VALUE ADDED TAX

VALUE ADDED TAX 

Value added tax (VAT) is a tax that is applied to all the goods and services that are produced by the eligible VAT companies and are consumed by the people. That is why it can be said that VAT is a consumption tax. There is a difference between VAT and other sales tax. Although for some people both taxes work in the same way. However, there is a slight difference between the working of two. The sales tax is applied only at the last stage of the production of a product. Value added tax (VAT), on the other hand, is applied at each and every stage of the production which is why it is also known as a multi-stage tax. The Value added tax (VAT )is applied to the value that is added during the production process.

• Collect the value added tax (VAT) on the sales they are doing. This will be called output tax.
• Recover the amount of VAT that is paid on the purchase of goods which will be the input tax

VALUE ADDED TAX Working

The traders are eligible to deduct the amount of VAT on the purchase and the sales of goods. The difference between this input or output tax will then be paid to the government. Apart from the payment, the traders can also forward a request for the refund of VAT but this is possible only in certain situations. Not every individual is eligible for this. The business or the company will then act as a tax collector for the government. After the completion of the above-mentioned process, the government will collect all the amount of VAT from the trader that is calculated for every stage of the production and distribution. The equal amount of that money will then be paid to the final consumer.

For eg:

ELIGIBILTY

If the Annual Turnover of the company is more than AED 375,000/, it is mandatory for the company to register under UAE VAT before the end of the year 2017. If the Annual Turnover is between AED 187,500 & AED 375,000/, it is optional for the company to be registered under UAE VAT law. Further, if it is less than AED 187,500/, the company need not register under this law.

RECORD KEEPING

It is mandatory for every taxable person to maintain books of accounts under UAE VAT law. In addition to that the authority can ask for additional documents such as, annual accounts, general ledger, purchase day book, invoices issued, invoices received, credit notes, debit notes, VAT Ledger etc.
Under the UAE VAT law the books of accounts and records are to be maintained for five years.

PROS OF VAT

Value added tax, also known as goods and services tax or GST proves to be beneficial for the government. Through implementation of this tax system, government can raise revenues invisibly, VAT will provide a new source of income to the government, which will contribute in providing high quality public services in future. VAT is different from sales tax in various aspects. While sales tax is to be paid on the total value of the goods and services, VAT is levied on every exchange of the product, so that consumers do not have to carry the total cost of tax. However, VAT is generally not applied on export goods to avoid double taxation on the final product. However, if VAT is charged on export goods, the tax amount is usually refunded to the tax payer.

UAE to implement VAT from 1^stJanuary2018

The new taxation regime will be rolled out on January 1, 2018. Value Added Tax (VAT) is set to make its debut in the six-nation GCC block in 2018.The UAE Minister of State for Financial Affairs, His Excellency Obaid Humaid Al Tayer, has stated that the UAE will implement VAT at the rate of 5% from 1st January 2018.VAT is expected to be introduced at a rate of5%withsome limited exceptions including basic fooditems, healthcare and education .The UAE are planning to implement from 1st January2018 -other GCC countries may do so at the sametime or by1January2019at the latest.VAT will be another source of raising revenues for governments in the Gulf Cooperation Council (GCC).It is estimated that the UAE will generate more than Dh12 billion additional revenues in the first year after implementation of this new tax.GCC countries have decided to implement taxation as part of the governments’ efforts to diversify revenues in the context of sharp decline in oil prices. The International Monetary Fund has been recommending fiscal consolidation in the GCC through diversification of government revenues and reduction of subsidies.

VAT REGISTRATION 

Businesses can register for VAT tax through the e-services section on the FTA website. However, they need to create an account first. All businesses must submit an application to register for VAT as soon as possible to avoid the risk of missing the deadline that is 1 January 2018. Those who fail to apply for VAT would be liable to fine/s as per the Administrative Penalties stipulated in Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE. 

ONLINE PROCEDURE FOR VAT REGISTRATION

1. Visit the official website of the Ministry of Finance
2. Click the option of VAT certificate to reach the page
3. Follow the option of Start Service by clicking it
4. Complete the registration process and create your unique login id and password
5. Now you can login and reach the customer landing page
6. Click the option for “create a new tax request”
7. Fill up the required details
8. After submitting you will be directed to the payment gateway
9. Pay the online fees for VAT registration.

After payment an acknowledgement or confirmation receipt will be generated.

