VAT Meaning-10 Things you should know about VAT
What is VAT?- VAT Meaning-10 Things you should know about VAT
A value-added tax (VAT) is a consumption tax levied on products at every point of sale where value has been added, starting from raw materials and going all the way to final retail purchase. Ultimately, the consumer pays the VAT; buyers at earlier stages of production receive reimbursements for the previous VAT they have paid.
VAT is commonly expressed as a percentage of total cost. For example, if a product costs AED 100 and there is a 5% VAT, the consumer pays AED105 to the merchant. The merchant keeps AED100 and remits AED5 to the government.
A VAT is considered as an effective way to improve growth of a nation’s gross domestic product (GDP), raise tax revenue and eliminate government budget deficits.
Why is UAE implementing VAT, From when to charge VAT – VAT Meaning-10 Things you should know about VAT
VAT is incorporated in all business transactions from January 1st 2018.It will be a milestone for UAE as it will generate revenues for development of infrastructure and economic growth of the country. It is estimated that with the introduction of the new form of taxation “Value Added Tax” the economy may raise its annual revenues by Dh 12 billion in the first year of implementation of the VAT system. Gulf Cooperation Council (GCC) decided upon the implementation of VAT system as being one of the steps to diversify revenues due to the fall in oil prices. Tax reform was top priority in UAE succumb to the fall in oil prices and revenues. This fall in oil prices also affected real estate industry impacting the economic growth of the country.
UAE government also provides services like hospitals, roads, public schools, parks, waste control, and police which are usually covered through Government budget. However, VAT will provide with a new source of income, which will help in continuing these services at high quality. VAT is one such source of income which will provide huge impetus to the governments revenue. An indirect consumption tax regime like VAT is a natural progression of GCC government fiscal policy moving towards more effective and efficient tax systems in a competitive and integrated global economy. VAT could help the government to improve business conditions and maintain its reputation of being business friendly.
Which Sectors are subject to VAT- VAT Meaning-10 Things you should know about VAT
Taxation rate in UAE will be 5% on all goods and services. Government has decided upon the marginal rate of 5% in the interest of the residents, as purchasing power of the consumer will not be hampered to an extent. Thus implementation of VAT will not have adverse effect on the people who are on the lower end of the spectrum.
However GCC has agreed on three VAT rates that will levied by the member states at the time computation of tax:
- Standard Rate
- Zero Rate
- Tax Exempt
Standard Rate
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.
5% Tax will be levied on
| Education
|
Health Care
|
Oil and Gas | Real Estate |
| Education provided by private higher educational institution
|
Treatments such as cosmetic surgery | Other oil and gas products including petrol at the pump | Sale and rent of commercial buildings |
| School Uniform
|
Other medicinal supplies | Hotels,motels and service accommodation | |
| Electronics such as Tablets,laptop etc
|
Medicines and medical equipment not listed in Cabinet list | Land(not bare lnd) | |
| Hiring of grounds for school events
|
UAE Citizens building own house(recoverable later) | ||
| Stationery
|
|||
| Extra-curricular activities for additional fees
|
|||
| School trips for holiday
|
| Financial Services | Investment Gold,silver,platinum, jewellery | Insurance and Reinsurance | Food and Beverages | Telecommunication and electronic services | Others | |
| Product within an explicit fee, commission, rebate ,discount | Purity less than 99% | Insurance and reinsurance including health,motor, property | All luxury eatables | Wired and wireless telecommunications and electronic services | Second hand goods like used cars sold by retailers, antiques, ,collectors items.
|
|
| Jewellery | Sale of goods or services without any exceptional cases | |||||
What is the difference between exempt and zero rated supplies
If you make supplies at the zero rate, this means that the goods are still VAT taxable but the rate of VAT is 0%. You will need to record any zero-rated supplies in your VAT account and report them on your tax return
A zero rate means that the tax is computed at a zero rate. The invoice will be required to show the tax column, but with a zero rate and zero value. It is important to show the zero value as subsequent transactions will not be allowed to off-set the tax charged for items in this category.
However any purchase made where a tax has been paid and subsequently the item is sold, then the tax credit of purchases is available to claim.
For example, if raw material for producing bread was purchased paying a tax, and no tax was charged while selling bread, then the business can claim back the VAT paid.
The government has now provided clarifications of the goods to which the Zero rate is applicable. Zero-rating of value added tax applies when goods and services are being exported to outside a VAT-implementing GCC state, as well as to international transportation of passengers or goods including a transfer starting or ending in the UAE or passing through its territory.
