Overview

The Federal Tax Authority (FTA) was established under Federal Law by Decree No. 13 of 2016 and the year 2018 witnessed a change in the taxation laws in the UAE when UAE Value Added Tax (VAT) was introduced. These VAT laws and regulations were further amended in Sep 2022 & VAT regulations were amended in Oct 2022 and both will be effective from 1 Jan 2023.

What is Tax

Tax is the means by which governments raise revenue to pay for public services. They include:

1. Direct tax

These are collected directly by the government from the person on whom it is imposed such as Corporate tax & Income tax.

2. Indirect tax

These are collected on behalf of government by an intermediary from the person that ultimately pays the tax and they includes VAT & Sales Tax.

What is UAE Value Added Tax (VAT)?

As stated above Value Added Tax (VAT) is an indirect tax and based on consumption which is levied on each stage of the supply chain.

Registration Threshold

• A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
• A business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

Rate of VAT

The standard rate of VAT is 5% which shall be applicable on all types of goods and services unless the transactions are subject to zero-rate or exempt from VAT.

What is Zero–rated supply?

Taxable supply of goods or services for consideration where VAT is chargeable at ‘zero percent’ is construed as zero-rated supply. In such cases, the input tax paid on the procurements shall be fully recoverable.

Below are the zero-rated categories:

• Exports of goods and services to outside the GCC,
• International transportation, and related supplies,
• Supplies of certain sea, air and land means of transportation (such as aircrafts),
• Certain precious metals,
• Newly constructed residential properties, that are supplied for the first time within three years of their construction,
• Supply of certain education services,
• Supply of certain healthcare services.

What is Exempt supply?

Supply of goods or services for consideration where no VAT is due is generally termed exempt supply. In such cases, the input tax paid on the procurements cannot be recovered and includes the following categories of supplies:

• The supply of some financial services,
• Residential properties,
• Bare land as per article 44,
• Local passenger transport.

Government Entities

Supplies made by government entities are typically subject to VAT to ensure that government entities are not unfairly advantaged as compared to private businesses but there are certain supplies which are exempted from VAT.

VAT in Real Estate

The VAT treatment of real estate depends on whether it is a commercial or residential property.

• Commercial properties are taxable at the standard rate of 5%.
• Residential properties are generally exempted from VAT.

The records related to capital assets shall be maintained for the period of 10 years after the end of the Tax Period to which they relate as per Article 60.

Tax Group

VAT grouping is allowed, provided certain conditions are met.

• Each shall have a place of establishment or fixed establishment in
• The taxable persons should be Related Parties.
• One or more persons conducting business in a partnership shall control the others.

How VAT Liability Calculated?

The liability of VAT is the difference between the output tax payable (VAT charged on supplies of goods and services) for a given tax period and the input tax (VAT incurred on purchases) recoverable for the same tax period.

Where the output tax exceeds the input tax amount, the difference is a tax liability.

Record Keeping

All businesses in the UAE need to record their financial transactions and ensure that their financial records are accurate and up to date.

Invoicing

Invoices must be issued within 14 calendar days of the date of the supply.

Due date for filing of VAT returns

The taxable person shall file the VAT return on or before the 28th day of the month following the tax period concerned and the payment of VAT shall be made before such due date of filing the return.

 UAE Value Added Tax (VAT) – Summary

• VAT is a form of indirect tax.
• Standard rate is 5% unless the transactions are subject to zero-rate or exempt from VAT.
• Mandatory registration threshold of AED 375,000.
• Invoices must be issued within 14 calendar days of the date of the supply.
• It applies to Govt entities too but there are certain exceptions.
• It applies on commercial real estate.
• VAT liability is the difference between output tax and input tax.
• All businesses in the UAE need to keep accurate financial records.
• There are many administrative penalties as per article 76 & 77 for not registering, non-filling, not submitting return on time, not paying tax liability on time, tax evasion, not keeping financial records and not following rules and regulations.

The Government has also announced UAE Corporate Tax on the income of companies effective from the financial year beginning June 1, 2023 and details are available on:  https://accountingblogger.com/uae-corporate-tax/

Review my blog on IAS -12 Income Taxes here: https://accountingblogger.com/ias-12-income-taxes/

Recommended Reading:  https://accountingblogger.com/uae-corporate-tax-deduction/

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is also a published author of the book ‘IFRS Made Easy’. Atif has worked with some of the world’s largest brands in Canada and Dubai. He is a tax and IFRS coach and the founder of accountingblogger.com