Overview of VAT UAE

Federal Tax Authority of UAE was set up in the UAE in the year 2016 and is the government entity responsible for the administration, collection, and enforcement of federal taxes. It was established in 2016 by the President of the UAE, via Federal Decree-Law 13 of 2016.

Taxation started in UAE as a part of the GCC wide initiative to diversify regional economies. The introduction of VAT and Excise taxes will help the UAE diversify sources of revenue so that government departments can continue to deliver excellent public services and ensure a high quality of life for coming generations.

What is VAT?

FTA introduced VAT in UAE in January 2018. It is a consumption-based tax that is levied at each stage of the supply chain and borne by the end consumer. This tax is levied by the FTA but collected and deposited with the government by businesses. Hence here businesses act as collectors on behalf of the FTA. VAT compliance by businesses is a crucial compliance requirement with return filing and FTA VAT payments are the responsibility of businesses.

Business obligations under VAT

Businesses need to carefully understand the dynamics of VAT compliance and business obligations. The FTA provides extensive support and guidance to assist with this. It is the responsibility of businesses however, to make sure that any required compliance obligations are fulfilled. The FTA has the power to conduct audits on taxable persons and subsequently impose penal measures on those that are not compliant with the law.

Businesses might require making changes to financial management, the technology used, core operations, human resources, and book-keeping techniques in order to fulfil the VAT obligations and comply with the FTA VAT legislation.

The main obligation of businesses is to charge VAT and account for it. 

Businesses need to register for VAT on the FTA website by creating an account. The detailed guidelines are provided on the website itself. UAE imposes VAT on tax-registered businesses at a rate of 5 per cent on a taxable supply of goods or services at each step of the supply chain. Even the tourists in the UAE need to pay tax at the point of sale.

VAT return filing

All taxable persons need to file VAT Returns with the FTA at the end of the tax period. A typical VAT return shows the details of the sales and purchases made by the business and the tax liability at the end of tax period. Once you have registered for VAT in the UAE, you are required to file your VAT return and make related VAT payments within 28 days from the end of your tax period.

The VAT return form is divided into different boxes and each box needs to be filled with details of sales, all other outputs, VAT on expenses and all other inputs and ultimately submitting the VAT return.

The difference between the taxes paid on inputs and those charged or recovered on the output is the tax liability for a business. The input taxes can be claimed as a tax credit to reduce the final tax liability. in cases where the input taxes paid are more than the output taxes recovered the excess input taxes paid can be carried forward and used to pay the VAT liability in the future.

Refunds under VAT

You may claim refund under VAT if you are a taxable person in a net tax refundable position or someone who is eligible for refunds under the special schemes. Following can be the persons eligible for refund

  • VAT refunds for taxable persons.
  • VAT refunds for foreign businesses.
  • VAT refund for tourists.
  • VAT refund for UAE nationals building new residences.
  • VAT refunds for Foreign Governments, International Organizations & Diplomatic Bodies

The FTA reserves all the rights to implement VAT law and make amendments to it to ease the VAT compliance and implementation processes. FTA also can audit the businesses wherever it deems fit to do so to recover rightful tax dues and impose penalties. It also publishes guides, references and public clarifications that helps taxpayers to understand how VAT impacts businesses.

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