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What is Value Added Tax (VAT) in UAE? An In-Depth View

Value Added Tax (VAT), an indirect tax, is sometimes referred to as a general consumption tax. In countries where VAT is implemented, it is applied to the majority of goods and services that are bought and sold.

VAT is widely recognized as one of the most prevalent types of consumption tax worldwide. It has been adopted by over 150 countries, including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore, and Malaysia. In some countries, VAT is known as Goods and Services Tax (GST) or an equivalent term.

VAT is levied at each stage of the supply chain, meaning it is charged when goods or services are transferred from one entity to another. Although businesses act as intermediaries in collecting and accounting for the tax, it is ultimately the end consumers who bear the burden of VAT costs.

When a business collects VAT from customers, it pays that amount to the government. Simultaneously, the business may also be eligible for a refund from the government for the VAT it has paid to its suppliers. As a result, the tax receipts received by the government reflect the cumulative "value add" across the entire supply chain.

Who Oversees VAT In UAE?

The UAE's VAT is overseen by the Federal Tax Authority (FTA), which was established under Federal Law through Decree No. 13 of 2016. The FTA assumes responsibility for the management and collection of federal taxes, including fines, as well as the allocation of tax-generated revenues and implementation of tax-related procedures throughout the UAE.

In pursuit of economic diversification in the UAE, the FTA collaborates closely with the Ministry of Finance (MoF). Its primary focus is on increasing non-oil revenue streams to enhance the country's financial stability.

Additionally, the FTA offers guidance and support to businesses and consumers, ensuring their compliance with tax obligations and fostering a comprehensive understanding of taxation regulations within the country.

What Are VAT Exemptions In UAE?

In the UAE, there are specific categories of goods and services that are exempted from VAT. These exemptions typically include financial services, residential buildings, the supply of bare land, and local passenger transportation, among others.

However, for a supply to be considered exempt from VAT, it must meet the specific conditions outlined in the UAE VAT Act and Executive Regulations. These conditions must be fulfilled to qualify for the VAT exemption.

• Financial Services

The following exemptions apply to various financial services:

• Financial services provided without an explicit fee, discount, commission, rebate, or similar return are exempt from VAT.

• The issuance, allotment, or transfer of ownership of equity securities or debt securities is exempt from VAT.

• The provision or transfer of ownership of a life insurance contract, as well as the provision of reinsurance for such contracts, is also included in the list of VAT exemptions.

• Residential Buildings

Residential buildings are eligible for VAT exemption, provided that one of the following conditions is met:

• The lease duration is more than 6 months.

• The tenant of the property holds an ID card issued by the Emirates Identity Authority.

• Bare Land

In this context, 'bare land' refers to land that does not have complete buildings, partially completed buildings, or civil engineering works constructed upon it.

• Local Passenger Transport Services

The provision of local passenger transport services, involving transportation by land, water, or air from one place within the State to another place within the State, will be exempt from VAT.

This exemption applies to various means of transport, including motor vehicles such as taxis and buses, railway trains, trams, monorails, ferry boats, abras, or any other similar vessels or means of transport specifically designed or adapted for passenger transportation.

Frequently Asked Questions about VAT in UAE

• What is the purpose of VAT?

VAT, or Value Added Tax, is a consumption tax assessed on the value added to goods and services in the European Union. It applies to most goods and services bought and sold for use or consumption within the European Union.

• Do I need to pay VAT in the UAE?

Once you are registered for VAT in the UAE, you must file your VAT return and make the necessary VAT payments within 28 days after the end of each tax period.

• How is VAT calculated in the UAE?

Registered businesses are required to maintain accurate records of their revenue and VAT payments. Customers of these businesses pay VAT at a rate of 5% based on the invoice value.

• Who is responsible for paying VAT in the UAE?

VAT in the UAE is levied on tax-registered businesses for taxable supplies of goods or services at each stage of the supply chain. VAT-registered businesses collect the tax amount on behalf of the government, while consumers bear the VAT cost, resulting in a 5% increase in the price of taxable goods and services purchased in the UAE.

• Is VAT refundable in Dubai?

VAT refunds in Dubai are applicable only for goods that qualify under the Tourist Refund Scheme. The goods should not be fully or partially consumed within the UAE.

• How much can I get back from a VAT refund in Dubai?

Under the VAT Refund Scheme in Dubai and the UAE, you can claim 85% of the total VAT amount paid, minus a fee of AED 4.80 per Tax-Free Dubai Tag. The exact refund amount is calculated automatically throughout the VAT refund process.

• What are the benefits of VAT in the UAE?

VAT registration in the UAE can facilitate smoother business transactions, as organizations and suppliers prefer dealing with VAT-registered small and medium-sized enterprises (SMEs) and companies. By providing proper VAT invoices, your business is more likely to be trusted and preferred by established companies in various dealings.

For more information about Value Added Tax (Value Added Tax) in UAE, please refer to the UAE Govt Portal or the UAE Ministry of Finance website.