All about VAT in UAE

Posted on Nov 20, 2017

All about VAT in UAE

The long wait for anticipated common framework may soon come to an end as The GCC Member States are in the process of approving the framework for the introduction of a Value Added Tax (VAT) system in the Gulf region. It will act as a blueprint for the other member states to apply the law in their respective nations. VAT is expected to be introduced at a standard rate of 5 percent with certain exceptions including healthcare, basic food items,  education and charitable activities. VAT in UAE would be implemented from 1st January 2018 while other GCC countries may do so at the same time or by the beginning of 2019 at the latest. So we have compiled basic questionnaires to give you overview about the low and its implication on you in a brief way.

What is VAT?

  • Value Added Tax (VAT) is a tax on the consumption of goods and services.
  • VAT-registered businesses levy VAT on the sales of goods and services and pay this VAT to the government.
  • Businesses those are registered, can reclaim from the state authority the VAT they paid on their goods and services.
  • In this way, VAT is ultimately paid by the end consumer.

Here are two exceptions to these rules:

  • Zero-rated goods: Businesses cannot levy VAT on the sale of zero-rated goods and services. However, businesses can reclaim the VAT they paid on inputs into such goods and services.
  • Exempt goods: Businesses cannot levy VAT on exempt goods and services and cannot reclaim VAT they paid on inputs.

When will it launch?

VAT will come into effect from 1st January 2018. The registration process has already started depending on the annual turnover of the companies. 

How will it be implemented?

  • The U.A.E. is preparing to implement a 5% VAT on most goods and services from 1 January 2018.
  • This tax is being introduced in coordination with other GCC states.
  • To enforce the tax and make it effective, the government of UAE has established a federal tax authority.
  • The fiscal revenue collected from VAT will be shared among the federal government and individual Emirates.
  • Registration for VAT will open from October 2017, and companies are segregated on the basis of their annual turnover. 
  • Businesses with annual revenue between 187,500 AED and 375,000 AED have the choice to register.
  • Those businesses with annual revenue below 187,500 AED will be excluded from VAT requirements.
  • The U.A.E. has suggested that the below categories of goods and services will be exempt or zero-rated.

Zero-Rated Goods and Services

  1. Healthcare services
  2. Education services
  3. Some medicines/medical equipment
  4. Investment gold, silver, and platinum

Exempt Goods and Services

  1. Supplies of residential property (sales and leases), with the exception of the first sales of new residential property
  2. Supplies of bare land
  3. Some financial services
  4. Life insurance
  5. Supplies of local transport, such as taxis, buses, and trains

How Should Businesses Prepare?

  • Businesses should determine whether VAT is applicable to them.
  • If applicable, businesses should prepare to register for VAT in Q4 2017.
  • Businesses should then ready to implement this VAT in Q1 2018.
  • This may involve replacing or updating IT systems, developing new procedures, and training or hiring staff.
  • Businesses should avail of a series of seminars being held by the
  • Ministry of Finance about VAT. They should also look for expert
  • reporting and commentary about these seminars.
  • Businesses can also participate in a host of other seminars being held by other private-sector organizations.
  • Businesses should consider whether to employ expert guidance from a reputable accounting firm or law firm.
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