The Federal Tax Authority published some Executive Regulations on VAT in the UAE. It introduced a 5% VAT on imports and supply of goods and services in the UAE, which was effective from 1st January 2018.
The regulations highlight the main details on the application of the VAT Law, including VAT invoice requirements, registration requirements, and exempted goods and services (0% VAT rate).
Application of VAT
Here is how VAT is applied to different goods and services.
- The supply of Gas, Electricity, and Water.
- Transfer and licensing of intangible rights, specifically intellectual property rights, like inventor rights, trademarks, and copyrights.
- Some industries are zero-rates for the purpose of tax, including:
- Education services, except higher education services that are mainly foreign-owned.
- Healthcare services.
- Goods exported to foreign businesses that are VAT registered.
- Goods and services that are supplied to certain customers who don’t have UAE corporate presence.
Some sectors are exempted from tax, including:
- Financial services, such as exchange of currency and loans.
- Islamic finance products.
- Residential leases that are for more than six months.
- Local passenger transport.
- Businesses who have taxable supplies worth more than AED 375,000 per year will be required to register, and must do so within 30 days of being notified of the requirement, or else they will face penalties under the VAT Law.
- Businesses having taxable supplies of more than AED 187,500 per year are allowed to register voluntarily.
- Businesses that only provide zero-rated supplies may seek a VAT registration exemption.
Deregistration is allowed under two conditions. First, if a company does not intend to produce any taxable goods or services over the next twelve months. Second, if the value of the goods and services lies below the amount allowed for voluntary registration.
However, it should be noted that the cancellation of a business’s tax registration does not absolve it of any liabilities or obligations that accrued while it was tax registered.
Payment of VAT, Place of Supply, and Invoicing
The VAT should be paid upon the earlier of the invoice date, the delivery of the goods or services, or the payment date.
When it comes to invoices, prices must include VAT except for when the supply of goods in services is for the purpose of exports or the customer is already a tax registrant. The invoices should include:
- The name and address of the supplier;
- Unique VAT invoice number;
- Date of the invoice and supply;
- Description of goods and services;
- Unit prices and quantities;
- Any discount offered, and
- The gross amount due.
Parties with more than 50% voting rights in the other party or with common economic ownerships, shareholders, and economic interests can together form a tax group. They can appoint one member as the representative, who will be responsible for filing consolidated tax returns.
To avoid double taxation, businesses will be able to reclaim input VAT on exempt products and services, as well as VAT paid in another GCC Implementing State. However, some goods and services, such as entertainment services for non-workers, personal use automobiles, and other commodities for employees, will be non-recoverable.
Companies operating in the UAE may benefit from tax groups because tax savings are available on goods and services supplied by one group member to another. Furthermore, the representative member is deemed responsible for any input or output tax, supply, or imports related to one member of a tax group.
If you are looking for some help managing your finances and a better understanding of UAE Vat Executive Regulations, get in touch with Harbins now. We are one of the best finance and tax consultancy firms in the UAE and aim to provide the utmost satisfaction to each client. So, give us a call and get your accounts sorted with our help!