An Introduction to VAT

1
An Introduction to VAT
2
Introduction

• The implementation of VAT regulation in UAE has
  brought some changes in how business accounting
  operates.
• If you are still trying to navigate your way
  through these changes, this resource will help
  you understand the basics of VAT in UAE. .

3
Understanding VAT and related terms

• Value Added Tax or VAT is an indirect tax that
  consumers are charged on purchase of certain
  goods and services.
• Output Tax - The tax paid by businesses on the
  sale of goods and services.
• Input Tax - The tax paid by businesses on
  the purchase of goods and services.
• VAT is calculated as the difference between input
  and output tax. So in other words,
• VAT Output Tax (-) Input Tax

4
How VAT works

• VAT is charged at every stage of the sales and
  supply process.
• A VAT-registered business receives refund (or tax
  credit) for every time they paid VAT.
• So finally, consumers bear the cost of VAT, while
  registered businesses collect it on behalf of the
  government.

5
VAT Rates

• As per the Federal Tax Authority (FTA), a fixed
  VAT rate of 5 has been specified for the sale of
  goods and services in the UAE.
• However, not all purchases are included in VAT.
  Zero-rated and exempt supplies fall outside the
  scope of VAT.

6
Zero-Rated Supplies

• Supplies that attract zero VAT are known as
  zero-rated supplies.
• The benefit enables suppliers to recover the
  input tax from the government.

7
Exempt Supplies

• Exempt supplies are those goods and services that
  are totally exempted from VAT.
• Suppliers do not charge VAT on exempt supplies,
  and hence, in this case, the question of claiming
  input tax credit does not arise.

8
Difference Between Zero-Rated and Exempt
Supplies

• Suppliers of zero-rated goods and services have
  to consider VAT registration if they exceed the
  threshold limit of 375000 AED.
• For suppliers of exempt supplies, VAT
  registration is not necessary.

9
Zero-Rated Supplies Under UAE VAT

• The following zero-rated supplies are taxed 0
  VAT
• Visa charges
• Educational services
• Medicine and healthcare devices
• Healthcare services
• Precious metals considered as investment
• First Rent received from residential building
• Sale of first residential building
• International passenger transport
• Transport of international goods, for instance
  containers and vessels
• Export of any goods and services

10
UAE VAT Exempt Items

• The following exempt supplies are totally
  exempted from VAT
• Goods in designated free Zones and financial free
  zones
• Salaries and bonus of employees
• Local passenger transport
• Bare land
• Residential buildings (In some cases zero-rated)
• Life Insurance
• Reinsurance of life insurance
• Financial Services

11
Commonly Misunderstood Goods and Services

• Certain items are commonly misunderstood as
  zero-rated or exempt supplies but they are
  charged _at_5 VAT. Heres a list of those items
• Any insurance and reinsurance other than life.
  For example, motors, properties, etc.
• School trips
• Extra school fees other than education. For
  instance, fees for extracurricular activities
  like horse riding, swimming, etc.
• Renting of school premises for events
• School uniform
• Printing and stationary
• Post-school higher education provided by higher
  institutions

12
VAT Registration in UAE

• In order to comply with VAT laws and regulations,
  registering for VAT is the first step for any
  business entity. Heres a list of documents
  needed for VAT registration in UAE
• Trade License
• Emirates ID
• Partnership Deed for Partnership Firms
• Certificate of Incorporation for Companies
• Club or Association Registration for Clubs
• Authorized Signatory documents as applicable
• Contact information - Registered company address,
  partners/directors residential address
• Financial Statements
• Bank Account details
• Customs details (if applicable)