Value Added Tax (VAT): VAT is a kind of tax that is imposed on goods and services. In a cycle of production and supply of goods and services, VAT is an indirect tax levied at every level on the domestic consumption of goods and services. It is assessed at each stage in the production and distribution chain from raw materials to the final sale based on the value (price) added. It does not cost the producer or the distribution chain members, whereas the end consumer bears its full brunt.
Value Added Tax was initially introduced during the 1970’s by the European Economic Community (now the European Union). In accordance with the Economic Agreement in 2001, and based on the decision passed by the Supreme Council for the GCC countries, held in the month of December, 2015, and keeping in mind the uniformity in the imposition of VAT by the GCC States, the decision to establish a unified legal framework for the introduction of a general tax on consumption in the GCC was founded as VAT. Therefore, a “Common VAT Agreement of the States of the Gulf Cooperation Council (GCC),” and commonly called as ‘Unified VAT Agreement’ or the ‘GCC VAT Framework’ was introduced.
In the UAE, and with effect from the 1st of January 2018, Value Added Tax was introduced at a rate of five percent (5%) at the point of sale.
The introduction of Value Added Tax in the UAE has helped the government move towards its vision of reducing its dependency on oil as its main source of revenue. It is to be noted that there are those goods and services that are considered zero-rated (such as food and essential drugs) or are otherwise exempt (such as exports) from the provisions of the VAT in the UAE. Likewise, certain free zones called ‘designated zones’ are considered as outside jurisdictions for tax purposes, and transfer of goods between designated zones is considered to be tax-free.
Certain zero-rated goods and services include:
- Identified education services.
- Identified healthcare services.
- Residential properties were newly constructed and supplied for the first time (within three years of their construction).
- Identified investment-grade precious metals.
- International transport of goods and services.
- Make available identified sea, air, and land means of carriage or transportation.
- Export of goods and services.
Certain exempted goods and services from the scope of VAT in the UAE include:
- Financial services (margin-based).
- Residential properties.
- Life insurance.
- Bare land.
- Local passenger transport.
An entity in the UAE must register for VAT if its imports and taxable supplies exceed AED 375,000/- per annum. Similarly, it is not mandatory but optional for those entities whose imports and taxable supplies exceed AED 187,500/- per annum.
In order to register for VAT in the UAE, entities and organizations could access the website of the Federal Tax Authority (FTA). Entities registered for VAT in the UAE must file and submit their VAT returns within 28 (twenty-eight) days of the end of the ‘tax period.’ A tax period for VAT purposes is defined as under:
- Every quarter for entities with an annual turnover of less than AED 150 million.
- Every month for entities with an annual turnover of AED 150 million or more.
Enterprise House can assist you right from registration on the website of the FTA to ensuring timely compliance to the FTA VAT filing and submission requirements.