UAE has introduced VAT from 1 January 2018 at a rate of 5%, along with other GCC countries agreed under Unified VAT Framework Agreement.
Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax
What is VAT?
Value Added Tax is an indirect tax or a general consumption tax. A tax imposed on the import and supply of Goods and Services at each stage of production and distribution, including the Deemed Supply.
Why is UAE implementing VAT?
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide our country with a new source of income which will contribute to the continued provision of high-quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Which Sectors are Subject to VAT?
VAT is levied on the supply of all goods and services, including food, commercial buildings and hotel services, if no explicit provision is made to impose a zero rate or an exemption.
Criteria for Registering for VAT
A business must register for VAT if its taxable supplies and imports exceeds AED 375,000 per annum.
It is optional for businesses whose supplies and imports exceed AED 187,500 per annum.
A business house pays the government the tax that it collects from the customers, but at the same time it receives a refund from the government on tax that it has paid to its suppliers.
Foreign businesses may also recover the VAT they incur when visiting the UAE.
Guidance on Zero-Rated and Exempt Supply
What is the difference between exempt supplies and zero-rated supplies?
Businesses that supply goods or services that are subject to a zero rate are required to register for VAT, but can recover the VAT that they incurred on their purchases. Meanwhile, businesses that supply tax-exempt goods or services cannot recover the VAT they incurred on their purchases.
What is the zero rate?
If you make supplies at the zero rate, this means that the goods are still VAT taxable but the rate of VAT is 0%. You will need to record any zero-rated supplies in your VAT account and report them on your tax return.
Title Six: Zero-Rating
- No VAT is charged
- The supplier can reclaim all of the VAT on its costs
- Result: complete relief from VAT
Title Seven – Exempt Supplies
- No VAT charged
- The supplier cannot reclaim VAT on costs linked to the supply.
- Result: partial relief from VAT – the customer may benefit from a slightly lower price but the supplier has an additional cost.
What are Zero-rated Supplies?
Supplies subject to the zero rate are listed in Article 45 of the Federal Decree-Law no. (8) of 2017 on Value Added Tax, such as:
- Exports of goods and services.
- International transport of goods and passengers.
- Certain means of transport, such as trains, trams, vessels, airplanes.
- First sale/rent of residential buildings.
- Aircraft or vessels designated for rescue and assistance by air or sea.
- Certain investment precious metals.
- Certain healthcare services and related goods and services.
- Certain educational services and related goods and services.
Who are Suppliers of Zero-rated Supplies?
Registrants who could be suppliers of zero-rated services and goods include exporters, real estate developers, airlines, schools, clinics, hospitals, etc.
If I make Exempt Supplies, do I need to Register?
If all the supplies you make are exempt, you do not have to register for VAT. In such a case, you cannot recover tax incurred on business purchases. Examples of such would be owners of property who rent their properties for residential purposes.