FAQ OVERVIEW
Frequently Asked Questions
If you have any concerns please read this collection of frequently asked questions before contacting us. If you are still unclear about something feel free to contact.
Value Added Tax (or VAT) is an indirect tax applied on the consumption of most goods and services. It is also referred to as a type of general consumption tax. It is imposed on a product at each stage of production before the final sale. At each stage in the supply chain, businesses collect VAT on behalf of the government. Because it is added to the customer’s purchase price, ultimately it is the end consumer who pays VAT.
One of the main reasons for implementing VAT in UAE is to generate more revenue for the government. Using this revenue, the Government plans to offer various types of public services, including medical facilities, good roads, transportation facilities, public schools, parks, waste control, and more. VAT will also provide a new source of non-oil revenue for the Emirates.
Each person’s cost of living is affected by their lifestyle, so the impact of VAT will vary between individuals. There will probably be a slight increase in overall cost of living, but a person who spends mostly on exempt and zero-rated things will not see much increase.
The Federal Tax Authority has decided to introduce VAT in the UAE by 01 January 2018.
The short answer is yes. The travel and tourism industry is an important part of the UAE’s national economy.
Not all parts of the industry will be subject to the same VAT rates, though. The travel and tourism sector can be broken down into several components, such as luxury, medical, education, meetings, exhibitions, healthcare, education, events and other special interest groups. It is expected that healthcare and education will be zero-rated supplies in the UAE. Meetings, conferences, events, and trade expos, which account for a significant portion the revenue-generating drive of the tourism sector, will be taxable.
Currently, the UAE is doing a feasibility study of a Tourist Refund Scheme where visitors and tourists will be able to claim a refund on VAT paid on certain goods and services purchased in the UAE.
Output VAT is the value added tax that you calculate and charge on your own sales of goods and services if you are registered for VAT. Output VAT must be charged on sales both to other businesses and to ordinary consumers. Input VAT is the value added tax added to the price you pay for eligible goods or services. If you are registered for VAT, you can deduct the amount of VAT paid from your settlement with the tax authorities.
A business should register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of 375,000 AED.
A business can also choose to register for VAT voluntarily under two conditions:
- If the supplies and imports of the business are less than the mandatory registration threshold, but greater than the voluntary registration threshold of AED 187,500.
- If expenses of the business exceed the voluntary registration threshold. This opportunity is designed to enable start-up businesses with no turnover to register for VAT.
The proposed standard rate of VAT in the UAE will be up to 5%. Certain supplies of goods and services may be either exempt (meaning VAT will not be applicable at all), or zero-rated (meaning 0% VAT will be applied to goods and services). The standard rate will be applied to all goods and services that do not fall under an exempt or zero-rated goods and services category.
- Exports of goods and services to outside the GCC.
- International and intra-GCC transport
- Supplies for certain sea, air, and land means of transportation (such as aircraft and ships).
- Supply of precious metals for investment (gold, silver, and platinum)
- Newly constructed residential properties that are supplied for the first time within three years of their construction.
- Supply of certain educational services and relevant goods and services.
- Supply of certain healthcare services and associated goods and services.
- Certain eatables (a standard list will be ratified across the GCC by the Financial and Economic Cooperation Committee)
- The oil sector and the oil and gas derivatives sector (at the discretion of each member state)
- The supply of certain financial services
- Sale of bare land
- Lease or sale of residential property
- Local transport
No, the head office and branches are considered to be a single taxable entity under VAT, provided that they are part of the same legal entity. This also applies for two branches with different commercial registrations.
Due to incorrect documents for VAT registration, many taxpayers haven’t yet received their TRN. In order to compensate for this, the FTA has provided provisional TRNs which will act as a temporary TRN until the taxpayer gets their permanent TRN. Businesses that have registered before Dec 4th, 2017 should have already gotten their provisional TRN.
Yes, you can. Businesses registering for VAT will not face any registration penalty until April 30th 2018, but they are required to settle all the taxes due from January 1st 2018. Earlier, the deadline for VAT registration was December 4th 2017, which has been extended by the FTA to April 30th 2018. If your VAT registration fails due to incorrect documentation, you will be provided with a provisional TRN which will act as your TRN until you get a permanent one.
No, businesses registering for VAT will not face any registration penalty until April 30th 2018, but they are required to settle all the taxes due from January 1st 2018. Earlier, the deadline for VAT registration was December 4th 2017, which has been extended by the FTA to April 30th 2018.
Yes, you can use your provisional TRN until you get your permanent TRN from the FTA.
The FTA will issue a temporary TRN number called the Provisional TRN to taxpayers who don’t get their TRN due to failure of their VAT registration (usually occurs due to submission of incorrect documents). Taxpayers can use this Provisional TRN for transactions until their registration is completed successfully and they get their TRN.
