The basics of VAT as introduced in the UAE |
Posted: December 5, 2018 |
Value Added Tax (VAT) was implemented in UAE from 1st January 2018. It is a tax on consumption of goods and services. It is levied at every point of sale and the end consumers bear the ultimate cost. The current rate of this tax in UAE is 5 percent. With the introduction of this tax, the dynamics of business dealings in Emirates completely changed. The government has found a new source of revenue, moving beyond oil and tourism sector. However, this change came coupled with a hardship: inability to understand the VAT laws. Hence, various consultancies offering expert services in this domain cropped up. Impact of VAT on individuals As stated above, VAT is a tax on consumption and has to be borne by the final consumer. It has been made applicable to the majority of goods and services. There are, however, a few commodities and services on which the tax is yet to be made applicable. If individuals purchase more from amongst those goods which are exempt, they are likely to be burdened with a negligible amount of tax. Impact of VAT on businesses The businesses need to make a clear representation of their income, costs, and tax estimations. Based on these, they will need to pay or reclaim VAT amount to or from the government. They need to clearly state how much VAT they have charged and the final amount that paid to the government. Who needs to register? Every business whose taxable goods and/ or services, including imports, exceed AED 375,000 per annum, must register for collection of VAT. Businesses collect VAT from their customers to forward the same to the government. Also, they receive input tax credit i.e. government refunds them the amount that they have paid to the suppliers of their raw material. Foreign business entities will also have to recover VAT that is incurred upon visiting the country. When does the need to file the return arise? Every taxable business entity must file returns within 28 days of the end of the tax period, which is defined individually for every business. Tax period in this regard refers to a specific time period of which VAT payable needs to be calculated and paid. The standard period of tax is as under:
The Federal Tax Authority may assign a different tax period for a particular business entity if it appears appropriate in this regard. Role of Consultancies Various consultancies are working to expedite the process of VAT registration and to help clients with other VAT processes. Mentioned below are a few points to provide a glance at their work:
Hire a tax consultant to ease your worries related to taxation. With time, you can learn the provisions and do take necessary measures yourself.
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