In recent years, the business landscape in the United Arab Emirates (UAE), especially in Dubai, has experienced a significant shift with the implementation of Value Added Tax (VAT). This tax reform has compelled businesses to reevaluate their operations and seek expert guidance to navigate Dubai's intricate terrain of VAT services. VAT registration is required for people and corporations conducting business in the UAE. Companies can register for VAT tax using the e-services section to obtain UAE VAT registration. But Dhanguard is available if you have any questions or concerns regarding the steps involved in registering for VAT tax. Our team of UAE value-added tax specialists at Dhanguard is available to assist you with the VAT registration procedures.
Value Added Tax, commonly known as VAT, is a consumption tax levied on goods and services at each stage of production and distribution. In the UAE, VAT was introduced in 2018 as part of the government's strategy to diversify revenue sources and reduce reliance on oil-related income.
Some essential aspects regarding Value Added Tax (VAT) include:
VAT is a consumption tax that can be found all around the world. Over 150 nations, including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore, and Malaysia, have implemented VAT (or its counterpart, Goods and Services Tax).
Each step of the "supply chain" is subject to VAT. The final customer usually bears the VAT cost, while businesses collect and account for the Tax, functioning as government tax collectors.
A company pays the government the Tax it collects from customers, and it may obtain a return from the government on the Tax it delivers to its suppliers. As a result, the "value add" along the supply chain is reflected in tax collections to the government.
Hospitals, roads, public schools, parks, trash management, and police services are among the various public services provided by the UAE Federal and Emirate governments. Government funds fund these services. VAT offers a new source of revenue for our country, allowing us to continue to deliver high-quality public services in the future. It also assists the government in achieving its goal of lessening reliance on revenue from oil and other commodities. On the 1st of January 2018, VAT was implemented in the UAE at a standard rate of 5%.
The United Arab Emirates is a member of a group of countries linked by "The Economic Agreement between the GCC States" and "The GCC Customs Union." Because we recognize that a collaborative approach benefits the area, the GCC states have traditionally worked together to establish and implement new public policies.
Value Added Tax (VAT) services in Dubai hold significant importance for several reasons:
Businesses operating in Dubai need to comply with VAT regulations set by the government. VAT services help companies adhere to these regulations, file their taxes correctly, and meet compliance standards.
VAT services aid in structuring businesses in a tax-efficient manner. They help identify areas where tax liabilities can be minimized through legitimate means, thus optimizing the overall tax burden.
Understanding and navigating the legal intricacies of VAT laws can be complex. VAT services assist businesses in interpreting these laws, ensuring that they operate within the legal framework, and minimizing the risk of penalties due to non-compliance.
Effective VAT management is crucial for proper financial planning and management. VAT services help businesses accurately account for VAT liabilities, maintain appropriate records, and manage cash flow effectively.
Complying with VAT regulations and managing taxes transparently can enhance a business's reputation. Customers often trust companies that adhere to legal and financial rules, potentially increasing customer confidence and loyalty.
Just like VAT, sales tax is a consumption tax. Although there may be no discernible difference in how the two forms of taxes operate to the general public, there are some significant variances. In many nations, sales taxes are solely applied to goods transactions. Furthermore, sales tax is only used for the final sale to the customer. VAT, on the other hand, is a tax on products and services that is levied throughout the supply chain, including at the point of sale. Imports of products and services are also subject to VAT to preserve a level playing field for domestic providers of the same goods and services.
VAT rates in the UAE are relatively low compared to global standards, set at 5%. However, certain goods and services might be exempt or subject to a zero-rate tax, meaning they are taxed at 0%. Understanding the applicable VAT rates is crucial for businesses and consumers to determine the tax implications on their transactions. Compliance with VAT regulations involves proper record-keeping, timely filing of returns, and understanding the specific rules governing different goods and services. It's essential for businesses operating in the UAE to stay updated with any changes or amendments in VAT rates or regulations to ensure adherence and smooth operations. VAT consultants in the UAE aid businesses in understanding these classifications and ensure compliance with the law.
