Categories of VAT

Posted on Nov 15, 2017

Categories of VAT

It is of utmost importance that the companies should aware that the products they are offering are falling under which categories of VAT.VAT is categories under certain categories so each and every category should be clearly understood so to avoid any misconception.

After categorizing the products and services accordingly, companies should treat them differently:-

Categories under VAT:

  1. Standard rated supplies-5%
  2. Zero-rated supplies
  3. Exempt supplies

VAT is a Tax on the consumption of goods and services, levied at the point of supply and is not intended to be a tax on business. VAT is collected by registered suppliers down the supply chain and remitted to the government.

Standard rated supplies- A standard rated supply means that supply of goods and services, on which tax is levied at a rate of 5%, almost all supplies falls under this category unless specifically exempted or zero-rated as per the law. In UAE VAT is introduced at a very low rate of 5% which is expected to be a good start. If company is falling under this category they have to make sure certain things like:

  • 5% VAT should be charged and collected
  • Need to register under VAT
  • Can recover VAT paid on purchases
  • Almost all the supplies fall under this category

Zero-rated supplies- Any zero-rated supply is a taxable supply but they are charged at a rate of 0%, when any transaction is zero-rated they can take input credit. If company is falling under this category they have to make sure certain things like:

  • Need to register under VAT
  • Can recover VAT paid on purchases
  • Consumers should be charged with 0% only
  • GCC government have announced certain supplies which should be charged with zero percent only, for example- Education & Healthcare services, Export of Goods outside GCC, International Transportation, investment in Precious Metals, Supplies of means of transportation, newly constructed Residential Properties, e-commerce outside GCC & Int. roaming services.

Exempt supplies- These supplies are taxable but the rate is NIL, tax on such input supplies are charged as nil because of this business can’t claim input tax credit on these transactions. It should be make sure that VAT is not charged on exempt supplies.

  • No need to get registered under VAT
  • Customers shouldn’t be charged
  • Cannot recover VAT paid on purchases
  • Supplies which fall under this category are Life Insurance, sale of Residential Properties, Bare Land & Local Passenger transport.

All about VAT in UAE visit Unitedvat.com

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