GCC List of Zero Rated Goods
- Exports outside GCC
- Food items as per GCC list
- Medicine and Medical Equipment as per GCC list
- Supply of sea, land and air means of transportation
- International and Intra GCC transport and services
- Charity organisations
- Gold, silver and platinum – 99% and more purity
- First supply after extraction of gold, silver and platinum
Also subject to the zero rate is the supply of educational services and related goods and services for nurseries, preschool, elementary education, as well as higher educational institutions owned or funded by the Federal or local government, as specified in the Executive Regulation; and, finally, the supply of preventive and basic healthcare services and related goods and services, as specified in the Executive Regulation.
UAE: Additionally:
- Health and Education
- Residential real estate – first supply
Bullet Points
- 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.
- If you do not qualify for an exception from registration, then you must file tax returns with the FTA. You will also be entitled to recover input tax incurred on business purchases subject to the normal conditions.
- Registrants who could be suppliers of zero-rated services and goods include exporters, real estate developers, airlines, schools, clinics, hospitals, etc.
Tax Exempt
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.
The Tax Exempt supplies are not charged any VAT, however any tax paid earlier on purchases of the item is not available for credit.
As an example consider a taxi service (local passenger transport) that is tax exempt and will not collect any VAT from passengers. Though it will not collect any tax it will not be able to get credit for the tax they have paid for purchase of motor vehicles.
GCC : Tax Exempt List
- Imports of goods which are custom exempt
- Local passenger transport
- Bare Land
UAE: Additionally exempt
- Residential buildings other than zero rated
- Some specific financial services – margin based
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.
Tax Table
As per FTA The below table outlines all services and supplies that is subject to the 5% Value Added Tax, as well as zero-rated supplies and exempt supplies
VAT Treatment on below broad headings
| Education VAT rate | VAT rate |
| Private and public school education (excluding higher education) and related goods and services provided by education institution | 0% |
| Higher education provided by institution owned by government or 50% funded by government, and related goods and services | 0% |
| Education provided by private higher educational institutions, and related goods and services | 5% |
| Nursery education and pre-school education | 0% |
| School uniforms | 5% |
| Stationery | 5% |
| Electronic equipment (tablets, laptops, etc.) | 5% |
| Renting of school grounds for events | 5% |
| After school activities for extra fee | 5% |
| After school activities supplied by teachers and not for extra charge | 0% |
| School trips where purpose is educational and within curriculum | 0% |
| School trips for recreation or not within curriculum | 5% |
| Healthcare | VAT rate |
| Preventive healthcare services including vaccinations | 0% |
| Healthcare services aimed at treatment of humans including medical services and dental services | 0% |
| Other healthcare services that are not for treatment and are not preventive (e.g. elective, cosmetic, etc) | 5% |
| Medicines and medical equipment as listed in Cabinet Decision | 0% |
| Medicines and medical equipment not listed in Cabinet Decision | 5% |
| Other medical supplies | 5% |
| Oil and Gas | VAT rate |
| Crude oil and natural gas | 0% |
| Other oil and gas products including petrol at the pump | 5% |
| Transportation | VAT rate |
| Domestic passenger transportation (including flights within UAE) | Exempt |
| International transportation of passengers and goods (including intra-GCC) | 0% |
| Supply of a means of transport (air, sea and land) for the commercial transportation of goods and passengers (over 10 people) | 0% |
| Supply of goods and services relating to these means of transport and to the transportation of goods and passengers | 0% |
| Real estate | VAT rate |
| Sale and rent of commercial buildings (not residential buildings) | 5% |
| First sale/rent of residential building after completion of construction or conversion | 0% |
| First sale of charitable building | 0% |
| Sale/rent of residential buildings subsequent to first supply | Exempt |
| Hotels, motels and serviced accommodation | 5% |
| Bare land | Exempt |
| Land (not bare land) | 5% |
| UAE citizen building own home | 5% (recoverable) |
| Financial services | VAT rate |
| Margin based products (products not having an explicit fee, commission, rebate, discount or similar) | Exempt |
| Products with an explicit fee, commission, rebate, discount or similar | 5% |
| Interest on forms of lending (including loans, credit cards, finance leasing) | Exempt |
| Issue, allotment or transfer of an equity or debt security | Exempt |
| Investment gold, silver and platinum, jewellery | VAT rate |
| ≥99% pure and tradable in global markets | 0% |
| <99% pure | 5% |
| Jewellery | 5% |
| Insurance and Reinsurance | VAT rate |
| Insurance and reinsurance (including health, motor, property, etc) | 5% |
| Life insurance and life reinsurance | Exempt |
| Food & Beverages | VAT rate |
| Food and beverages | 5% |
| Telecommunications and electronic services | VAT rate |
| Wired and wireless telecommunications and electronic services | 5% |
| Government activities | VAT rate |
| Sovereign activities which are not in competition with the private sector undertaken by designated government bodies | Considered outside VAT system |
| Activities that are not sovereign or are in competition with the private sector | VAT rate dependent on good/service ignoring provider |
| Not for Profit Organizations | VAT rate |
| Activities of foreign governments, international organisations, diplomatic bodies and missions acting as such (if not in business in the UAE) | Considered outside VAT system |