Consider the following scenario to see how the VAT system works:
A manufacturer sells a plasma television set to a wholesaler for AED 1000. The manufacturer collects a 5% VAT (AED 50) from the distributor on behalf of the government under the new tax structure. After that, the wholesaler pays a total of AED 1050.
The wholesaler raises the price to AED 2000 before selling it to a retailer. On behalf of the government, the wholesaler collects 5% VAT (AED 100) from the retailer and obtains a reimbursement of the VAT paid to the manufacturer in the previous phase. AED 2100 is paid in total by the retailer.
The vendor raises the selling price to AED 3000 before selling it to the end user. The merchant receives a reimbursement of the VAT paid to the wholesaler in the previous phase and a VAT of 5% (AED 150) from the end client.
The plasma TV set costs a total of AED 3150 to the final customer.
Every step of the sales process is subject to VAT, and the registered business receives a return (or tax credit) for the VAT paid before. The Federal Tax Authority (FTA) has set a fixed VAT rate of 5% to sell goods and services in the UAE.
Depending on the revenue earned, registration may be required or optional.
The business must register for VAT if the total value of taxable sales and imports inside the UAE for the past 12 months or the next 30 days exceeds the necessary registration level of AED 375,000.
Suppose the total value of taxable sales and imports inside the UAE for the past 12 months or within the next 30 days reaches the voluntary registration level of AED 187,500. In that case, a business can voluntarily register for VAT.
Startups and small enterprises can voluntarily register if their expenses surpass the voluntary registration threshold, making them eligible for a tax credit.
VAT is applied differently across various sectors, outlined as follows:
Businesses with a yearly income of more than AED 375,000 that provide taxable products or services must register for VAT. Companies with taxable supply of less than AED 375,000 but more than AED 187,500 will be entitled to register. Businesses that provide health and education services can get VAT back from the government. All firms in the UAE must keep track of their financial transactions and accurate and up-to-date financial records. Businesses must register for VAT if their yearly turnover falls below a certain threshold (as determined by their financial records). Companies that do not believe they should be written for VAT should keep their financial documents in case we need to decide whether or not they should be.
You'll pay more for any non-essential item, but at 5%, you might not notice the difference. However, if you're a regular buyer of sugary drinks, soft drinks, or tobacco, you'll undoubtedly feel the pain, as these items will see the worst price increases.
Developers and the first sale of new homes will be exempt from taxation. Property developers will be entitled to reclaim any VAT they owe the government. The VAT treatment of real estate is determined by whether the property is commercial or residential. Commercial property supplies (including sales and leases) are subject to the regular VAT rate (i.e. 5%).
Residential property supplies, on the other hand, are typically VAT-free. This ensures that VAT is an achievable expenditure for those who purchase their own homes. The initial delivery of residential properties within three years after completion at the time of VAT introduction is zero-rated to ensure that real estate developers can collect VAT on residential property construction.
The leases of residential tenants will not be taxed, while commercial tenants will have to pay VAT. It will apply to offices, shops, and other commercial property. VAT will be charged at a set rate on all commercial property sales made by VAT payers.
Because the GCC is a customs union, tariffs are only paid once at the point of entry. Duties are due only if the items are delivered to their final destination within a specific time frame. But here's where things become complicated. If items are imported into the UAE and then set for re-export (with documentation to verify it), they will be liable to customs charges in the UAE but merely VAT in their final destination. However, if the items entering the UAE have an undetermined eventual goal, VAT must also be paid in the UAE. This is designed to be a reclaimable resource.
The VAT system will have a significant impact on corporate account maintenance. Businesses that generate a certain amount of annual revenue must register for VAT. Companies not registered for VAT should save their financial records if the government wants to determine whether they should be. Every VAT-registered business owner must keep the following documents.
An invoice is a piece of paper that documents the specifics of a taxable transaction. Tax invoices can only be issued by VAT-registered firms. The primary documentation proof supporting the purchaser's VAT recovery is the receipt of a valid tax invoice. Business owners must provide separate invoices for purchases from vendors or suppliers and bills for supplies. The following information must be included on a valid tax invoice:
A unique sequential number.
The publication dates.
Name, address, and Tax Identification Number of the supplier (TRN).
Name, address, and Tax Identification Number of the consumer (TRN).
