VAT Implementation

We know that since 2018, the UAE government has implemented a Tax known as VAT with a rate of 5%. It was the very first time the UAE government implemented a Tax on the residents to serve them well. It was also an attempt to diversify the income sources in the country. However, the major reason for implementing this TAX is to serve residents very well.

All such actions lead to a sustainable economic environment and we are well aware of the “Sustainability Approach” in development. VAT was not the first and last initiative, after that it came several economic plans in UAE for the sale of improving the economic progress and living of people. We will try to understand this VAT, its concept, considerations, benefits, its support to the business community and its implementations.

• VAT or Value Added Tax is implemented on the goods and services in UAE. It has been explained by Federal Decree-Law No. 8/2017. This tax is implemented at every stage of the supply chain but finally, it has to be paid by the Consumer or also called as End Consumer.
• VAT Registration is compulsory for the businesses with an annual revenue/turn over more than 375000 AED. If a business owner wants a voluntary registration than annual revenue/turnover must be more that 187, 500 AED. After the registration process, the FTA issues a TRN to the business. TRN stands for Tax Return Number.

If a business is exempted from paying VAT, then it needs to get the permission from FTA. The exemption can be granted on few services and products.

Supply Chain is the entire process where all the business process and its function are defined. This process can be comprised of either a service or a product. The business has to be registered as a business entity. The VAT is implemented on the End User. Suppliers do not charge with any TAX if the supply chain is ZERO RATED.

ZERO RATED is a Zero Tax Policy or Tax Exemption Policy. However, all such trade activities must be registered and explained to FTA. For a very little presence for a little time period in UAE, can also be a subject of exemption. ZERO RATED, policy is applicable in the exports outside the GCC, short term presence in the court, specific supplies where exemption is granted by FTA, specific trade sectors or investment sectors, health care and education sectors, barren or bare lands, residential properties etc. While doing business or offering services it must be quite clear between products and services.

Article 6 Federal Decree Law 8/2017 defines the services as “Whatever is provided or offered other than physical goods. Product Supply or supply of products become the supply services or supply of services. A few examples of supply of services can be like offering consultancy, research services, sales and marketing services, support services, IT services outsourcing, etc. The details can be checked with FTA.

Place has good importance in this entire scenario. It has to be decided about the place first, where service supply or service product has to be made. The place also determines about the VAT implementations.

• For example, if the services are provided outside GCC countries, then as per the VAT rule by FTA. The business/businesses can be exempted of paying 5% VAT.

The place of supply is crucial as it determines whether a supply is made within or outside the UAE for VAT purposes because different rules apply in different conditions. For example, if you are a taxpayer, and you are going to supply services outside the United Arab Emirates, you will not be considered under VAT rules. Whereas, when the services are supplied inside/within UAE, the VAT amount at the rate of 5% (standard one) will be charged or chargeable. Services offered in UAE, are subject to VAT implementation. Few important and key points can be described as follows;

• Date of supply has key importance.
• Date when the invoice is issued.
• Place where the services or products are offered.
• Supply Date will be considered when the payment is made/accepted.
• In Case of several transactions, the supply can also have several dates.
• Free Zones are exempted from VAT implementations. Designated Zones are also free from the implementation of VAT.
• Details can be grabbed from FTA about the Free Zones and Designated Zones.
• The goods transferred between or among Free Zones or Designated Zones will be free from the implementation of VAT. But goods must be unused during the transfer process and all the rules and regulations have been followed.
• Due to the amendment existing in Law, there will be no consideration while transferring the goods from the Designated Zone to the Mainland, if the supplier keeps the proof that VAT has been paid on the import of goods.

For Complete Knowledge, Support and Services, you can visit our expert Lawyers and Legal Consultants. We do offer VAT Consultation, Business Setup Services in Designated Zones and Main Land, legal services for Labour and Employment disputes, legal services for business disputes, legal documentation and much more. We have the best team of Advocates and Legal Consultants in UAE.