VAT Guide for UAE

The latest VAT Guide for UAE that you need to know about in order to understand the VAT that is levied by the UAE government. In this article we will discuss about what is VAT and in order to understand it better we will require to break it down and understand TAX at first.

What is Tax?

Tax is unavoidable as it is a compulsory contribution from the citizens to the state for the goods and services that we purchase and enjoy. It is levied by the government and in return used for the states purposes and to continue the cycle of goods and services. Tax is a must to fund the government for all the functions and necessary actions they take towards the state for the people and the state itself. Tax varies from country to country and even state to state, item to item and also individual to an individual and failure to pay tax can lead to punishment by law. Tax comes in both direct and indirect ways as per the law. Direct tax is imposed directly on an individual’s property and income and indirect taxes are taken from the goods and services that an individual pays for.

What is VAT?

VAT or Value added tax is a form of tax that is levied by the government on the goods and services at the point of supply that is consumed by the people. It is payable by both individuals and businesses but there are certain  businesses that are not VAT registered and as for the registered businesses it is collected at the end of the supply chain. The charge of VAT is decided by the state as the percentage in the end of the market price, for example: when you purchase a burger starting from the bun, the meat, etc, the product gets more and more valued at every stage and at the end when you purchase it you are not only paying the VAT but also the VAT that is taken for the entire production process.

What is the difference between VAT and Sales Tax?

After learning what is VAT it is necessary to understand the difference between VAT and Sales Tax. As we have learned that VAT is an indirect tax that is levied on the goods and services that we purchase based on what goes in their production and adding value at every stage of its production. While Sales tax is the tax levied on the entire value of the goods and services that are purchased. VAT is only paid by the final consumers and is crystal clear for them to know what they are paying for, hence, it is easily understood by the tax payers. In sales tax the consumers face a sudden rise in the price making it uncomfortable at the end while purchasing.
There is no tax evasion in case of VAT unlike in sales tax. The sales tax usually puts the burden of tax on the consumer as the evasions happens frequently when a customer is purchasing things online, or from a wholesaler or through any employer. Although VAT remains free of evasion it is prone to fraudsters as the frauds will find ways to levy tax in various ways by making the consumer pay and by not making it aware to the government leading to loss of tax incomes.
As VAT provides more transparency and has more understandable way of levying tax it is being accepted widely in all economy and is being implemented in more number of nations.

Why is UAE government implementing vat?

Now is the high time for the residence of UAE to learn what is VAT as VAT is arriving at UAE by January 1st of 2018. The Value added tax is going to be introduced at the rate of 5 percent and there is no escape. The bringing of tax is putting fear and doubts at every individual living out there and why not because some changes always puts fear and if it comes to tax it sure is going to get anyone worried. But as you slowly begin to learn what is Tax and what is VAT the things will start making sense and the reason why UAE government is implementing tax will be understood better. It is mainly going to be levied to increase the income of the government of course. By implementing VAT UAE will have more ways to increase income for the government leading to lower price for oil and resulting in better efficiency in the economy. As per the reports the fiscal deficit of the Gulf states would have exceeded US $700 billion and that would come crashing on the economy hence the actions had to be taken in order to manage the government revenue.

When will VAT come into effect?

VAT will be implemented next year (2018) on 1st of January at the rate of 5 percent. The businesses can start registering for VAT three months prior to the launch date that is 1st of October 2017 and the excise tax has been implemented on the fourth quarter of this year (2017)

What will be the VAT Rates?

The doubt of what is  VAT may be cleared but what about VAT  Rates? It will be calculated depending on the percentage of the retail sales prices. However, from the first of January VAT will be charged at the rate of 5 percent. Though it will have limitations towards certain products that will include food items, health care and education.

How do we pay VAT?

Paying VAT usually comes to the ultimate and final consumer hence the consumers are required to pay VAT while purchasing the products and services . The business and companies will require to register with VAT in order to levy VAT on their consumers and their business. As VAT value increases at every stage, the end of the market structure will have the highest value of VAT that will be beared by the end consumers.

What are the products and services covered under vat?

After you have completely understood what is VAT the question comes as to what products and services will be charged under VAT. As per the rules drawn out the non essential consumer items will be charged which excludes food, basic essential commodities such as medicines, school and hospital bills. Anyway, the ones that will be charged are:
• Companies: Business will require to register with VAT if their annual revenue is more than Dh375,000 and the business that have less that this revenue but higher than Dh187,500 will have an option to register. The companies that come under basic commodity can reclaim the VAT from the government.
• Consumers: the ones that will be charged for the every ultimate product that are not basic commodities.
• Home sellers: since it is a commercial property it will be charged a standard VAT rate
• Home buyers : the property developers will be charged while the first sale of a new house will remain uncharged.
• Tenants: commercial tenants like offices, showrooms, shops, etc will be charged.
• Importers and re-exporters: the importers will be charged which is only normal and the re-exporters that re-export the products that have been imported into UAE will be charged only at the final destination while if it has an uncertain destination the it will be charged at UAE itself which will remain reclaimable.

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