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Nov 29, 2024 .
Why VAT Consultation is Important for a Business in UAE
What is VAT?
Value Added Tax (VAT) is an indirect tax applied to the consumption of goods and services. Collected at each stage of the supply chain, VAT ensures that the end-consumer bears its cost while businesses act as intermediaries, collecting and remitting the tax to the government.
Introduced in the UAE on 1 January 2018 at a rate of 5%, VAT is a vital source of revenue for the UAE, enabling the government to enhance public services and reduce its dependence on oil and hydrocarbons.
Which Businesses Pay VAT?
- Mandatory Registration: Businesses with taxable supplies and imports exceeding AED 375,000 per annum must register for VAT.
- Voluntary Registration: Optional for businesses with taxable supplies and imports exceeding AED 187,500 per annum.
VAT applies to businesses operating in the UAE mainland and free zones. However, goods transferred between designated zones (specific free zones defined by the UAE Cabinet) are tax-free.
Foreign businesses may also recover the VAT they incur while operating in or visiting the UAE.
How is VAT Collected?
VAT-registered businesses:
- Charge 5% VAT on taxable goods and services.
- Submit the collected VAT to the Federal Tax Authority (FTA).
- Claim refunds on the VAT paid to their suppliers.
Consumers ultimately bear the VAT cost, reflected in a slight increase in prices.
Filing VAT Returns
VAT-registered businesses must submit periodic VAT returns to the FTA, detailing their VAT liability, which is calculated as:
VAT Liability = Output Tax – Input Tax
Output Tax: VAT collected on sales.
Input Tax: VAT paid on purchases.
If Output Tax > Input Tax, the business pays the difference to the FTA.
If Input Tax > Output Tax, the business can claim a refund or offset the excess in future payments.
Deadlines for Filing VAT Returns
Businesses must file their VAT returns within 28 days of the end of each tax period:
- Quarterly: For businesses with an annual turnover below AED 150 million.
- Monthly: For businesses with an annual turnover of AED 150 million or more.
The Federal Tax Authority (FTA) reserves the right to assign a different tax period for specific businesses. Late filing can result in penalties under Cabinet Resolution No. 40 of 2017.
Why VAT Consultation Matters
Navigating VAT regulations and compliance can be complex. A professional VAT consultation ensures:
- Proper registration and documentation.
- Accurate filing of returns to avoid penalties.
- Optimization of input VAT recovery to improve cash flow.
- Adherence to UAE’s tax laws, building credibility with stakeholders.
We can assist you with all the formalities of VAT in UAE.
Let us handle the complexities of VAT compliance so you can focus on growing your business!
