Value-Added Tax or VAT is a tax on the consumption or use of goods and services levied at the point of sale. VAT is a form of indirect tax and is used in more than 180 countries around the world. All OECD countries except for the US have VAT (or a variation). While it feels exactly the same as a general sales tax to end-consumers, VAT is a more sophisticated tax and overcomes many challenges that affect the general sales tax.
VAT is charged at each step of the 'supply chain'. End consumers generally bear the VAT cost while registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the Federal Tax Authority.
The Total Value of their Taxable Supplies made within the UAE exceeds the mandatory registration threshold over the previous 12 month period
The mandatory registration threshold will be AED 375,000. ($100,000).
They anticipate making Taxable Supplies with a value exceeding the mandatory registration threshold in the next 30 days.
A Business may apply to register if they do not meet the Mandatory Registration Criteria and:
The Total Value of their Taxable Supplies or Taxable Expenditure in the previous 12 months exceeds the voluntary registration threshold
They anticipate that the Total Value of their Taxable Supplies or Taxable Expenditure will exceed the voluntary registration threshold in the next 30 days.
The Voluntary Registration Threshold will be AED 187,500. ($50,000)
Any Business which exceeds mandatory or voluntary registration thresholds may be required or may be able to register for VAT respectively.
The definition of Business embraces most forms of activity and includes any activity conducted regularly or on an ongoing basis, Example: Industrial, Commercial, Professional, Trade, etc
What is Taxable Supply?
A Taxable Supply refers to a supply of goods or services made by a Business in the UAE that may be taxed at a rate of 5% or 0%.
Imports are also taken into consideration for this purpose, if a supply of such goods or services would be taxable if made within the UAE.
Why is the 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 the government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
How will the Government collect VAT?
Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.