Value-Added Tax or VAT (at the rate of 0% or 5%) was first introduced in the UAE in January 2018 on all goods and services supplied within the UAE region. However, a few of those supplies were distinctively categorized as exempted supplies. Since tax compliance is paramount for UAE businesses as well as businesses led in UAE by foreign nationals, it’s compulsory for businesses to know about the different tax treatments within UAE VAT for different supplies.
A standard VAT at the rate of 5% is levied upon almost all the supplies sold or bought within the mainland UAE with its suppliers and consumers also based in the UAE. Restaurant and hotel services, food and beverages, and telecommunications services are some standard-rated supplies among others.
There are various supplies traded inside the mainland UAE but shall be treated as 0% taxed supply as per the UAE VAT law.
Supplies that are subject to 0% VAT are regarded as zero-rated supplies. Zero-rated VAT is imposed on goods and services that are being exported to international territories (excluding VAT-imposed GCC states). The following items are subjected to 0% VAT in UAE:
- Supply of certain commercial transportation items
- International transportation of goods and services (entering, departing or passing through UAE region)
- Supply of educational service and related goods and services
- Supply of healthcare service and related goods and services
- Supply of 99% pure gold, silver and platinum
- Charitable organization building (first supply)
- Residential real estate (first supply)
- Certain medical equipment and medicine
- Certain food items
As these supplies still fall into the category of taxable supplies, the tax credit of purchases (made for the preparation of these supplies) is possible to claim a refund. Hence, zero-rated supplies must be cited in the VAT returns.
Goods and services that are exempted from VAT are charged with neither 0% nor 5% tax. Since VAT isn’t enforced on these supplies, VAT refund can’t be claimed either. The following supplies are considered VAT exempted:
- Certain financial services such as life insurance
- Supply of local passenger transport (such as cab service etc)
- Supply of bare land
- Residential buildings excluding the ones specifically rated 0%
Companies that are entirely producing VAT exempt supplies do not need to register for tax filing.
Implementation of VAT in the UAE
The UAE’s economy is predominantly dependent upon its oil and hydrocarbon reserves, which are non-renewable energy resources and are bound to diminish in the near future. The VAT allows the UAE to diversify the country’s income instead of relying on a single source of income. Furthermore, it aids the government to continually provide the citizens with high-quality public services whose costs are borne by government budgets.
ACCBOOKS for your VAT solutions
FTA has provided strict but definitive guidelines for the businesses to follow when it comes to tax filing. Non-adherence to any of the guidelines can result in severe penalties for the businesses. To assure VAT compliance, it is central to identify and apply correct VAT treatment on varied types of supplies.
Since 2015, UAE has agreed to implement FATCA (Foreign Account Tax Compliance Act) and improve international tax compliance, due to which tax filing has become more arduous for businesses led by US persons. But you can put your trust into ACCBOOKS’s team of certified management accountants to guide you through the intricacies of such matters.
Over the years, ACCBOOKS’ team of certified VAT accountants and auditors has been catering to its clients in the UAE with unique VAT solutions in numerous industries such as construction, food, and beverages, financial services, etc. ACCBOOKS closely looks into the VAT functions beginning from the VAT registration to the implementation of day-to-day VAT activities. It offers VAT consultancy services such as VAT audit, VAT accounting, and other financial services.