| Charitable activities undertaken by societies and associations of public welfare which are listed by Cabinet Decision | Considered outside VAT system |
| Activities of other not for profit organizations (not listed in Cabinet Decision) which are not business activities | Considered outside VAT system |
| Business activities undertaken by the above organizations | VAT rate dependent on good/service ignoring provider |
| Free zones | VAT rate |
| Supplies of goods between businesses in designated zones | Considered outside VAT system |
| Supplies of services between businesses in designated zones | VAT rate dependent on service ignoring location |
| Supplies of goods and services in non-designated zones | VAT rate dependent on good/service ignoring location |
| Supplies of goods and services from mainland to designated zones or designated zones to mainland | VAT rate dependent on good/service ignoring location |
| Other | VAT rate |
| Export of goods and services to outside the GCC implementing states | 0% |
| Activities undertaken by employees in the course of their employment, including salaries | Considered outside VAT system |
| Supplies between members of a single tax group | Considered outside VAT system |
| Any supplies of services or goods not mentioned above (includes any items sold in the UAE or service provided) | 5% |
| Second hand goods (e.g. used cars sold by retailers), antiques and collectors’ items | 5% of the profit margin |
What is the mandatory registration limit?
Mandatory Registration
A business must register if:
- The total value of their taxable suppliesmade within the UAE exceeds the mandatory registration threshold over the previous 12 month period, or
- They anticipate making taxable supplieswith a value exceeding the mandatory registration threshold in the next 30 days.
- The mandatory registration threshold will be AED 375,000.
Voluntary Registration
A business may apply to register if they do not meet the mandatory registration criteria and:
- The total value of their taxable suppliesor taxable expenditure in the previous 12 months exceeds the voluntary registration threshold, or
- They anticipate that the total value of their taxable suppliesor taxable expenditure will exceed the voluntary registration threshold in the next 30 days.
- The voluntary registration threshold will be AED 187,500.
How to register for VAT- VAT Meaning-10 Things you should know about VAT
ONLINE PROCEDURE FOR VAT REGISTRATION
- Visit the official website of the Ministry of Finance
- Click the option of VAT certificate to reach the page
- Follow the option of Start Service by clicking it
- Complete the registration process and create your unique login id and password
- Now you can login and reach the customer landing page
- Click the option for “create a new tax request”
- Fill up the required details
- After submitting you will be directed to the payment gateway
- Pay the online fees for VAT registration.
After payment an acknowledgement or confirmation receipt will be generated.
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 .
VAT Return Due Dates Post Implementation Of VAT.
FTA has provided relaxation with respect to the VAT return period. The FTA has provided the first VAT return period from January 1 to May 31 and subsequently on a quarterly basis. This means the first return will need to be filed on or before June 28 and later returns from June 1 to August 31, September 1 to November 30, December 1 to February 28-29.
All businesses must log onto the FTA’s website and check the tax period under their profile. Some businesses have been given one month and others have been given five months. FTA has relaxed the timeline for filing the first VAT return which would enable many businesses to gear up for the time loss.
What is Tax Grouping?
When two or more persons conducting businesses may apply for Tax Registration as a tax Group. A tax group is a group of two or more persons registered with the FTA as a single taxable person subject to fulfilment of conditions under UAE VAT Law. This group registration is only for the purpose of tax.
Conditions for applying VAT Group Registration
To be eligible for applying VAT Group registration, all of the following conditions need to be fulfilled.
- Each person shall have a Place of Establishment or Fixed Establishment in the State: This implies that each person should have either of the below mentioned establishments in UAE :
- Place of Establishment: The place where a business is legally established in UAE pursuant to the decision of its establishment, or a place in which significant management decisions are taken and central management functions are conducted.
- Fixed Establishment: Any fixed place of business, other than the place of establishment, in which the person conducts his business regularly or permanently and where sufficient degree of human and technology resources exist which enables the person to supply or acquire Goods or Services. This includes branches, which are also considered as the fixed establishment.
- The relevant persons shall be Related Parties: Here related parties refers to two or more persons who are not separated on the economic, financial or regulatory level, where one can control others either by Law, or through the acquisition of shares or voting rights.
- One or more persons conducting business in a partnership shall control the others: This implies that one or more person who are related, controls the other business. For example, officers or directors of one another’s businesses, partners in each other’s business etc.
VAT Group Registration Benefits
The following are the benefits of VAT Group Registration for the business
- All the entities within a VAT Group will be treated as ‘ONE’ entity for VAT purpose. This will help the businesses in simplifying accounting for VAT, and also compliance reporting like VAT returns are required to be prepared and reported at the group level instead of entity level.
