UAE VAT | Effective Date | Rate | Effects
The beginning of a new era in the UAE with the introduction of a Value Added Tax (VAT) regime, a new chapter in the history of the UAE economy, the general public will bear the burden of budgetary expenditure, starting today (January 1, 2018).
Federal Tax Authority UAE expected to collect Dh 12 billion in the first year which contributes approx 1.6 % of the GDP.
VAT rate is uniform, 5 % on taxable supplies, however, a number of goods and services are either zero rated or in exempt category in the UAE VAT regime, It expected to reduce the overall inflationary impact. However, it is clear that UAE VAT will reduce the purchasing power of UAE residents in proportion to tax paid on consumption.VAT will provide the UAE with a new source of income which will be continued to be utilized to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Effect of UAE VAT on Individuals
UAE VAT will apply to the majority of transactions in goods and services, as a general consumption tax, very few number of exemptions may be granted. the cost of living is likely to increase slightly As the result, however, this will vary depending on an individual’s lifestyle and consumer behavior. If a consumer spends mainly on those things which are relieved from the VAT, he is unlikely to see any significant increase.
The government will include rules that require businesses to be clear about how much UAE VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.
Effect of UAE VAT on Businesses
Businesses are now responsible for carefully maintaining the documents of their business income, costs, and associated VAT charges.A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT
Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case the ministry needs to establish whether they should be registered.
Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
Effect of UAE VAT on Tourists
Since tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale. however, Federal Tax Authority UAE has set the VAT rate deliberately low so that VAT is a limited burden on all consumers.
Effect of UAE VAT on Real Estate will depend on whether it is a commercial or residential property.
Sales or leases Supplies of commercial properties will be taxable at the standard VAT rate (i.e 5%).
but supplies of residential properties will generally be exempt from the VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on the construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.
Zero Rated Supplies under UAE VAT
- Exports of goods and services to outside the GCC;
- International transportation, and related supplies;
- Supplies of certain sea, air, and land means of transportation (such as aircrafts and ships);
- Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
- Newly constructed residential properties, that are supplied for the first time within 3 years of their construction
- Supply of certain education services, and supply of relevant goods and services;
- Supply of certain Healthcare services, and supply of relevant goods and services.
Exempted Supplies under UAE VAT
- The supply of some financial services (clarified in VAT legislation);
- Residential properties;
- Bare land; and
- Local passenger transport
Effect of UAE VAT on Imports
All the goods and services purchased from abroad will attract VAT,
In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.
In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.
Credits: FTA , Government of UAE