1. General Definition
Value Added Tax (VAT) is an indirect tax imposed on the import and supply of goods and services in the United Arab Emirates. It is calculated at a rate of 5% on most supplies.
2. Scope of Application
VAT is imposed on:
- Taxable supplies within the country.
- Deemed supplies.
- Import of taxable goods and services.
VAT is not imposed on exempt or zero-rated supplies.
3. VAT Rates
- Standard Rate: 5%.
- Zero Rate: Applied to specific supplies such as:
– Exports
– International transportation
– Education and healthcare under certain conditions
4. VAT Registration
- Mandatory Registration: Required if the value of taxable supplies exceeds AED 375,000 annually.
- Voluntary Registration: Available if taxable supplies or expenses exceed AED 187,500.
- Non-Resident Registration: Non-residents must register if they make taxable supplies without the UAE recipient bearing the tax.
5. Supply
- Supply of Goods: Transfer of ownership of goods from one person to another for consideration.
- Supply of Services: Any non-goods supply provided for consideration.
- Deemed Supply: Situations with no actual consideration, such as using goods for personal purposes or upon deregistration.
6. Exemptions
Some supplies are fully exempt from VAT, such as:
– Financial services
– Residential property rentals
– Sale of residential properties after three years of use
7. Taxable Value
VAT is calculated on the supply value, which includes all monetary and non-monetary consideration received by the supplier.
For related parties, the taxable value is based on the fair market value.
8. Tax Invoices
A tax invoice must be issued for every taxable supply.
The invoice must include:
– Names of the supplier and recipient
– Tax Registration Number (TRN)
– Description of the supply
– VAT amount
9. Tax Periods and Reporting
Tax periods may be monthly or quarterly.
A tax return must be filed within 28 days from the end of each tax period.
10. Refunds and Recovery
Registrants may deduct input VAT related to taxable supplies.
VAT paid on expenses may be refundable in special cases such as tourists or diplomats.