- Any supplies within the entities of a VAT group, are out of the scope of the VAT. This means, VAT will not be levied on the supplies between the entities of a VAT Group. However, supplies made by the VAT group to an entity outside the VAT group are subject to VAT.
What records need to be maintained?
Records Maintained by the Taxable Person
According to the VAT Decree Law, the taxable person shall keep the following records:
- Records of all supplies and Imports of Goods and Services.
- All Tax Invoices and alternative documents related to receiving Goods or Services.
- All Tax Credit Notes and alternative documents received.
- All Tax Invoices and alternative documents issued.
- All Tax Credit Notes and alternative documents issued.
- Records of Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for the same.
- Records of Goods and Services purchased and for which the Input Tax was not deducted.
- Records of exported Goods and Services.
- Records of adjustments or corrections made to accounts or Tax Invoices.
- Records of any Taxable Supplies made or received.
- A Tax Record that includes the following information:
1) Due Tax on Taxable Supplies.
2) Due Tax after the error correction or adjustment.
3) Recoverable Tax for supplies or Imports.
4) Recoverable Tax after the error correction or adjustment.
Time period for retaining Accounts and Records
Accounts and bookkeeping records maintained by taxable persons should be retained for a period of 5 years after the end of the tax period to which they relate.
Records pertaining to capital assets like machinery, furniture, etc. should be retained for at least 10 years from the end of the tax period to which they relate and records relating to real estate should be retained for at least 15 years from the end of the tax period to which they relate.
Penalty for not keeping proper records and documents
It is necessary for all the taxable businesses to keep their books in an organized and standardized form and must keep all the documents to avoid penalty and fines.
If a taxable person or business fails to keep required records, books and documents, penalty of AED 10,000will be given and then AED 50,000 if the offence is repeated again.
Reach Accountant Online VAT Accounting Software
It is very essential that businesses use a software which will enable the task of maintaining records and managing accounts efficient. Businesses should carefully evaluate and decide a software which will help them in maintaining systematic and error-free accounts and records with compliance validation. The business software should be their instrument for compliance under VAT while helping them maintain their focus on the core business activities.
Need to upgrade to Reach Online VAT Accounting Software :
Reach Accountant software is well designed to match all the needs for successful running of the business. The software can be used in different industries ,traders ,manufacturers, retailers, workshop ,business projects etc. It is an online VAT accounting software that can automatically manage your book of accounts, taxes, inventory, sales, purchases and more online quickly and securely.The VAT return filing process in UAE is very simple and easy. The businesses with the right tax accounting software will be able to file the returns effortlessly and save time
Benefits Of Reach Online VAT Accounting Software
Reach Online accounting software systems are rapidly evolving, giving business owners the ability to choose how and where they manage their finances. Whether at home or on-the-go, business owners are now able to execute administrative functions such as instantly viewing bank balances, tracking expenses, sending invoices ,supervising the work flow of branches through Reach online VAT Accounting Software thus making business more viable.There are many advantages of using an online accounting system including:
Reach online VAT accounting system can help you manage your business by improving your recordkeeping processes and give you the tools you need to analyze business results and make sound financial decisions.
- Online Access 24/7
- Cost
- User Friendly
- Technical Support
- Efficiency
- Analysis –
- Security and Accuracy
- Inter Connectivity of Branches:
- Opportunities
- Scalability
Features Of Reach Online VAT Accounting Software
Accounting Management
Purchase Management
Customer Management
Vendor Management
Automatic Reminders
Barcoding
Receivable Management
Vat Management
Branch Management
User Management
Mobile App
Invoicing
Approvals Management
Sales Team Management
Asset Management
Job Cards
Forex Management
Point Of Sale
Gift And Discount Vouchers
Project Management
Production Planning
Quality Control
Batch Tracking
Order Management
Bank Reconciliation
Inventory Management
Sub Contractor Management
Consignment Sales
Quotation
E-Commerce Management
Purchase Order
Multilingual
Technology Used
Reach has implemented the latest technology Cloud Computing to handle day to day business transactions just a click away from your browser from any part of the world.
Cloud accounting software that is easily accessed online and an attractive option for large or small business owners. Companies that use cloud accounting require less initial server infrastructure to store data and don’t require IT staff to maintain or update the cloud accounting system. Get the spectacular benefits of cloud accounting as you seamlessly integrate with the powerhouse
Benefits of cloud accounting:
- Streamline billing and ordering processes
- Capture and store financial data to most accurately model and report on your finances
- Use Chatter to enable more effective collaboration across your organization
- Greater return on investment and real-time, multi-dimensional financial analysis
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