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The Complete Guide for VAT in UAE
VAT has been making the rounds of the papers recently with the Federal Tax Authority releasing a guide verifying that the UAE’s vibrant e-commerce sector is subject to taxation, albeit with a few tweaks. So what is VAT, how do you register for it and what is exempt? Let’s have a look.
Defining VAT
VAT is an acronym for Value Added Tax, an indirect form of taxation introduced in the UAE in early 2018. Falling under the purview of the nation’s Federal Tax Authority and the Ministry of Finance, the 5% VAT is levied on goods and services at the point of sale. Businesses can reclaim any VAT incurred at steps in the supply chain before the goods or services reach the end user. They are ultimately responsible for including the 5% charge in the invoice made out to the consumer that they then pass on to the FTA.
VAT Registration
Process
Registration for VAT is a 2-stepelectronic process.
Creating an e-Service Account
The first involves generating an account on the Federal Tax Authority’s website. It is a fairly straight forward process that can be completed in under 5 minutes.
Registering for VAT on e-Service Account
An option to register the business for VAT is available on the e-Service account’s dashboard. It guides the user to a Getting Started Guide which contains all the pertinent information needed about the criteria for registration, using the online VAT application form etc. Once the user confirms that he has gone through the detailed page, he is then directed to the online Vat Registration Form. Containing 8 sections, the various details that must be furnished include business type, details of applicant (owner and CEO), banking detailsand uploading of various relevant documents.
Mandatory vs Voluntary Registration
VAT Registrationis either voluntary or mandatory, depending on the annual turnover of the business. For enterprises with an annual turnover under $100,000, registration is voluntary while companies that have an annual turnover of more than $100,000, the FTA mandates that VAT registration is compulsory.
Eligible Zones vsDesignated Zones
Businesses on the UAE mainland and some Free Zones are eligible for VAT registration. But certain zones classified as Designated Zones are considered to be independent of UAE Tax laws. Designated zones include Abu Dhabi Airport Free Zone, Dubai Textile City, Al Quoz Free Zone and Jebel Ali Free Zone (North-South) among others.
Categories of VAT
VAT in the UAE is divided into two types:
Taxable Goods and Services
Taxable goods and services are further divided into two types:
Standard Rated
Standard rated goods and supplies are charged 5% VAT. These include private higher educational centers and affiliated services, school uniforms, stationary, elective and/or cosmetic healthcare services, petrol, sale and rent of commercial buildings, serviced hotels, jewelry, all types of insurance except life, food and beverages, telecommunication services, etc.
Zero Rated
According to government news zero rated goods and supplies are technically taxable, but at a current rate of 0%. Goods and services that fall under this category include public and private school education, government owned higher educational institutions, nurseries and pre-schools, preventive healthcare, medical and dental services, crude oil and natural gas, international transportation of passengers and goods, first sale or rent of residential building after completion, export of goods outside the GCC, etc.
Exempt Goods and Services
The FTA has given some goods and services exception from taxation. These include all domestic passenger transportation, the sale or rent of building after the first supply, empty land, financial services like margin-based products, interest on lending forms and dealings with an equity or debt security. Life insurance policies are also exempt from taxation.
Medicines: VAT or No VAT
Medicines and medical supplies that have been registered with the Ministry of Health or imported with the sanction of the Ministryhave been classified as Zero rated goods whereas medication and medical supplies that are not registered with the Ministry are taxable at a 5% rate. Details of this are outlined in the Cabinet Decision No. 56. All preventive healthcare services are also Zero rated, including vaccinations.
Services and Goods Outside VAT System
Activities by government bodies that are not in competition with private sector companies fall outside of the taxation system. These include local and foreign governmental bodies, including international organizations and diplomatic bodies. Charitable activities, as outlined by a Cabinet Decision, conducted by public welfare organizations also fall under this category. Employee salaries and supplies amongst member of a tax group are also exempt.
Tax Returns - End of Taxation Period
VAT consultants in the UAE can help navigate the laws and by laws that make up Value Added Tax in the UAE.
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