Compliance requirements under UAE VAT
VAT (Value Added Tax) is an indirect tax, which is imposed on most supplies of goods and services that are bought and sold. UAE is one of the Member States of the GCC. All GCC Countries have agreed to implement the VAT latest w.e.f. 1.1.2019. The Framework unanimously passed by all GCC Countries is on consumption based model. The UAE VAT Law confirms that VAT will be introduced across the UAE on 01 January 2018 at a rate of 5%. This is as expected and in accordance with the Unified Agreement for VAT across the GCC Region.
VAT Registration Threshold.
The registrations are currently open for all types of businesses that satisfy the threshold requirements (375000 AED).
The FTA is also allowing voluntarily registrations under VAT, for which the limit is Dh187, 500. All the businesses (small & startups) having an annual turnover more than this limit but less than the normal VAT registration threshold and dealing in taxable supplies and/or imports can apply for voluntary VAT registration.
As per the official report, businesses will be required to upload their annual financial statements or any other proof of their annual turnover while submitting their VAT applications. “Even if the last 12 months’ turnover is less than the mandatory threshold Dh375,000, but expected turnover within the next 30 days is more than Dh375,000, still the business has to register,”
At the time of registration for VAT, the businesses or individual will be assigned a unique 11 digit number which will serve as CST Number/ VAT Number/ TIN Number for the business.
Taxable person under GCC VAT Agreement?
Taxable Person means any person who is conducting an economic activity for the purpose of generating Income.
• Such person is registered or obliged to register for VAT as per the registration threshold in a member state.
• Taxable person can include businesses located outside the GCC territory.
• Taxable person can be any individual person conducting an economic activity.
TAX group/vat group
VAT also has a provision for group registration, in which multiple entities of the same business or multiple companies under the same management/control can apply for tax group registration, given that they have a valid proof of relationship between said entities. The management must choose a representative member (main company) in order to register as a VAT group.
Tax grouping is a long-term decision and hence needs to be properly evaluated by doing impact analysis. Tax grouping can be done for UAE companies only, so GCC and Non-GCC companies cannot be included in Tax grouping.
Entities within one VAT Group are treated as one entity for the UAE VAT purpose.
Supplies made between members of a VAT Group will not be considered as a transaction under UAE VAT. Further, one entity cannot be part of more than one VAT group.
Vat Rates: Exempt Supply
An exempt supply is a supply on which VAT is not charged and for which the related input VAT is not deductible.
For example: bare land, local transport, the sale of residential property (second sale onwards) lease of the residential property and certain financial services.
a zero-rated supply is a taxable supply on which VAT is charged at 0% and for which the related input VAT is deductible.
For example exports, healthcare, education, international transport of passengers and goods, the first sale of residential property, medicine, and medical equipment, investment in gold, silver and platinum, crude oil & natural gas etc.
Standard Rate Supply 5%
a taxable supply at the Standard Rate is a supply on which VAT is charged at 5% and for which the related input VAT is deductible. All items which are not coming under both exempted category, as well as zero-rated category, are coming under standard rated supplies.
Input VAT is the value added tax added to the price when goods are purchased or services are rendered. If the buyer is registered in the VAT Register, the buyer can deduct the amount of VAT paid from his/her settlement with the tax authorities.
Output VAT is the value added tax calculated and charged on the sales of goods and services.
§ The return will include only summary data of purchases and sales, Input & Output tax and which Emirate the sale has been done.
§ Returns will be quarterly and must be filed and tax paid within 28 days of quarter end.
All returns and tax payment will be fully electronic
A VAT Invoice is a type of document that must be generated and issued by only VAT registered the business. The invoice can be treated as a documentary evidence on the sale of goods and services in compliance with the law.
VAT invoices also needed by the business as a proof of evidence to support VAT credit claims
It is mandatory for every taxable person to maintain books of accounts under UAE VAT law. In addition to that the authority can ask for additional documents such as, annual accounts, general ledger, purchase day book, invoices issued, invoices received, credit notes, debit notes, VAT Ledger etc.
Under the UAE VAT law the books of accounts and records are to be maintained for five years. No action can be taken by Federal Tax Authority after 5 years but no limit in case fraud is found
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