VAT calculation car workshops,garages

Meaning Of VAT

It is a form of tax that is charged on the domestic consumption of goods and services except for that   are zero rated such as food, medicines etc and on the goods and services that are classified as “Exempted” broadly on exports. The tax is levied at every stage from procurement of raw material, production and till distribution chain that is up to sales. The amount of VAT the user pays is on the cost of the product, less the tax that has already been paid during the production. . This form of taxation (VAT) ensures there is no double taxation of the same product or services.VAT calculation car workshop,garages are given below.

Importance Of VAT-

To   promote collaboration within the countries in relation to fiscal reform in the GCC, the UAE is part of the ‘Economic Agreement between the GCC States’ and the ‘GCC Customs Union’, who are aspiring together to design and implement new public policies to further strengthen and promote diversification across the region. The representatives of the Member States of the Gulf Cooperation Council (GCC) have now all signed the Unified VAT Agreement for the GCC (“GCC VAT Treaty”) and each of the six States will draft its own VAT legislation.

The implementation of VAT will provide a new source of income to the government, which will contribute in providing high quality public services in future. The introduction of VAT also supports the government’s diversification strategy and will aid the future nation to become less reliant on oil and hydrocarbons as a source of revenue.

VAT will establish a link between the government and citizens, adding a level of accountability in fiscal management.

Rate Of VAT- CarWork Shop,Garages

The implementation of VAT is an important step to strengthen the indirect tax structure of the country. As announced earlier this year, the UAE will be implementing VAT at a rate of 5% from 1st January 2018.

VAT will be levied at 5% for used cars and car workshops. The rate of 5% will be applied on the all the business sectors.(does not hold good for zero rated and exempted goods).It is mandatory  that all  invoices feature tax value separately and then be added to the final bill value. All invoices must also display VAT registration number to enable buyer to claim VAT credit.

Provisions of VAT

• The UAE’s Federal Tax Authority has announced to levy 100 per cent tax on energy drinks and tobacco, 50 percent on carbonated beverages.
• As the sale and purchase of newly constructed real estate is likely to be “zero rated” and secondary market real estate transactions are likely to be “exempt”, investors in residential property will not be required to pay VAT to the developer or a subsequent seller. Similarly, residential landlords are not expected to charge VAT to tenants. However, investors are likely to have to pay VAT to providers of leasing or management services relating to the property and will not be entitled to recover this VAT.
• The first sale of a residential property is likely to be zero rated, it is expected that developers will not be able to charge VAT on such a sale, but will be able to claim back any input VAT paid to their suppliers in the course of developing the project. However, developers’ management documentation should clarify that VAT will be payable by investors on any management service fees.
• Commercial tenants will be required to pay VAT. For most commercial tenants, this will not be a material issue as they will be able to set off this input VAT against output VAT that they are collecting on their supplies.
• Developers will be entitled to charge output VAT on the sale of commercial real estate and to set off such amounts against the input VAT they pay to their suppliers. Accordingly, developers should provide in their sale and purchase documentation that the purchase price will be “exclusive of VAT”.
• Below is the list of those items that are zero rated and VAT exempt:

1. Zero-Rated: Exports outside of GCC, International Transportation
   VAT Exempt: Some financial services, sale & purchase of bare land and local
   passenger services, healthcare and education.

What are consumable Goods?

Consumables also known as consumable goods, nondurable goods, or soft goods.Consumables are goods used by individuals and businesses that must be replaced regularly because they wear out or are used up. They can also be defined as the components of an end product used up or permanently altered in the process of manufacturing, such as semiconductor wafers and basic chemicals. Consumables are goods that need to be replaced regularly because they wear out or are used up as the vehicle is used or over time.  Consumables  in a vehicle are lubricants, coolants, batteries, fuel and even tyres.

Consumable goods are usually excluded from warranty policies, as it is considered that covering them would excessively increase the cost of the premium.

New Improvisation on Workshops and Garages

Motorists will soon be able to choose from the best auto workshops to have their vehicles repaired as the Emirates Standarisation and Metrology Authority (Esma) formulates a new system that will categorise and rate workshops according of their service standards and expertise.

Esma is working on regulations to govern the sector across the country that will set a minimum requirement in terms of skills of mechanics and service standards for a workshop to operate.

First  the level of the standards at the workshops are to be ascertained  whether they meet the minimum requirements. If they don’t, they we will be given a grace period to improve their service.

In the next stage, the workshops will be categorised according to the type of service they offer, such as AC repair, tyre service, bodywork, engine work, etc.

UAE aim is to categorise and classify all workshops across the country. ESMA will certify them,and  will examine and certify the mechanics who work at these workshops and then rate these units according to the skills possessed by the employees who work in the workshops and the equipment the workshops possess.

In an important step, all the information about the workshops will be present on a common portal and motorists will be able to access the information to look for the best workshops.

