Value Added Tax (VAT) is a consumption tax applied on a good as its value is increased each stage of its production or distribution. It is an indirect tax that is related to a taxpayer’s consumption and not their income. The VAT is applicable in more than 160 countries. VAT, at the rate of 5%, shall be introduced in the UAE and other GCC countries from 1 January 2018. Businesses can start registering for VAT three months before the launch date (1 October 2017).
A VAT would be applicable to non-essential consumer goods. Anything apart from basic food and essential commodities would fall in this taxable bracket. This would include automobiles, electronics, jewelry, restaurant services, and entertainment. The Government of UAE has stated that about items in about 100 categories like food, education, health, bicycle, fuel, transport, and social services would be exempted from VAT.
From January 1, 2018, value-added tax (VAT) had come into effect in the UAE. This would apply at the rate of 5% to non-essential consumer goods. Businesses can start registering for VAT three months before this date, that is, from October 1, 2017. The regulatory body for VAT in the UAE is the Federal Tax Authority (FTA).
Am I eligible for VAT?
All businesses operating in the UAE providing goods or services falling in the taxable categories with a yearly revenue exceeding AED 375,000 are required to register for VAT. For companies with the value of yearly supplies and imports below AED 375,000 but above AED 187,500, such a registration is optional and voluntary.
What are my VAT-related responsibilities?
All businesses in the UAE must record all their financial transactions, and make sure their ledgers are transparent and updated. Businesses eligible for VAT are required to register for it.
VAT-registered businesses must have:Charge the appropriate amount of VAT on their taxable goods services
Maintain business records to enable the government or auditor to check if things are in order
Report the VAT charged, and the VAT paid to the government, on a regular basis
Tax Registration NumberUnder the UAE VAT, it is mandatory for every business to describe a tax registration number (TRN) in order to claim credits of taxes paid. The said TRN can be communicated by a business to its suppliers, vendors, and customers – so that when they raise an invoice, it is tagged with a TRN – allowing businesses to claim credits. Businesses that registered before 4th December 2017 got their TRN. To help achieve tax compliance ahead of VAT implementation on 1st January 2018, the FTA started to issue provisional TRNs to businesses that commenced registration after the 4th December deadline – so that there is no interruption in business. If you have been given provisional approval for VAT registration (as can be checked on one’s email communication), then you will not be able to access your VAT registration certificate at the moment. It will be available at a later date, once the review and verification of your registration details are completed by the FTA. You will receive a communication once your VAT registration certificate is available to you. TRN is a prerequisite to VAT implementation in the UAE, and hence the issuance of provisional TRNs would go a long way in ensuring continuity of business.