frequently asked questions
A business must register for VAT if their taxable supplies and imports exceed the prescribed mandatory registration threshold under respective VAT Laws.
Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the prescribed mandatory registration threshold, but exceed the voluntary registration threshold.
Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
All businesses will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.
VAT-registered businesses generally:
1. Must charge VAT on taxable goods or services they supply
2. May reclaim any VAT they’ve paid on business-related goods or services
3. Keep a range of business records which will allow the government to check that they have got things right
If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.
If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.
The place of supply will determine whether a supply is made within the respective domicile in which the entity is registered.
For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).
For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).
VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.
VAT will be charged at 0% in respect of the following main categories of supplies:
1. Exports of goods and services to outside the GCC;
2. International transportation, and related supplies;
3. Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
4. Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
5. Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
6. Supply of certain education services, and supply of relevant goods and services;
7. Supply of certain Healthcare services, and supply of relevant goods and services.
The following categories of supplies will be exempt from VAT:
1.The supply of some financial services (clarified in VAT legislation);
3.Bare land; and
4.Local passenger transport
Businesses that satisfy certain requirements covered under the Legislation (such as being resident and being related/associated parties) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool that would simplify accounting for VAT.
To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin.
No special rules are planned for small or medium sized enterprises. However, the respective tax authorities are providing through its website, materials and resources for these entities to assist them in their enquiries.
Special rules will be provided to deal with various situations that may arise in respect of supplies that span the introduction of VAT.
1.Where a payment is received in respect of a supply of goods before the introduction of VAT but the goods are actually delivered after the introduction of VAT, this means that VAT will have to be charged on such supplies. Likewise, special rules will apply with regards to supplies of services spanning the introduction of VAT.
2.Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT. There will, however, be special provisions to allow suppliers to charge VAT in situations where their recipient is able to recover their VAT but where there is no VAT clause.
Non-residents that make taxable supplies in the respective countries may be required to register for VAT unless there is any other resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.
VAT is due on the goods and services purchased from abroad. In case the recipient in the State is a registered person for VAT purposes, VAT would be due on that import using a reverse charge mechanism.
In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.
Noncompliance will lead to the imposition of penalties. Penalties may be caused by the following actions:
1. Failing to register for VAT if required;
2. Failing to submit a VAT return or settle a payment before the deadline;
3. Failing to retain the records required by the legislation; and
4. Tax evasion offenses caused by the intention to violate the terms of the tax legislation.
According to VAT legislation procedures, VAT-registered businesses are required to file VAT returns consistently to the authority on a quarterly or monthly basis. To simplify the process, VAT return filings can be done online through e-Services implemented by the government.
Taxpayers should keep a track of issued and received VAT invoices for a minimum of five years.
Fee-based financial services will be subject to VAT with the exception of margin-based products.
The proposed standard rate of VAT will be up to 5%. Certain supplies of goods and services may be either exempt (meaning VAT will not be applicable at all), or zero-rated (meaning 0% VAT will be applied to goods and services). The standard rate will be applied to all goods and services that do not fall under an exempt or zero-rated goods and services category.
Not necessarily. VAT and customs are two separate and independent levies. Even if customs duty is exempted on certain goods, imports can be subject to VAT.
Registered businesses whose input VAT (tax applied on the purchase of goods or services) is more than their output VAT (tax applied on the sale of goods or services) should indicate on their tax returns that they are eligible to receive VAT refunds.
VAT will not be deductible for non-taxable supplies. Customs duty paid at the time of import cannot be claimed for payment of VAT. Furthermore, input tax cannot be deducted if it is incurred for certain expenses, such as entertainment expenses.
Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.
Taxable Persons must file VAT returns, which shall be:
1. Quarterly for businesses with an annual turnover below AED150m
2. Monthly for businesses with an annual turnover of AED150m or more.
3. The Tax returns shall be filed online using eServices.