Imposed in over 180 countries around the world, UAE’s Value Added Tax of 5% is among the lowest
VAT stands for Value Added Tax, which is a tax on the consumption of goods and services imposed at every point of sale. It is used worldwide in over 180 countries as a form of indirect tax; where, on behalf of the government, businesses have to collect the tax from the end-consumer.
About VAT in UAE
On the 1st of January 2018, VAT was introduced in the UAE as a 5 percent Value Added Tax. This VAT provides the government of UAE with a new source of income which is continually utilized to provide high-quality public services; furthermore, helping the government of UAE to move past their dependence on oil and other hydrocarbons as the only source of revenue.
Upon the introduction of VAT, the majority of transactions in goods and services saw a slight increase in cost value; although there were a limited number of exemptions from VAT. As a result, this slightly increased the cost of living in the UAE, depending on the individual’s lifestyle and spending behavior.
On the other hand, businesses are responsible to carefully document their income, costs, and associated VAT charges. The registered businesses will charge VAT to all of their customers for the goods and services they buy from them; this Value Added Tax is paid to the government.
Criteria for Registering for VAT
A business must register for Value Added Tax if its taxable imports and supplies exceed the cost of AED 375,000 per annum. It is optional for businesses whose taxable imports and supplies exceed AED 187,500 per annum.
The procedure of VAT revolves around the business paying the government the tax it collects from its customers and at the same time, the business receives a refund from the government on tax that the business has paid to its suppliers.
The Process of VAT-Registration
Businesses can get VAT registration through the UAE Federal Tax Authority (FTA) website – e-services section. This VAT registration process is a vital part of setting up a VAT-registered business as when you’re done with this process you receive a TRN number. A TRN number is a Tax Registration Number and this TRN number is used to pay the Value Added Tax to the government.
There are three things a VAT-registered business generally does.
- They must charge Value Added Tax on taxable goods or services they supply.
- They may reclaim any Value Added Tax they have paid on business-related goods or services.
- They keep a span of business records which allows the government to verify that they have got the things right.
How to file a VAT Return?
To file your VAT Return, you need a VAT number and a VAT online account. With these, you can then submit your VAT Return online using the UAE Federal Tax Authority (FTA) website, HMRC’s online service, or commercial accounting software.
However, failure to file a tax return within the given time interval will make the violator liable for fines as per the provisions of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.