The year 2018 has been seen by the residents and business owners as the year of value-added tax (VAT). Things have quite changed since the implementation of VAT in UAE.
This decision of the rules of the United Arab Emirates (UAE) for them not to rely on oil revenue that much is a big step. Doing this can cause positive things to the economy of the UAE as VAT revenue is expected to bring in a huge amount of money. Because of this, there will be more budget in improving the infrastructures, public needs, and others.
There is an impact in every change that is chosen to be applied. Even though it’s been months since its implementation, some companies still haven’t grasped how they can handle VAT in the best way possible, and there are still questions that roam around like VAT on oil and gas in UAE, etc. There are also things in the VAT laws that businesses should be compliant with unless they want to face huge fines. However, there are still other things that make VAT to have a big impact on businesses in the country.
VAT Impact on Businesses
The main impact of VAT in the country is that the responsibility that it demands from businesses. The following things are what VAT-registered businesses are liable for:
VAT Registration
This was mandated last year for businesses to comply. All companies that have taxable supplies that amount to and exceed AED 375,000. Other firms are also encouraged to register if their taxable supplies exceed AED 187,500.
Since some businesses didn’t get to register on time within the timeframe that was set by the Federal Tax Authority (FTA) last year, they have extended it until the 30th of April 2018 this year.
Ensuring that the Proper VAT Percentage is Applied
Most products and services are now charged with 5% of VAT (like VAT on UAE real estate). There are only a number of products and services that are not subject to this but either subject to zero rate or they are entirely exempted. The businesses are also expected to have prices on their products to ensure that they are either inclusive or exclusive of VAT. Receipts are also supposed to have VAT recorded on them.
Understanding Zero and Exempt Rates
- Zero rate
There are 14 zero-rated products and services according to Federal Decree Law No. 8 of 2018. These are the goods and services exported outside the GCC, medical equipment, commercial airlines, buses, and trains, education, healthcare, etc.
- Exempt rate
There are four exempted items that include bare land, local public transport services, residential buildings, and some financial services.
It should be noted that the difference between the two is that VAT spent on inputs can be reclaimed by businesses with zero-rated goods or services. On the other hand, there is no need to register for VAT for businesses that offer exempted goods or services because VAT spent on inputs can’t be reclaimed anyway. For more information regarding zero-rated VAT, Farhat & Co. can give you the information you need.
