VAT has been imposed on the supplies made by Vaah & Co. on the supply which amounting AED 2,000.

Vaah & Co paid AED 2,000 as output tax for the month of January ’18

Input tax recoverable for the month of February ’18 is AED 500

For calculating the tax payable, we can put the figures in the formula

Tax payable = Output tax payable – Input Tax Recoverable

Hence, tax payable by Vaah & Co. for the month of January, ’18 is AED 2,000 (Output tax payable) – AED 500 (Input tax recoverable) = AED 1,500.

As you can see above, the input tax paid by the company will be reduced from their out tax liability, and they are required to pay only the balance tax to the government. This is how input tax works.

Input Tax Recovery Condition

The VAT paid on while buying the goods and services which are used for business cause and for few conditions can be recovered by a registered business.

The conditions which must be satisfied are-

A. Must Be Used To Make Taxable Supplies

Taxable supplies are the supplies on which the tax is likely to be paid (i.e. supplies made at zero-rated supplies or 5%). Only on the inputs which are used to make taxable supplies can be allowed to claim the Input VAT recovery and not the exempt supplies.

B. Recipient Gets And Keeps The Tax Invoice

The recipient who is claiming the input tax recovery on a supply must confirm that they receive the Tax Invoice involved to the supply and must be kept in the records. The Tax Invoice must show all the details of the supply which is associated with the input tax recovery which is to be claimed.

C. Recipient Pays The Remuneration For The Supply

The receiver who claims input tax recovery must pay or plan to make the payment of remuneration for the supply within a half year (6 months) after the date of supply which has been agreed for the supply.

Recoverable Input Tax

The recoverable input tax is the tax amount that has been paid or return by the Federal Tax Authority particularly to the registered taxpayer under the VAT Reform in UAE

A registered taxpayer can claim for the input tax incurred on purchases goods and services in case of:-

  • Taxable supplies
  • Supplies and Services are to be made within a state
  • Exempted Supplies that have been listed in the VAT Decree-Law must be made within the state

Blocked input tax

VAT refund is not available on the input tax paid on the following types of expenses:

  • Employee-related expenses
  • Entertainment expenses
  • Supplies used to make exempt supplies
  • Vehicles used for personal purposes

Useful Article: 7 Hidden Business Expenses Eligible for Input VAT Recovery

So, the supply for input tax recovery is a very important component of VAT in UAE. Businesses must confirm the identity supplies correctly on which input tax can be retrieved, confirm that they can satisfy the conditions for claiming the input VAT recovery and also claiming it on time.

This will help in the business by confirming the perfect cash flow and working capital. All the works can be made simple by using the VAT software which will automatically perform all these tasks w.r.t. ITC which will give enough time for you to focus on your business.

Declaration Of Input Tax Credit In Vat Return Form 201

Now, a taxpayer needs to provide the following details when filing a claim for the credit of taxes in VAT Return Form 201:

    • VAT registration number
    • ITC balance of VAT as per last return
    • Turnover details
    • Date of return filing
    • Details of pending forms
    • Difference in amount (The rate charged at the time – Actual VAT rate on the supplies)
    • Final eligible ITC on VAT

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