These workshops will be linked to auto insurance firms and in case of an accident motorists will be able to see where their vehicles are being repaired and what is the standard of service at a particular workshop.

The idea is to offer transparency to the consumers and fair play for all. Consumers should not be in the dark about the standard of the work their vehicles are undergoing, and they should be able to decide where they want the repair work to be done, which is not the case right now.

The regulations and the system will be ready by the end of this year, when they will be sent to the Cabinet for approval.

“Once approved, the system will be implemented in stages, so that the workshops have enough time meet our standards.

The Roads and Transport Authority (RTA) is also carrying out its own study on regulating the auto industry .

It is a massive industry and the work on hand is comprehensive.ESMA will be dealing with different types of workshops, right from a small shack which is carrying out tyre service to corporate style workshops with multiple facilities.

“It is important the maintenance or repair work that is being carried out is up to the highest standards because it has a direct impact on road safety, while also giving motorists the best value for their money, once the system is in place there won’t be an immediate shut down of workshops that don’t meet standards.If necessary, ESMA will help them attain the skills and standards required and then we will certify them accordingly. At the end of the day the idea is to let people know the level of standards available at the workshop where they are having their vehicle serviced.

VAT calculation Car Workshops,Garages

What is Input Tax?

In simple terms ,it means tax paid on raw material for the purpose of making the finished goods. You can reduce the tax that  has been already paid on the inputs and pay the balance taxable amount. Thus, entire taxes paid are set off against the output tax liability and there is no cascading impact of taxes.

What is an Output Tax?

Term used in connection with VAT to denote the tax payable on the sales of goods or services by those who are subject to the tax and in contrast to the input tax for which a credit will be available.

Example:

Mr. Y has a car workshop he spends ,for buying spare parts to repair a car .He pays VAT to buy the spare parts ,Vat Calculation is as below

Once the car is repaired the tax on output be AED500

Tax to be paid  =AED500 – AED275=AED225

Input Credit=AED275

Input Credit in VAT:A company can avail input tax credit only if it is registered  with Federal Law.

Method to Determine VAT Payment in UAE

The formula to determine VAT payment in UAE is very simple. All you need to do is calculate your total Output VAT collected during the tax period and total Input VAT which you are eligible to recover. After determining, apply the following formula:

VAT Payment = Output VAT – (minus) Input VAT

Example of VAT Payment with the above example

The VAT payment is determined by adjusting the Output VAT with Input VAT as shown below:

Output VAT AED 500 (Minus) Input VAT AED 275 = AED 255 is VAT payable which need to be paid to the government.

If  Input VAT is higher than the Output VAT then VAT is refundable which can be carried forward to the next return period and will be allowed to be utilized against your future VAT liabilities.

VAT Payment Online Car Workshop,Garages

The VAT payable determined after off-setting the Output VAT with Input VAT needs to be paid through the FTA portal. The Online VAT payment facility will be provided in the FTA portal, wherein the registered businesses can remit the VAT payable.

VAT Registration Applicability

Any business that is required to be VAT registered and charge VAT from 1 January 2018 must register for VAT purposes, in the manner specified by the Federal Tax authority, prior to that date. In order to determine which businesses must be VAT registered, a VAT registration threshold shall apply for all UAE-resident businesses:

• A business must register for VAT if they make taxable supplies or imports that exceeds the mandatory registration threshold of AED 375,000.
• A business may choose to register for VAT voluntarily if their taxable supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.
• A person may register voluntarily if their expenses exceed the voluntary registration threshold (e.g. start-up businesses with no turnover). Exempt supplies and supplies outside the scope of VAT are not used in calculating the VAT registration thresholds.

    Procedure to file VAT Returns in UAE:

The registered entities can file the returns using online services of the Federal Tax portal. Periodical submission of the e-returns keeps the company away from being black listed and also helps for expansion of business. A registered company should file returns even if the tax paid by them is NIL.As the returns should be filed every three months record keeping should be prompt and accurate. The e-services section of the Federal tax portal provides online assistance for filing VAT returns. The website available for registration www.tax.gov.ae

Details required for registration:

• Description of business activity
• Last 12 months turnover figure
• Projected future turnover figures
• Expected Import and export values
• Whether company is interested in dealing with GCC suppliers or customers.
• Details of custom authority registration.
• Trade License
• Emirates ID Authorized signatory can be a person who has the power of Attorney to sign on behalf of the business.
• Certificate of Incorporation
• Articles of Association
• Bank Details.

Upon Successful registration TRN Tax Registration Number will be issued within 20 days .

With new standards laid for Garages and workshops Reach ERP offers best facilities to suit your business operations. Few are mentioned below.

Operations and Process

Bank Synchronization and Process

Repair Management

Mobile Application

Fix an appointment for free demo.