Frequently Asked Questions
1.What is tax?
Tax is a compulsory contribution by individuals and corporate to the national Exchequer by means of which government authority finances their expenditure for public services.
There are mainly two types of taxes:
A direct tax – Imposed by the government (such as income tax, corporate tax).
Indirect tax – collected by an intermediary (e.g. a retail or wholesale store etc.) from the person that ultimately pays the tax (e.g., VAT, Sales Tax, GST, etc.) and paid to the government.
An indirect tax – a tax paid to the government by one entity in the supply chain, but it is passed on to the consumer as part of the price of a good or service. The consumer is ultimately paying the tax (e.g., VAT, Sales Tax, GST, etc.) by paying more for the product.
2.What is VAT Tax?
Value Added Tax (VAT) is an indirect tax. It is a type of general consumption tax that is collected incrementally, based on the value added, at each stage of production or distribution/sales. It is also known as goods and services tax (GST) in some countries.
VAT VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT all over the world. It includes all the 28 countries who are members of the European Union (EU) apart from Britain, Canada, New Zealand, Australia, Singapore, and Malaysia. USA does not have VAT.
VAT is charged at every step of the supply chain. The ultimate consumer usually incur VAT costs.
Enterprises pay taxes to the government. That is, the amount of tax paid by the customer minus the tax paid to the supplier.
3.What is the difference between VAT and Sales Tax?
For the general public, there may not be any significant difference between VAT and sales tax. But there are some key differences. In many countries, the sales tax only deals with the transaction of goods. The difference with VAT is that it is imposed on goods and services on an incremental basis and is charged throughout the supply chain, including final sales. Value-added tax requires strict accounting practices and business systems, sales tax does not need to be so strict. Compared with the sales tax, tax evasion is much less likely in the case of VAT.
4.Which tax system is preferred by Governments in different countries? VAT or Sales Tax? And why?
Many countries prefer VAT over sales taxes for a variety of reasons. One of the main reasons is that VAT is considered as a more sophisticated approach to taxation in addition businessmen acts as tax collectors on behalf of the government and thereby generates good revenue for the government. Further VAT significantly reduces tax evasion.
5.What will be the rates of VAT in UAE?
The proposed rate of VAT in the UAE will be up to 5%.
6.What will be the mechanism of Government to collect the VAT from each customer?
The significance is that each VAT registered business entity becomes automatically the agent of the government to collect from customers and pay it back to the Government Authority. VAT is charged at each stage of the ‘supply chain’. Ultimate consumers generally bear the VAT cost. The Businesses act as tax collector for the government authorities. The difference between the VAT charged on customers and the VAT paid to suppliers will be either paid to or reclaimed from the government.
7.Why VAT is going to be implemented in UAE?
One of the main objectives of the UAE Federal Government as well as the respective Emirate Governments for introducing VAT is to generate more revenue for providing enhanced support to the citizens and residents by offering various types of public services – including medical facilities like hospitals, good roads and transportation facilities like metro services, public schools, parks, waste control etc. The expenses of these services are borne by the government from its public funds which are earmarked in the budgets. VAT will provide a new source of non oil revenue for the Emirates which will increase the revenue towards the Government exchequer. The will help the Government for providing better and high-quality public services in the future thereby enhancing the living standard of the public. VAT will also result in the increase in the government non oil revenue which is estimated to be around 2% of the GDP.
8.When will VAT be implemented in UAE?
The Federal Government has tentatively decided to introduce VAT in the UAE by 01 January 2018.
9.Will UAE VAT cover all products and services?
VAT, as a general consumption tax, will apply to the majority of transactions in goods and services.
10.Whether the cost of living will increase in UAE?
The hike in price depends upon the sector of the product and services which are taken into account for consideration. The burden of VAT or any other form of taxation needs to be borne by someone – either the business or consumers or both. The market will decide whether the consumer will bear the cost or the trader/manufacturer. Naturally, in the case of sellers’ market, the traders will impose the tax burden to the end consumers and to that extent the cost of living of the individuals is likely to increase. But, in the case of buyers’ market, the cost of VAT will automatically borne by the trader/manufacturer to some extent. They cannot pass it to the consumers fully.
In short, there is a likelihood that the cost of living may go up in the UAE. But this will vary depending upon the individual’s spending pattern and lifestyle.
11.When can business entities start registering for VAT?
As per information available from the official site of the Ministry of Finance, UAE, registration for VAT will be opened to the business entities in the third quarter of the year 2017. Business entities will have the option to use online registration service.
12.When are the VAT returns to be filed?
Enterprises can view the VAT declaration time according to the official website of the United Arab Emirates Tax Office (FTA).
13.Whether UAE tourists also have to pay VAT here?
Every customer, irrespective of the fact whether he is a resident or a tourist, has to pay UAE VAT if he is consuming the VAT applicable goods or services.
14.What are the responsibilities of business entities once VAT is implemented?
All business entities in UAE:
- Registered for UAE VAT or not should maintain proper records of their business transactions and ensure that all financial records are accurate and up to date.
- Should register under UAE VAT if they are coming under eligibility criteria based on turnover.
- All UAE VAT registered business entities should charge VAT on taxable goods or services they supply.
- Should maintain correct and accurate business records for government scrutiny to ensure that that business entities adhere to the mandatory requirement stipulated by the UAE VAT Law.
- All VAT registered business entities must report the amount of VAT they collected and the amount they paid to the government on a regular basis. The Tax authority will open an online portal for submitting this record on a periodic basis (called VAT return)
If VAT charged on customers are more than the amount charged by the supplier and service providers, then the excess amount collected has to be paid to the VAT authority. Similarly, if the amount of VAT on the purchases and service providers are more than the amount charged on customers, the refund can be claimed for the difference.
15.Whether business entities have to prepare anything in advance for VAT? If so what are those?
Every business unit in the UAE should get prepared well in advance before the due date of VAT implementation:
16.Whether Income Tax will also come into effect in UAE?
As per the information available from media, the UAE government is not considering of introducing personal income tax in the country.
17.What will be impact on UAE economy once VAT is implemented?
- VAT implementation will strengthen UAE’s economy. It is expected to contribute around 2% of the GDP of the country in the first year of implementation.
- This is a bold move by the country's authorities and will lead to a paradigm shift in the country's income stream, from oil revenues to non-oil revenues.
- It will be additional revenue for the government to meet its future social service requirements.
- Inflation in the country may go marginally up.
18.What are the VAT exempted items in UAE?
From the information, available from the ministry of finance, bare land, local transport, sale of residential property (second sales onwards), residential lease rent etc. are exempted from VAT in the UAE.
19.Whether UAE VAT is applicable in the service sector?
Yes, it will be applicable in service sectors as well.
20.Is VAT applicable in Export?
In the case of exports, VAT will be zero rated.
21.Is VAT applicable for the construction industry?
VAT is applicable to the Construction industry in the same way as they are applicable to the other industries.
22.How to take refund from VAT?
Registered units that qualify for VAT refund (input VAT exceeds VAT) VAT returns can be submitted to government departments through our company.
23.Who is a Tax Agent in the UAE?
The UAE's tax agent is a person registered with the Tax Agency Registry of the Authority. To that end, he deserved permission from the competent authorities of the Ministry of Economy and the Emirates. The taxpayer may designate a tax agent in the UAE so that such tax agent will act on behalf of the taxpayer with the federal tax authority for all his tax matters.