Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold. VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia. VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain. To explain how VAT works we have provided a simple, illustrative example below (based on a VAT rate of 5%).
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.
The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognize that such a collaborative approach is best for the region.
VAT will be introduced across the UAE on 1 January 2018 at a standard rate of 5%.
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 of 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.
VAT, as a general consumption tax, will apply at 5% to all transactions of goods and services unless specifically exempted in Article (46) of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of Zero as per Article (45) of the Federal Decree-Law.
The cost of living is likely to increase slightly, but this will vary depending on the individual’s lifestyle and spending behaviour. If your spending is mainly on those things which are relieved from VAT, you are unlikely to see any significant increase.
Any person will be able to object a decision of the Federal Tax Authority.As a first step, the person shall request the FTA to reconsider its decision. Such request of re-consideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision
Log into the FTA e-Services portal via E-SERVICES, and go to EDIT on the VAT section and enter your Customs Registration Number. This will automatically update your records.
If you have been allocated a “Provisional TRN” and this has been communicated to you by email, you will receive the Tax Registration Certificate after the FTA has fully reviewed your application.
A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence.It does not include:
A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.
The owners of residential buildings do not have to register for VAT if they do not have any other business activities. Where owners have other business activities, they should consider their obligations further.The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over coming 30 days.
An owner of residential building will not be able to recover VAT in respect of expenses related the exempt supply of the residential buildings.An owner of a commercial building will generally be able to recover VAT in respect of expenses related to the supply of the building.
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply or a subsequent supply.The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.
Businesses will be required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The specifics regarding the documents which will be required and the time period for keeping them will be stated in the relevant legislation.
The rent of residential building will generally be exempt from VAT.The rent of commercial building will be subject to VAT at 5%
Yes, tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale. Nevertheless, we have set the VAT rate deliberately low so that VAT is a limited burden on all consumers.
It is intended that FTA may allow foreign businesses to recover the VAT they incur when visiting the UAE. This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries (where the rates are a lot higher).
As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes, however.
A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family. This will allow the recovery of VAT on such expenses as contractor’s services and building materials.