Yes, goods imported into the UAE will be subject to 5% VAT starting on January 1st, 2018.
Note: Import of precious metals is taxed at 0%. At each stage in the supply chain, businesses collect VAT on behalf of the government. Because it is added to the customer’s purchase price, ultimately it is the end consumer who pays VAT.
All the goods and services imported from abroad are taxed under the VAT regime.
- If the recipient in UAE is registered under the VAT regime, they would have to pay VAT under the reverse-charge mechanism.
- If the recipient in UAE is not registered under the VAT regime, the VAT due should be paid on the import from outside the GCC. In this case, the tax should be paid before the goods are delivered to the recipient.
The importer is due to pay VAT as soon as they submit the tax return. The returns must be filed within 28 days after the end of the tax period in which the import happened.
VAT is calculated on the value of imported goods as follows: For low-value shipments (less than or equal to custom declared value of AED 1000):
- Customs value, Insurance, Freight (CIF) x 5%
For high-value consignments (customs declared value exceeds AED 1000):
- (Freight (CIF)+ Excise tax + Customs Duty + Customs Fees) x 5%
No, VAT is not applicable in this case.
No, VAT is not applicable in this case.
No, VAT is not applicable in this case.
No, VAT is not applicable in this case.
Yes, you can recover the input tax paid on imports if you’re registered with the FTA and have a Tax Registration Number (TRN).
If your firm is located in a free zone that is not listed as a designated zone, then the imports will be taxed based on their value.
Export of goods and services outside the GCC and international transportation are zero rated. They must be reported in tax returns, but no VAT will apply.
If an export falls under any of the following conditions, it will be taxed:
- Export of goods to a non-GCC member state
- Export of goods to recipients in a GCC VAT implementing state
- Export of goods requiring installation/assembly/completion outside UAE
Yes, the VAT treatment differs based on the recipient’s VAT registration status.
- If you export goods to a VAT-registered recipient, the export will be taxed at 0%.
- If you export goods to a non-registered recipient, and if the value of the goods supplied by you to the destination state is below the mandatory registration threshold in the destination state, then the supply will be taxed at 5%.
- If you export goods to a non-registered recipient, and if the value of the goods sent by you to the destination state exceeds the mandatory registration threshold in the destination state, then the supply will be treated as domestic supply. In this case, VAT will be applicable according to the VAT laws of the destination state and you will have to register for VAT in the destination state in this case.
Yes, you can recover input tax on supplies used to make exports since they are taxable supplies. If you are involved in local supply within the UAE, you can recover input tax to reduce your tax liability. Also, if you’re involved only in export of goods, then you can get a refund for the VAT paid on the inputs.
In order to prove that you export is genuine, you need all of the following documents:
- Export documents issued by the local Emirate Customs Department regarding goods leaving the state
- Airway bill
- Bill of landing
- Consignment note
- Certificate of shipment
The above documents should contain the following information:
- The name of the supplier
- The name of the consignor
- A description of the goods
- The value of the goods
- The export destination
- The mode of transport and route that the export will take
Supply refers to goods or services that are exchanged for consideration (payment). Supply occurs when there’s a transaction between two people and at least one of them is a registered taxpayer. Supply includes buying, selling and stock transfers, even if there is no exchange of money.
- Taxable supply: When a supply takes place within the UAE, it falls within the scope of the UAE VAT, and will be considered taxable supply.
- Out-of-scope supply: When a supply takes place outside the UAE, it is outside the scope of the UAE VAT.
Yes, the Federal Tax Authority (FTA) has issued guidelines to charge 5% VAT on sale or purchase of pre-owned goods such as vehicles and furnitures. However, the amount on which VAT to be levied depends on when the item was purchased.
- If the item was purchased before VAT was implemented (January 1st, 2018) and is sold anytime after that, the VAT needs to be applied on the total selling price.
- If an item was purchased and sold after VAT was implemented, then VAT needs to be applied on the profit margin. The VAT will be levied on the profit margin, since the seller of the pre-owned goods would have already been taxed at the time of purchase.
- Pre-owned goods imported into UAE doesn’t qualify for this scheme. Import of pre-owned goods are always subject to VAT on the total price.
These activities and payments are out of the scope of VAT.
These supplies are out of the scope of VAT.
Secondhand goods (including cars sold by retailers), antiques, and collections are taxed at 5% of the profit margin.
Yes, online shopping is taxed at 5%.
VAT is calculated on the discounted price of the product. For example, if the price of an item is 110 AED and the seller gives a discount of 10 AED, then the VAT on the product is 5% of 100 AED. The total cost of the product would be 120 AED (100 AED purchase price + 20 AED of VAT).
Loans are not subject to VAT under UAE, but the processing charges are subject to 5% VAT.
The place of supply is a component of supply that determines where a transaction has occurred for VAT purposes.