FAQs

WHAT IS TAX?

Tax is a compulsory contribution by individuals and corporate to government based on predefined rules.

There are mainly two types of taxes :

A direct

Indirect tax

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 usually implemented as a destination-based tax. It is also known as goods and services tax (GST) in some countries.

WHAT IS THE DIFFERENCE BETWEEN VAT AND SALES TAX?

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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.

WHAT WILL BE THE RATES OF VAT IN UAE?

The proposed rate of VAT in the UAE will be up to 5%.

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.

WHY VAT IS GOING TO BE IMPLEMENTED IN UAE?

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.

WHEN WILL VAT BE IMPLEMENTED IN UAE?

The Federal Government has tentatively decided to introduce VAT in the UAE by 01 January 2018

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. Some specific items like the sale of bare land, local transport etc. are exempted from VAT.

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.

WHEN THE VAT IS RETURNS TO BE FILED?

As per the official site of Ministry of Finance, UAE, majority of the business entities will be required to file the VAT returns on quarterly basis, within one month/28 days from the end of the respective quarter.

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:
Check whether they come under the mandatory VATregistration category or not.

For complying with the VATrequirements, every organization has to make necessary changes to their existing financial management and accounting system, accounting software, and sometimes even to their core operation style.

Human resource training will be necessary to update and upgrade the staff to equip themselves to the new UAE VAT regulatory requirements.

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.

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.

It is a bold move on the part of the authorities of the country and will bring about a paradigm shift in the revenue stream of the country i.e. from oil sourced revenue to non oil sourced revenue.

It will be additional revenue for the government to meet its future social service requirements. Inflation in the country may go marginally up.

WHAT IS THE VAT LIABILITY OF A REGISTERED BUSINESS ENTITY?

The total VAT amount charged by the business entity from its customers (output VAT) are to be reconciled with the total VAT amount paid/payable by it, to the suppliers on a periodical basis. The excess amount charged over the paid/payable amount is the VAT liability for the business entity and are to be paid to the government within stipulated time; one month from the end of the quarter.

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.

WHETHER UAE VAT IS APPLICABLE IN THE SERVICE SECTOR?

Yes, it will be applicable in service sectors as well.

IS VAT APPLICABLE IN EXPORT?

In the case of exports, VAT will be zero rated.

HOW TO TAKE REFUND FROM VAT?

The registered entities who are eligible to get VAT refund (When input VAT is more than output VAT) can submit the VAT returns to the authority by disclosing the same.

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