VAT in UAE

Tax – in general –  is an amount of money that a person or a company have  to  pay to the government so that it can pay for public services such as healthcare, educations ,social services ..Etc.Tax – in general –  is an amount of money that a person or a company have  to  pay to the government so that it can pay for public services such as healthcare, educations ,social services ..Etc.

UAE – as party of GCC – will implement Tax regulations to improve sources of revenue that will help government departments to provide high quality public services .The introduction of Tax in UAE will be for 2 types of Tax,

(i) Excise Tax

(ii) Value Add Tax (VAT).

Legislations:

UAE governments had issued the following Tax legislations:

1- Federal law by decree no. 13 of 2006 concerning the Establishing of Federal Tax Authorities on 26 / 9/ 2016

2- Federal law no. 7 of 2017 for Tax Procedures on  11/ 6 / 2017.

3- Federal Law by Decree no. 7 of 2018 on Excise Tax on 17 / 8 / 2017

4- Federal law by Decree no. 8 of 2017 on VAT on 23 / 8/ 2017.

5- The Executive Regulation is approved by Government and soon will be release to public.

The above legislations provide the guide lines of the legal Procedures, Financial rules and grounds for the Tax Registration, Tax Return, and Exempt Supply, Tax evasion, Legal Representative, Tax Agent, violations, penalties and punishments.

Excise Tax is indirect tax lived ( as of 1st October 2017) on certain goods such as carbonated & Energy Drinks , Tobacco , and other good that will be nominated by concerned Authorities as per regulations set forth in law no. 7 of 2017 on Excise Tax. Federal Tax Authority (FTA) announced on 14/9/2017 that the registration will start on 17/9/2017 at FTA website (www.tax.gov.ae) and any person or company involves in of the said activities must register prior to October 2017. FAT also announced that the Tax Excise revenue will be collected through  e-dirham  electronic system.

Value Add Tax is (VAT) is a type of consumption tax that will  placed on a product whenever value is added at a stage of production and at final sale. The UAE had announced its intention to the introduce value added tax (VAT) in the country starting January 1, 2018. The Vat ( 5% ) levied at each stage of Supplying , manufacturing ,   importing, selling  goods or   providing Services will applicable to the  buyer / beneficiary/ Customer  or End User. Any company whose turnover is quantified to be AED 375,000 (which is the    Mandatory Registration limit) needs to register-  as Designate Party – with Federal Tax Authorities as per Standard Form of Registration. The Executive Regulation Decree will define the Exempt Activities.

 Duties of Taxable party:

The legislations specified the general obligations & duties of Taxable person or entity (individuals or Companies) including registration with Federal Tax Authorities, maintaining proper Financial Records for day to day activities, submitting Tax return and settle the Tax amount on due date, releasing all records to the officer of Federal Tax Authorities who has the legal capacity and authorities to exam all records relates to the business of designate party.

The decree-law provides that all supplies of goods and services are subject to VAT at a standard rate of 5 per cent with the exception of specific supplies subject to the zero rate and what is exempted as specified in the decree-law.

According to the decree-law, a supply of goods includes the transfer of ownership of the goods or the right to use them as an owner from one person to another and an entry into a contract between two parties triggering the transfer of goods at a later time. A supply of service is any supply that is not considered a supply of goods.

The decree-law made two exceptions as to what constitutes a supply: the issuance or sale of any voucher unless the received consideration exceeds its declared monetary value; and the transfer of whole or an independent part of a business from a person to a taxable person for the purposes of continuing such business that was transferred.

Record Keeping:

It is mandatory for every taxable person to maintain books of accounts under UAE VAT law. In addition to that the authority can ask for additional documents such as, annual accounts, general ledger, purchase day book, invoices issued, invoices received, credit notes, debit notes, VAT Ledger etc. Under the UAE VAT law the books of accounts and records are to be maintained for five years.

For most businesses, VAT returns should be filed every three months. Filing of returns can also be done online using the government’s eServices.

Businesses are also strongly advised to ensure that in all the commercial contracts they enter into, they include a clause that spells out that the VAT burden can be passed on to the consumer.

The easiest way to do this is to alter your IT systems to automatically calculate and add VAT to the invoices.

VAT is not only a finance issue. It flows through all operational departments of the company.  This is because wherever a company acquires products or services, it may pay VAT and it would need to capture all the documentation relating to VAT paid, in order to claim refunds.

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