TAXABLE SUPPLIES IN VAT

1. Taxable supplies
2. Exempt Supplies
3. Zero rated Supplies

TAXABLE SUPPLIES 

Any supply of goods and services for a consideration is termed as taxable supplies, if the taxable turnover exceed AED 375000, the business becomes liable for VAT. A supply of Goods or Services for a Consideration by a Person conducting Business in the State, and does not include Exempt Supply. Standard Rate or Taxable supplies are those supplies which will have an impact of 5% VAT in the UAE. For Standard Rate supplies, input Vat can be deducted as there is 5% VAT. We can claim VAT to the Federal Tax Authority for Standard Rated supplies.

EXEMPT SUPPLIES 

Exempt supplies are not taxable supplies for VAT purposes. VAT is not charged on exempt supplies and the supplier cannot recover any VAT on expenses incurred in making those exempt supplies. Exemptions will also be strictly applied as they are an exception to the normal rule that VAT should be charged. If all the supplies you make are exempt, you do not have to register for VAT. In such a case, you cannot recover tax incurred on business purchases. Examples of such would be owners of property who rent their properties for residential purposes.

• Residential Property Old
• Foodstuff

ZERO RATED SUPPLIES

Zero-Rated Supplies are those supplies on which the rate of VAT is 0%. But in zero rated supplies input tax, can be deducted. 

• Exports of goods and services.
• . International transport of goods and passengers.
• . Certain means of transport, such as trains, trams, vessels, airplanes.
• . First sale/rent of residential buildings.
• . Aircraft or vessels designated for rescue and assistance by air or sea.
• Certain investment precious metals.
• . Certain healthcare services and related goods and services.
• . Certain educational services and related goods and services

As a supplier, you must register for VAT if your taxable turnover (which includes zero-rated supplies) exceeds Dh375,000 in a 12-month period, or if you expect your taxable turnover (which includes zero-rated supplies) to exceed Dh375,000 in the next 30 days.

However, you can ask for an exception from registration if, and only if, you do not make any other supplies which are taxable at the standard rate of 5%. If exception from registration is granted, then you will not submit regular tax returns and you will not be able to recover input tax incurred.

Free Zones: Rules are still not clear but VAT may apply in a non-fenced free zone and not apply in a customs controlled free zone like Jebel Ali

Accounting and Audit:

• Proper accounting records to be kept.
• Time of supply rules will determine when to account for output VAT. Goods – when goods are made available to customers and Services – earlier of issuance of Invoice or receipt of payment.
• VAT is a rules based law and accounting principles of accrual or cash basis do not apply.
• Minimum data requirements defined to be included in Invoices. TRN No, Date of sale, Emirate of sale, clear description and quantity of goods, amount of sale etc.
• All accounting records to be kept for minimum of 5 years.
• No action can be taken by Federal Tax Authority after 5 years but no limit in case fraud is found.
• External Audit of accounts is not mandatory.
• Businesses in the UAE (and GCC)should start planning now how the changes could impact their business, to ensure a smooth transition. Businesses will have to adapt to the changes by identifying
• the impact of VAT on their business, and key immediate considerations are to:
• Assess capability of existing systems
• Identify VAT implementation strategy
• Identify contracts that need a VAT action
• Identify intercompany transactions
• Undertake training/awareness
• A potential  VAT implementation will also have immediate effects on consumer behaviour which gives opportunities for companies to assess their business direction and to plan strategically.

VAT Returns:

UAE taxpayers should file VAT returns with the Federal Tax Authority (FTA) on a quarterly basis. Returns must be filed according to the procedures specified in the VAT legislation, within 28 days from the end of the tax period. Taxpayers can file their returns online using e-services. A VAT return is generally paid four times a year and in some cases monthly. Timely submission of the e- returns keeps the company ingood books with the tax authorities. Even if you have not paid VAT, a nil return needs to be submitted if you are a VAT registered company.

• The return will include only summary data of purchases and sales, Input & Output tax and which Emirate the sale has been done.
• Returns will be quarterly and must be filed and tax paid within 28 days of quarter end.
• All returns and tax payment will be fully electronic.

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 CONCLUSION

VAT will be introduced in the UAE, along with other Gulf countries, from the beginning of 2018 at 5 per cent. The government is likely to use its ability to either zero-rate or exempt many supplies most likely to impact the common man to ensure that the impact of VAT is kept to a minimum. Essentially, the intentions of most governments when introducing a VAT is to focus more on taxing discretionary spend by consumers, while ensuring that those at the lower end of the spectrum are protected and assisted.