Implications of VAT
Implications on an Individual level
As a general consumption tax, VAT will apply to the majority of transactions of businesses dealing in goods and services, however granting a limited number of exemptions to certain goods and services.
This has resulted in an increased cost of living, the trend of which is likely to increase further slightly for a few years, although this will vary based on each individual’s lifestyle and spending behaviour. For example, where the individual mainly spends on the things that are exempted from VAT, there will not be much significant increase that can be seen as implications arising to the individual.
The value added tax will be levied by the government at a standard rate of 5% on all goods and services with certain exemptions with rules which will require businesses to be clear on the amount of VAT that will be required by an individual to pay for each and every transaction. Keeping this information in mind, individuals will be able to decide whether or not to buy something.
Implication of VAT on businesses in Dubai
Vat requires businesses to maintain proper records and documents of the various business transactions in order for them to find out the net tax payable. Therefore, all businesses will have to act in a more responsible way and carefully document their business income, expenses, other costs and associated VAT charges.
Businesses and traders registered under VAT will charge the consumption tax on all the goods and services that sell to all of their customers at the prevailing rate and incur VAT charges from all the goods and services that they buy from their suppliers. The difference between the two will be payable as net VAT to the government or the excess tax paid can be reclaimed as refund from the government.
overseeing VAT in the UAE
The Federal Tax Authority (FTA) was established under Federal Law by Decree No. 13 of 2016. The authority takes charge of managing and collecting federal taxes and related fines, as well as distributing tax-generated revenues and applying the tax-related procedures in the UAE.
The authority’s Chairman is His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Minister of Finance, while His Excellency Khalid Al Bustani takes up the position of Director General directly from his role as the Assistant Undersecretary of International Financial Affairs at MoF – a role he held for more than 37 years. FTA will work alongside MoF in its drive to achieve economic diversification in the UAE, with a focus on profits derived from non-oil sources. It will work towards enhancing the financial stability of the UAE, and will provide guidance and assistance to businesses and consumers to ensure they meet their liabilities and understand fully the application of taxation in the country.
VAT implementation in the UAE
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for using government budgets. VAT provides our country with a new source of income, contributing to the continued provision of high quality public services in the future. It also helps the government move towards its vision of reducing dependence on income derived from oil and other hydrocarbons. VAT was introduced across the UAE on 1st January 2018 at a standard rate of 5%.
The implementation of VAT and corporate tax in the UAE are transformative milestones in the country’s taxation landscape. VAT brought widespread changes to business operations, requiring businesses to navigate new compliance obligations and undergo a behavioural shift towards tax compliance. Corporate tax builds on the foundations established by VAT and leverages businesses’ improved understanding of taxation. With a longer implementation timeline, businesses have had more time to review and adapt to the corporate tax regulations.
How to Calculate VAT in UAE?
On most of the products, 5% VAT is implemented. However, there are few products on which 0% VAT is implemented, and a few products are exempted from VAT. Therefore, while using VAT calculator UAE, it is important to add the correct VAT percentage.