VAT Implementation in UAE

In today’s world, an individual or business entity is concerned a lot about tax payment. Often, we hear the term ‘VAT’, which is levied on our daily essentials. In simple terms, we can say that VAT is an indirect tax levied on the final consumer for the consumption of goods and services being opted by them. More than half of the countries have understood and implemented it at a very fast pace. United Arab Emirates (UAE) is one among them who have recently implemented the VAT process in its national arena. Let’s have a look at how the entire process evolved and is now implemented.

Introduction of VAT

The concept of Value Added Tax (VAT) evolved in the 20^th century and was enacted by many European countries by 1960s and 1970s. Moving ahead, the developing nations started adopting the procedure by the 1980s. It is a multi-purpose sales tax that gets paid at the point of purchase. We can illustrate the entire ‘value added’ concept in a simple equation:

Value Added = Value of Output – Value of Input

Today, more than 160 countries are registered under the tax, and the global average tax rate is 12%. VAT also serves as another means of revenue for an economy, and the global average revenue generation from VAT as a part of GDP constitutes 7.5%. Now let’s have a look at the Emirates acceptance of tax.

Introduction of VAT in UAE

The UAE is a part of the GCC countries. The GCC finance ministers confirmed a provision for GCC VAT Framework Agreement by Dec 2015. In Jan 2016, the UAE financial minister confirmed that the VAT framework will get implemented by 2018. The countries entered into an agreement to implement the VAT in its states with an aim to diversify the sources of revenue. GCC VAT implementation is based on a multi-jurisdictional single market regime and finally, the UAE VAT implementation took place on 1^st Jan 2018, with a rate of 5%. Most consumer goods and services like automobiles, fuel, jewellery, food & beverage, restaurants, entertainment, etc. are charged at this rate. Other categories like health, education, transport by sea or air, etc. are zero-rated; and still others like local passenger transport and bare land are exempt from VAT.

UAE Federal Tax Authority

The UAE Federal Tax Authority is a government entity that was established in the year 2016. The main aim behind establishing this entity was to collect and manage federal taxes, increase the UAE non-oil revenues, smoothen the accounting services in UAE, increase auditing companies in Dubai, and enhance its economic sustainability.

Chief Objectives

The main objectives of UAE Federal Tax Authority include:

1. Delivering a quality service in improvising the management at a global level
2. Maximizing the tax revenue within the scope of tax legislation
3. Operating efficiently by handling the taxpayer collection and maintain an interaction
4. Enhancing the UAE’s growth

Impact of VAT on UAE

Now, since VAT services have been implemented by business entities, there are various impacts on the business entities. Let’s have a look…

• New revenue stream to the UAE government
• The improved infrastructure of the nation
• Non-financial benefits like reducing the rate of civil fraud, corruption, waste, etc.
• Business efficiency gets multiplied
• Costs occurred by business entities gets distributed via sales channels
• Opens market for advisory firms specialized in VAT terms

Phases of VAT implementation

Dealing with VAT is a complex task. Organizing the VAT work-streams is extremely important that involves assessment, service design and implementation, technical analysis, change management, etc. VAT implementation includes a few phases that need to be met by an organization to carry out VAT services. These are:

Phase 1: VAT Impact Assessment

The revenue part is to be drafted and taken care of excluding any new operational cost to the business.

Phase 2: Planning and Implementation

VAT process design is initiated along with new supply chain structures, VAT training materials for the internal management, build IT projects to deliver tax-technical results.

Phase 3: Transition and Output Testing

Sample testing is done on the projects built, review it from VAT perspective and develop trial run-generated VAT report, highlight on the issues found.

Phase 4: Post-Implementation Assistance

Review and cross-check on the effectiveness of supply-chain management and sample transactions, highlight the potential areas in terms of VAT compliance.

VAT Filing Period for Business Firms

Every business needs to undergo a tax period in which the tax payable needs to be calculated and collected. The standard tax period is:

• For businesses with an annual turnover below AED 150 million – quarterly basis
• For businesses with an annual turnover above AED 150 million – monthly basis

*[For companies dealing in oil and gas products, the standard tax period is monthly, irrespective of the annual turnover.]

VAT 201 and Filing Procedure

The name for VAT Return Form is ‘VAT 201’.  This has been divided into different sections:

1. Taxable Person Details
2. VAT Return Period
3. VAT on sales and all other outputs
4. VAT on expenses and all other outputs
5. Net VAT Due
6. Additional reporting requirements
7. Declaration and Authorized Signatory

In order to access VAT 201, one needs to log in FTA E-services using their username and password. The non-filing or incorrect filing could in paying penalties ranging from AED 1,000-3,000.

If you are an entrepreneur and planning to start your business in any of the Emirates, it will be mandated for your business to opt for VAT Services. Wondering how to initiate? Well, here’s your solution…

JAXA

JAXA has been a business consultant helping business entities in dealing with their accounting and taxation services at a global level. We have helped business entities to frame and meet their VAT requirements.   Our business experts will help you in understanding the international vat structure, deal with the changes that occur due to VAT implementation and make them easier. Few of our VAT services are:

• VAT registration and VAT Group registration
• VAT compliance and control
• Filing and payment
• Data recording and management
• Accounting
• Supplier management
• Customer management

Thus, you have seen how important a role VAT plays when it comes to dealing with business firms. Avoidance or negligence in the implementation of VAT services could result in payment of a penalty of AED 20,000. So, don’t let your business fall into the penalty pit and avail the best benefits. To implement the VAT services in your business, do contact us today. We’d be happy to assist.

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Basic Requirements of VAT Registration in UAE

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VAT Return Filing in Dubai

VAT Consultancy Services in Dubai

VAT Rates for Different Industries in the UAE

All you need to know about VAT in UAE

VAT Penalties and Its Legal Actions