A value-added tax or VAT is a general consumption tax on the consumption of goods and services, applied at each stage of the supply chain. It is based on the value added at each stage from production to the point of sale. More than 160 countries around the world use value-added taxation.
The UAE introduced a value-added tax on January 1, 2018, together with other GCC states in order to diversify their economies and reduce their dependence on oil. In this article, you can find information about the specifics of the VAT in Dubai and the GCC region.
UAE VAT Law
The UAE VAT law came into effect on January 1, 2018. It sets out the framework within which value-added tax is levied in the UAE.
VAT registered businesses collect the tax on behalf of the UAE government, and consumers bear the VAT in the form of a 5% increase in the cost of taxable goods and services. Businesses are required to be clear about how much VAT a customer has to pay for each transaction.
VAT-registered businesses must report the amount of value-added tax they have charged and the amount of value-added tax they have paid to the government on a regular basis. The reporting is done online.
If you have charged more VAT than you have paid, you have to pay the difference to the government. If you have paid more tax than you have charged, you can reclaim the difference.
Most taxable persons are required to file a quarterly VAT return (3 calendar months), with the quarter ending date as determined by the Federal Tax Authority (FTA). The FTA may exceptionally require the taxable person to file a monthly return. The tax return for a quarterly, monthly or other period as determined by the FTA must be submitted, together with tax due, if any, within 28 days following the end of the tax period. Failing to file a tax return within the specified time frame will lead to fines. It’s crucial to have a trustworthy VAT consultant to avoid any issues.
VAT in GCC Region
The UAE coordinates VAT implementation with other GCC countries. All six GCC member states signed the Common VAT Agreement in June 2016. They agreed that each GCC Member State would introduce a VAT system at a rate of 5%.
Three of the states – the UAE, Kingdom of Saudi Arabia, and Bahrain – have already implemented VAT after signing the VAT GCC Framework. But there has been much debate over the most suitable timing for implementation of VAT in the remaining states.
Here is what we know at the time of writing.
- Oman will introduce its new VAT system in April 2021.
- Qatar is currently expected to implement VAT in the second or third quarter of 2021.
- Kuwait is expected to implement VAT by 2022.
Saudi Arabia tripled value-added tax to 15% in July 2020 as a part of measures to support its economy and to shore up state finances, but the Kingdom could review VAT increase after Covid-19 pandemic ends.
Since the UAE economy is already partly diversified and has non-oil revenues, the government has no plans to raise VAT to more than 5%.
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VAT Threshold in the UAE for Businesses
Businesses can register for VAT through the eServices section on the FTA website. So what are the criteria for registering?
The mandatory VAT threshold in the UAE is AED 375,000 per year. Also, if the businesses anticipate that the total value of supplies will exceed the mandatory registration threshold of AED 375,000 in the next 30 days, then they have to register for UAE VAT.
VAT registration is optional for businesses whose supplies and imports exceed AED 187,500 per year. Non-resident companies or individuals with economic activities in the UAE are also required to register for VAT.
VAT Implementation in the UAE
Businesses need to understand their obligations in respect of the registration and compliance issues that are mandatory and take necessary steps for VAT implementation into their operations. It’s also important to stay updated about VAT in UAE latest news. That will allow you to be informed about possible changes in the VAT Implementation in the UAE.
Businesses must levy VAT on their goods and services at each transactional stage, from raw materials to finished products. According to the regulations, businesses are responsible for carefully documenting their business income, costs, and associated VAT charges.
That means that you must properly keep business records that will allow the government to check that you have the right documentation. These accounting records and documents relating to business activities include the balance sheet, profit and loss account, payroll records, wages, fixed assets, records, and inventory statements.
Do you need professional guidance to ensure you are compliant with your VAT obligations?
Contact us and schedule a free consultation to learn how we can help you to establish and implement VAT compliant accounting system and processes.
UAE VAT Implementation Services: What We Offer
Do you think that managing VAT obligations is too challenging for your business? Beaufort Associates provides VAT Implementation Services in the UAE. Our financial consultants are fully qualified and trained to assist you in adopting the necessary changes relevant to GCC’s new tax policy and guide you on the Do’s and Don’ts of the system.
We offer professional VAT compliance support and advice tailored to your business needs. Our team can help you to comply with the VAT taxation rules and regulations.
Here is what we can do for you:
- Help you to register with the FTA;
- Advise you on your reporting deadlines;
- Provide guidelines to avoid fines and penalties;
- Provide you with accounting support to ensure proper recording of VAT;
- Work with you to prepare the VAT tax returns;
- Arrange to file the VAT return with the tax authorities.
If you need help to manage the VAT aspects of your business in the UAE, feel free to contact us today and request a free initial consultation! We would be glad to assist you.