What is VAT?
VAT, or Value Added Tax is an indirect tax. VAT is a tax that is implemented at each step of the supply chain. VAT only affects the final consumer, the business in between simply collect the tax and give it to the government. The picture below will help understand the Process.
Who can register for VAT?
Based on the latest update by the ministry of finance, it is mandatory for a business to register for VAT if their taxable supplies exceed AED 375,000. For businesses that don’t meet this criterion can still voluntarily register for VAT if their taxable supplies exceed a minimum of AED 187,500.
The voluntary option is designed for start-up firms with no turnover to be able to register for VAT.
What is the rate for VAT?
Based on the information received so far, it seems like all the companies will have to follow the same VAT rate of 5%
Other than the supplies and import criterion, certain products will be exempt from VAT altogether. Some of them are as follows-
- The supply of some financial services (like life insurance, will be clarified in VAT legislation)
- Residential properties
- Bare land
- Local passenger transport
Some other products or supplies fall under the zero-rated category, where the business will have to register for VAT but will charge only 0% VAT on its sales. Some of these supplies are as follows –
- Exports of goods and services to outside the GCC
- International transportation, and related supplies
- Supplies of certain sea, air and land means of transportation (such as aircrafts and ships)
- Certain investment grade precious metals (e.g. gold, silver, of 99% purity)
- Newly constructed residential properties, that are supplied for the first time within 3 years of their construction
- Supply of certain education services, and supply of relevant goods and services
- Supply of certain Healthcare services, and supply of relevant goods and services
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