The description of the goods or services that were provided.
The total cost does not include VAT.
Each item's price and quantity.
Per-item discount rate.
Rate of VAT per item - if an item is exempt or zero-rated, state that it is not subject to VAT.
Credit notes are issued when products are returned for a refund, when an invoice amount is inflated, or when a business must issue a refund to a client for other reasons. It's a document a seller gives a buyer informing them that their account has been credited for goods returned by the buyer.
When a buyer's liability to a seller increases, debit notes are issued (due to extra goods delivered or goods already delivered charged incorrectly). These can be written as a letter or a formal document indicating future liability.
Only invoices that have already been issued can be changed. When a modification to an existing transaction is made, credit/debit notes are given, as mentioned above.
The following key types of supplies will be subject to a 0% VAT charge:
Exports of goods and services to countries beyond the Gulf Cooperation Council
Transportation and related supplies on a global scale
Specific sea, air, and land modes of transportation (such as planes and ships) are in short supply.
Precious metals of investment grade (e.g., gold, silver, of 99% purity)
Residential properties that are newly developed and supplied for the first time within three years after completion.
Provision of some educational services, as well as the condition of related goods and services
Provision of specific healthcare services, as well as the state of associated goods and services
VAT exemption will be granted to the following types of goods and services:
The provision of some financial services (clarified in VAT legislation)
Residential real estate
Passenger transport in the local area
Input tax paid on business costs by a VAT-registered person can be reclaimed in full if the Tax is related to a taxable supply made or proposed to be made by the registered person. In contrast, the registered person cannot recoup the input tax paid if the expense is for a non-taxable collection (such as exempt supplies).
A cost may relate to taxable and non-taxable supplies the registered person provides in certain circumstances (such as banking sector activities). In these situations, the registered person must divide input tax between taxable and non-taxable (exempt) supplies.
In the initial instance, businesses would be expected to utilize input tax (the ratio of recoverable to total) as a foundation for apportionment. However, other techniques will be allowed if they are fair and agreed upon by the Federal Tax Authority.
For businesses in Dubai engaged in international trade or with significant input VAT, VAT refund services become crucial. Navigating the process of reclaiming VAT can be intricate, and expert guidance can streamline this procedure efficiently.
To file a claim for a refund:
Enter the e-Services portal of the FTA.
Select the VAT Refunds tab after selecting the VAT tab, and then click the VAT refund request form to open the form.
Fill out the form completely. A few of the fields have your account's information pre-populated in them. Verify the information you provided, then click "Submit" to finish the form.
The FTA will email you to let you know the status of your refund application when you submit the form. The reimbursement will be executed within five business days of the claim being approved.
You can confirm your refund amount by examining your balance using the My Payment page under the Transaction History part of the e-Services portal.
VAT consultants play a pivotal role in guiding businesses through the intricacies of VAT regulations. Their expertise aids in strategizing tax planning, ensuring compliance, conducting VAT impact assessments, and providing tailored solutions that align with business objectives. In Dubai's vibrant business landscape, reputable VAT consultants are trusted advisors for firms across industries.
At Dhanguard, we understand the complexities businesses face concerning VAT in the UAE. With a team of seasoned VAT consultants well-versed in local regulations, we offer comprehensive VAT services tailored to your business needs.
Expert Consultation: Our consultants possess extensive knowledge of UAE VAT laws and stay updated with the latest amendments to ensure your business remains compliant.
Personalized Approach: We understand that each business is unique. Hence, our services are customized to suit your specific requirements, whether it's VAT registration, compliance, or refund assistance.
Efficiency and Accuracy: We pride ourselves on delivering services with precision and efficiency, ensuring that your VAT obligations are met without unnecessary complications.
In conclusion, VAT services in Dubai are integral for businesses to navigate the complex tax landscape effectively. With our expertise at Dhanguard, your VAT-related concerns will be handled adeptly, enabling you to focus on your core business activities. If you require assistance with VAT registration compliance or are seeking a VAT refund in Dubai, Dhanguard is here to assist you with every step. Contact us today to explore how we can streamline your VAT obligations and enhance your business's financial efficiency in the UAE.