The UAE is considering levying Value Added Tax (VAT) from January 2018. The rate of VAT will be 5 per cent. Value Added Tax (or VAT) is an indirect tax that is imposed on most supplies of goods and services that are bought and sold.The UAE is considering levying Value Added Tax (VAT) from January 2018. The rate of VAT will be 5 per cent. Value Added Tax (or VAT) is an indirect tax that is imposed on most supplies of goods and services that are bought and sold.VAT will provide the UAE with a new source of income which will be continued to be utilized to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Implication of VAT
VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted.Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case the ministry needs to establish whether they should be registered.Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
VAT-registered businesses generally:
- Must charge VAT on taxable goods or services they supply.
- May reclaim any VAT they have paid on business-related goods or services.
- Keep a range of business records which will allow the government to check that they have got things right.
VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be done online. If they have charged more VAT than they have paid, they have to pay the difference to the government. If they have paid more VAT than they have charged, they can reclaim the difference.