Why VAT Consultation is Important for a Business in UAE
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.
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.