An Introduction to VAT

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Information about An Introduction to VAT

Published on May 28, 2018

Author: managemyvat


An Introduction to VAT : An Introduction to VAT Introduction : 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 . . Understanding VAT and related terms : 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 How VAT works : 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. VAT Rates : 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. Zero-Rated Supplies : 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. Exempt Supplies: 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. Difference Between Zero-Rated and Exempt Supplies : 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. Zero-Rated Supplies Under UAE VAT : 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 UAE VAT Exempt Items: 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 Commonly Misunderstood Goods and Services : Commonly Misunderstood Goods and Services Certain items are commonly misunderstood as zero-rated or exempt supplies but they are charged @5% VAT. Here’s 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 VAT Registration in UAE : VAT Registration in UAE In order to comply with VAT laws and regulations, registering for VAT is the first step for any business entity. Here’s 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)

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