VAT in the UAE (VAT UAE) is valid from January 1, 2018. This tax is considered one of the main sources of government revenue in many countries. In the Emirates, it is 5% and plays an important role in the state budget. Let’s consider its features.
About the Federal Tax Administration in the UAE
The FTA is under the control of Federal Law Decree No. 13 of 2016. The main task of this body is to manage and collect federal taxes, related fines, as well as distribute tax revenues and apply tax procedures in the Emirates.
The authority is headed by Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum.
The Federal Administration works together with the Ministry of Finance. Their main goal is to achieve economic diversification in the Emirates through profit from sources that are not related to oil. Such a partnership will increase the financial stability of the country, as well as provide recommendations and assistance to organizations and consumers to fulfill their responsibilities.
What is tax?
Taxes are a means of collecting income to pay for public services. The state is engaged in this. Most often, state revenue from taxation goes to pay for utilities – from state hospitals, schools, universities to defense, infrastructure and other equally important aspects of everyday life.
The following types of taxes apply:
- Direct – we are talking about income, corporate, etc. They are collected by the state.
- Indirect – we are talking about VAT, sales tax, etc. They are collected by an intermediary for the government. For example, it can be a retail store.
What is VAT?
VAT is an indirect tax that is levied on many goods and services. It is relevant in more than 150 countries. Among them are 29 EU members.
The VAT rate in the UAE in 2023 is 5%. The fee is collected at all stages of the “supply chain”. In these relationships, firms collect and report on it to the government, and the costs fall entirely on the end consumers.
The company pays the tax to the state, which it collects from buyers. She is also entitled to receive a refund from the government if she has paid tax to suppliers.
As a result, these receipts are the “added value”.
How does VAT differ from sales tax?
They are both consumption taxes, so most will simply not notice the difference between the principle of action. But there are still differences.
Most countries prefer to levy sales tax only on transactions related to goods. Moreover, such a fee is taken only from the final sale. VAT, as mentioned earlier, is taken from products and services at each stage of delivery, and even at the end of the sale. It is levied on imports of products and services to ensure equal conditions for Russian suppliers of the same products and services.
Many states choose VAT for various reasons. At the same time, the tax assumes a more complex approach to the taxation system, since it forces companies to be tax collectors on behalf of the government. It also reduces the number of distortions and tax evasion.
VAT in Dubai in 2023 for business
VAT registration by a taxpayer
The company must pay if the import shipments exceed 375,000 AED. Voluntary registration as a taxpayer is also available when this threshold is not passed and the amount of 187,500 AED is exceeded. Also, those whose expenses are higher than the voluntary registration threshold have the opportunity to register. This option allows start-up enterprises without turnover to become VAT taxpayers.
VAT obligations of enterprises
Registration of financial transactions is mandatory for all companies. In addition, the reports must be accurate and up-to-date.
Even if you do not want to register as a taxpayer, you will have to keep records. For those companies that are registered under VAT, there are some nuances. They are:
- has the right to demand a refund of the paid% for products/services related to the business;
- must pay% on taxable products that they provide themselves;
- must keep business records necessary for government verification of activities.
It is also mandatory to provide a report on a regular basis on the amount that was charged and the amount that was paid to the government. The submission is formal, more often in an online format. If you have paid more VAT than you have paid, you will have to make a difference. If you paid more% than you charged, you can return the difference.
VAT on real estate
An immovable object will be subject to VAT, depending on whether it is commercial or residential. For deliveries with the sale/lease of the first option, the rate of 5% is valid. The second option is exempt from payment. This is a guarantee that VAT is not an irrevocable expense for buyers of their own homes. In order for the developer to reimburse it during construction, the first delivery of residential real estate within 3 years after completion at the time of the introduction of % is subject to a zero rate.
Zero-rated industries
The 0% rate applies to:
- export of products and services outside GCC;
- international transportation, supplies;
- supplies of specific sea, air, land transport, for example, airplanes, ships;
- some precious metals of investment quality – gold, silver 99%;
- new residential properties that are rented for the first time within 3 years after the completion of construction works;
- delivery of specific services in the field of education, medicine.
VAT-exempt industries
- Some economic services.
- Residential immovable objects.
- Bare land plots.
- Local transport for passengers.
Partial release
When paying the business expenses tax, you can request a refund in full. This is only possible if the incoming tax relates to a taxable delivery. If the situation is different and we are talking about exempt supplies, then the pre-tax paid will not be reimbursed.
Sometimes an expense can be either taxable or not. For example, the activities of the bank. In this case, it is worth distributing it between deliveries.
Most likely, companies will start using a pre-tax (the ratio of the return to the total amount) as a basis for separation between different supplies. Even though there will be options for using other legitimate methods.
State institutions and VAT purposes in the UAE
Deliveries of state agencies are subject to %. This is a guarantee that they have no advantage in comparison with private business activities.
At the same time, some supplies are excluded from VAT – if they are not competitors to the private sector, or this company is not the only supplier.
Some government agencies have the right to reimburse%. This measure is in place to avoid problems with the budget and to ensure equal conditions in the field of outsourcing and non-domestic activities.
The processing of state deliveries will depend on the deliveries themselves, but not on the recipient.
Therefore, if the standard tax rate applies to the proposal, the regime will be the same, even for a state institution.
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