VAT

1- What is VAT?

VAT or Value added tax is one of indirect tax, which is applied to consumer spending. VAT is collected by registered VAT vendors on their supplies of goods and services. Registered vendor perform the role of tax collector on behalf of a government, so eventually VAT cost is bear by the end consumer.

Vendor/Business not only pays the VAT to the government but also can recover the VAT which the vendor/business paid on their purchases. This small illustration will help you how it works. 

Product    Sales    5% VAT   

Product A    100    5   

Product B    500    25   

Product C    400    20   

Total VAT Received on Sales            50

           

Supplier    Purchases        

Material A    60    3   

Material B    20    1   

Material C    20    1   

Total VAT Paid on Purchases            -5

Net Vat Payable                                45

2- VAT Rate in UAE

As announced by MOF (Ministry of finance) VAT likely to be imposed on a consumer from 1st of JAN 2018, Rate expected to be as low as 5%.

3- VAT charged on what product and services?

On a limited number of goods and services relief will be granted but on most of the goods and service transactions, VAT will be charged.

4- Who should register for VAT?

If a business or vendor supplies of good and service meet the annual turnover limit set by the government and also trade in those supplies which come under the scope of VAT. 

-Under the first phase companies whose annual turnover is between the band of 1.87 million   to 3.75 million Dirham have option either to register for VAT or not. 
-Companies whose annual turnover exceed 3.75 million limit are obliged to register for VAT     online system. 

5- Exemptions

Goods and services classified by the government on which No VAT will be charged are exempt supplies, Such as Camel milk producer (EICMP) in Dubai received VAT exemption certificate on its milk products.

The benefit of getting the exemption to EICMP will able to sell product cheap to GCC countries and other regions consumer. 

6- Responsibilities of VAT Registered entity

It's the responsibility of VAT registered companies to keep the financial record up-to-date and free from error. The financial record will be checked as evidence that company fall in the minimum annual turnover needs to register for the VAT. Those companies who doesn’t fall in minimum annual turnover criteria should also keep their record ready for any occasion for government to establish either they fall in VAT registration criteria.

 VAT Registered Companies:

-    Generally Charge VAT on it sales of goods and services.

-    Can recover VAT paid on expenses raised for business purpose and for the purchase of goods and services.

It's the responsibility of VAT registered entity to submit the detail of VAT charges received through online VAT return submission. If entity charged more than paid it has to pay the difference to the government, if vice versa then can recover VAT from the government.

7- VAT Registration Commencement

Online VAT registration will start from October 2017 as 3 months before the actual registration date (1 January 2018). Companies can register for VAT using the online E-service.

8- Default Period for VAT Return

Once business registered for VAT it has to submit its VAT return on regular basis. The default period for VAT return will be 3 months for most of the companies.

9- Penalty for Late filing of VAT return

The government is under the process of deciding the fee and penalty for Late VAT return submission and the penalty for unpaid VAT. It is highly recommended to everyone to submit VAT return and VAT liability on time and abide by the VAT laws defined by the government.