The United Arab Emirates is a continuously progressing economy and the introduction of VAT was a crucial step. The idea of VAT was employed years ago by many countries; therefore, it was essential for the UAE to join the line for a better future. This positive move had an impact on various businesses and other investment opportunities in Dubai but in the long run the results are and will be fruitful.
Value Added Tax (VAT) made its debut this year in the Gulf Cooperation Council (GCC) block thus making it another source of raising revenues for governments in the GCC. But what is VAT? How does it affect us? VAT is an indirect tax imposed on the supply of goods and services. It is one of the most common types of consumption taxes found around the world. Considered to be the most beneficial form of taxation and executed by more than 150 countries in the world, VAT was implemented in the UAE on 1st January, 2018 at 5% making it among the lowest in the world.
“According to the recent reports, over 260,000 companies and over 10,000 groups have already registered for VAT.”
The Gulf Cooperation decided to implement taxation as a part of government’s efforts to diversify revenues and increase the government income. Over the past few years, low oil prices had put a huge pressure on the GCC countries which resulted in the urgent need to diversify the revenue systems.
Important Facts about VAT in the UAE-
- VAT, which has been implemented at 5% in January 2018, is believed to increase the economy of the UAE by Dh12 billion in its first year.
- The mandatory registration threshold for VAT is AED 375,000 that means, businesses making taxable supplies and imports beyond this limit must register under VAT.
- Businesses whose supplies and imports are below this limit but above the voluntary registration limit of AED 187,500 can apply for a voluntary registration under VAT. This is also applicable for those businesses whose expenses exceed the voluntary VAT registration limit.
- There are 3 segments of VAT- 5% standard rate, zero-rated and exempted. Exempt goods suppliers are either not registered for VAT and even if they are, they cannot reclaim their input VAT. Zero-rated goods suppliers on the other hand, can reclaim their VAT input.
- The zero-rated services include export of goods and services, international transport of goods and passengers, sale/rent of residential buildings, etc.
- 5% standard rate is applicable on necessities such as food and beverage, clothes, shoes, fuel prices, hotel rents, cosmetic products and many more.
- VAT is not applicable on certain categories like tuition fees for nurseries, medical fee, surgeries, public transport, air tickets and other government services.
- Businesses that are associated or related through a valid mean and have a business address in the UAE can apply for registration as a Tax group.
- The free zone companies that purchase goods and services for their business outside the free zone are also liable to pay VAT.
- All the UAE investment opportunities are directed to maintain the certain records like balance sheets, inventory and stock levels, profit and loss, payroll, payments, receipts, sales, purchases, expenses and revenues.