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The UAE, along with Saudi Arabia, introduced the Value Added Tax on Jan. 1, 2018. Discussions with individuals in the UAE have highlighted a lack of understanding of the basic concepts and principles of value-added tax (VAT). The learning of any new adoption is supposed to be an important rule. Due to lack of understanding of the basic knowledge, the results lead to a counterfactual understanding of the more complex areas of VAT. This article aims to provide a brief and basic outline of some of the more founding rationale of the VAT meaning as well as to enter into brief discussions specific to certain overlooked areas of VAT.
What is Value-Added Tax (VAT)?
Value-Added Tax (VAT) is a tax added to the cost of a product or service and is levied for purposes of generating revenue for the government. This, in simple term refers to the sellers who collect the tax from their customers and pay it on to the state.
The state of being legally obliged and responsible to pay VAT, concerns anyone who sells goods, services, rents out goods, or is engaged in similar trading operations in the conduct of business.
Why do we have VAT in the Middle East?
The introduction of Value Added Tax is a significant modification for the individuals and the businesses in the Middle East. VAT has a vast ambit and businesses will need to consider the impact of it on all their transactions and the potential impact on prices and margins.
The main reason to VAT being introduced in the Middle East is to help governments deliver on long-standing plans for economic variegation away from oil, while still being able to deliver social and economic programs.
What is VAT registration certificate?
As stated by the Ministry of Finance of the UAE, the VAT registration certificate is a legally attested document issued for the government authorities, private sector companies and individuals to exempt them from Value Added Tax (VAT) in various countries around the world.
With the execution of VAT in the United Arab Emirates (UAE) on 1 January 2018, businesses are required to register and to abide with a number of VAT responsibilities: i.e. charging VAT, issuing tax invoices, filing periodical VAT returns and paying any VAT due to the tax authorities.
What are VAT exempt items in the UAE?
Exempt supplies are not taxable items for VAT intentions. VAT is not charged on exempt supplies and the supplier cannot retrieve any VAT on expenses incurred in making those exempt supplies. Exemptions will also be strictly applied as they are an elision to the normal regulation that VAT should be debited.
The tax has been applied at a standard rate of 5% to a reach of goods and services, but several essentials, such as residential rent, health care, and education are out of its purview, either zero-rated or exempted.
Examples of the UAE VAT exemptions include:
- Financial services remunerated by way of margin or interest
- Rental and sale of residential property (unless specific circumstances where the zero-rate is applicable in UAE)
- Supply of bare land
- Supply of local passenger transport