VAT Breakdown: A Complete Roadmap on Value Added Tax in the UAE

What Is VAT?

Value Added Tax, VAT, is a consumption tax that was introduced in the UAE on 1 January 2018 and is imposed on most goods and services that are bought.

Businesses whose taxable turnover exceeds the threshold of AED 375,000 for mandatory registration, or AED 187,500 or more but not more than AED 375,000 in the case of voluntary registration, are required to register for VAT in UAE.

VAT-exempt sectors in the UAE

The general rate of VAT in UAE is 5%, but some goods and services are subject to a 0% rate or an exemption from Value Added Tax in UAE. The 0% VAT rate applies to:

• Goods and services exported outside the VAT-implementing GCC member states.
• Supplies for certain sea, air, and land means of transportation.
• Supply of precious metals for investment.
• International and intra-GCC transport.
• The first supply of residential real estate, within three years of their construction.
• Supply of certain educational and healthcare services and relevant goods and services.
• The oil sector and the oil and gas derivatives sector.

As for the exempted sectors, the following categories are exempt from VAT:

• The supply of certain financial services
• Sale of bare land
• Lease or sale of residential property
• Local transport

How can businesses calculate their VAT?

VAT is an essential aspect of running a business in the UAE, so it is crucial to learn how to calculate VAT as a business owner.

Since VAT is an indirect tax, the companies charge the customers and receive the tax on behalf of the authorities by collecting VAT on sales (output tax), recovering the VAT amount paid on the purchase of goods (input tax), and subtracting the input from output.

Let us give you an example for more clarification.

If you work in a certain industry and your company purchased materials for a total of AED 200,000, the input tax will be:

AED 200,000 x 5% = AED 10,000

If you sell the product of the raw materials you purchased, and the revenue of sales is AED 500,000, the output tax will be:

AED 500,000 x 5% = AED 25,000

In this case, the final net VAT payable to the government will be:

VAT = Output Tax – Input Tax

VAT = AED 25,000 – AED 10,000

VAT = AED 15,000

How and when to file VAT returns reports?

Taxpayers in the UAE should file their VAT returns with the Federal Tax Authority (FTA), online using e-services, every quarter, within 28 days from the end of the tax period.

VAT refunds

If you are a taxable person in a net tax refundable position or someone eligible for refunds for certain reasons, you may request a VAT refund. To do so, follow the following steps:

• Go to the FTA’s e-Services portal.
• Choose VAT -> VAT refunds     ->    VAT refund request.
• Fill out the request form.

What is VAT grouping?

Businesses that satisfy certain requirements can be able to register as a VAT group. One requirement is to be under the same ownership and located within the same GCC country.  

VAT grouping helps in simplifying the accounting for VAT in Dubai and all the emirates. Group VAT scheme allows people and entities that are closely linked financially and organizationally to operate as a single VAT person, get a single VAT number, and file a single return.

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