VAT-VALUE ADDED TAX(UAE)

NAEEM IQBAL
|ACMA, APFA, M.Com|
Cell: +971 56 7652 733
Email: naeem.chaudhry65@gmail.com
 GCC COUNTRIES
UAE
SAUDI ARABIA
QATAR
KUWAIT
BAHRAIN
OMAN

UAE and SAUDI ARABIA Is going to implement VAT from Jan-

2018 and remaining countries will implement in 2019-2020.
 Introduction and General Principles
• VAT is a tax on turnover and is added at every stage of manufacture
or process, based on the value added at each stage. In general
registered businesses must charge VAT to their customers, they may
also reclaim (with a few exceptions) any VAT they pay to suppliers.
The net amount is paid to government. VAT paid on purchases (input
tax) against that collected on sales (output tax) and either pays the
excess output tax to government or claims a refund if there is an
excess of input tax.

• VAT is therefore generally not a cost to registered businesses.

Registered businesses is, in effect, an unpaid tax collector working on
behalf government by collecting the tax due which will eventually be
suffered by the final user only.
 Introduction and General Principles
• A trader who is not registered cannot reclaim input tax and as
such suffers the full cost of purchases, including the VAT element.
This point is of vital importance when deciding the amount on
which capital allowances can be claimed. If the trader is registered
then the VAT exclusive figure is used. If the trader is not registered
then the VAT inclusive figure should be used as the VAT is then a
cost to the trader. The term ‘trader’ in this article should be taken to
include individuals, partnerships, and companies
 Why VAT in the UAE is difficult from the rest of the world

 No existing VAT framework.

 Complex system to integrate with all GCC member
countries.
 Comprehensive audit program and effective
supervision of auditors is lacking.
 Transformation of the mindset of the businessmen
to accept the tax concept in the country.
 Scope & Responsibility of Tax
Tax shall be imposed on:
Every Taxable Supply and Deemed Supply made by the Taxable
Person.
Import of Concerned Goods except as specified in the Executive
Regulation of this Decree – Law.

The Tax imposed shall be the responsibility of the following:

A taxable person who makes any supply
The importer of Concerned Goods
The Registrant who acquires Goods(Recipient of Crude, Gas, etc.)
 VAT REGISTRATION
WHO IS REQUIRED TO REGISTER FOR VAT?
Every taxable person resident of a member state whose value of annual supplies in the
member state exceeds or is expected to exceed the mandatory registration threshold:

I.The threshold for registration :

Mandatory registration threshold AED 375k
Voluntary registration threshold AED 187.5k

II.The threshold will be calculated as follows:

The value of supplies made by a taxable person for the current month and the
previous 11 months or
Total value of supplies of the subsequent 30 days
Value of exempted supplies will not be considered for computing the annual
supplies

III.No threshold applies to non-established taxable persons – they may be required to

register.

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT
I. Where an entity is required to register for VAT, or would like to voluntarily register for
VAT, it should complete a VAT registration form.

II.The VAT registration form is available on FTA’s online portal. (www.tax.gov.ae)

III. During the application process following items will be requested. It is advisable to have
these to hand prior to starting the application and copies of the documents should be
uploaded with the application.
Documents identifying the authorized signatory e.g. Passport copies, Emirates ID
Trade License
Other official documents authorizing the entity to conduct activities within UAE.

IV.Following the approval of the application a Tax Registration Number will be issued

V. The form should be completed by person who is an authorized signatory of the businesses
e.g. a Director, owner, someone holding Power of Attorney to sign on behalf of the business
etc.

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT
VI. Prior to completing the form ensure you have considered the following:

• Are you required to register for VAT or are you registering voluntarily
• Are you applying for a single VAT registration or for registration as a VAT Group
• Have supporting documentation and information on hand to upload e.g. Trade license,
Articles of Associations, certificate of incorporation, bank account details.

VII. The VAT registration form will also ask you to provide details about your businesses
such as

• Description of business activities

• Last 12 months turnover figures
• Projected future turnover figures
• Expected value of imports and exports
• Whether you are expected to deal with GCC suppliers or Customers
• Details of Customs Authority registration , if applicable

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 VAT GROUP REGISTRATION
Two or more persons carrying on a business are able to apply for single “group” VAT
registration where:

• Each person has a place of establishment or a fixed establishment in the UAE

• The persons are “related parties” and
• Either one person controls the others, or two or more persons from a partnership and
control the others

Supplies made between members of the VAT Group are disregarded from VAT (i.e. no VAT is
due on supplies) Supplies made by the VAT Group to an entity outside the VAT group are
subject to normal VAT rules

Each Member State may treat the TAX Group as a single Taxable Person

Effect: Entities within the VAT Group are treated as one entity for VAT purposes.

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT

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 VAT REGISTRATION
HOW TO REGISTER FOR VAT

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 4 MANUFACTURER WHOLESALER

Sale Price AED 300 Gross Sale Price AED 320

VAT AED 15 Net VAT AED Gross VAT AED 16
4 (AED 15-(5+6)) Net VAT AED 1
(AED 16 – AED 15)
How the
VAT levy Inputs for
Manufacturer
works?
Raw Raw Material Y
RETAILER
Material X Sale Price AED
Sale Price AED 350
Sale Price 120
Gross VAT AED 17.50
AED 100 Gross VAT AED 6
Net VAT AED 1.50
Gross AED 5 Net VAT AED 6
(AED 17.50 – AED 16)
Net Vat AED 5
 5 Standard
Rate 5%

VAT Charge
Categories Out of
Scope Goods and Exempt
Category Services Category
Categories

Zero Rate
0%
 Definitions
Goods
Physical property that can be supplied including real estate, water and all forms
of energy as specified in the Executive Regulation of this Law
Services
Anything that can be supplied other than goods
Taxable Supply
A supply of goods or services for a consideration by a person conducting business
in the State, and does not include exempt supply
Business
Any Activity conducted regularly on an ongoing basis independently by any
Person, in any location, such as industrial, commercial, agricultural, professional,
service or excavation activities or anything related to the use of tangible and
intangible properties.
 Supplies under different categories
Standard-Rated Supplies
• Standard Rate is 5% as per VAT Law.
• Standard Rate is imposed on any supply or Import on the value of
the supply or Import. Most of the goods and services will get
covered under the Standard Rate of 5%

Zero-Rated Supplies
• VAT Law gives a list of goods and services which are subject to
Zero Rate VAT. Exports are Zero Rated.
 The following businesses are often exempt from VAT in order to
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VAT-Exempt Supplies
The following businesses are often exempt from VAT in order to
reduce its impact on the population:
• Financial services, including both banks and life insurance
companies;
• Sale or lease of residential property other than Zero Rated;
• Supply of Bare Land
• Supply of local passenger transport
Out-of-Scope Supplies
• Supplies where goods and services are delivered by an overseas
supplier to another overseas person are generally included in this
category as do private and non-business transactions
 Deemed Supply

• Supply of goods and services as part of sale of business

• Temporary Transfer of goods by Taxable Person
from UAE to another Implementing State or
vice versa
• Goods and services used for non-business
purposes
• Goods and services owned by Taxable Person at
the date of Tax Deregistration
 1 Exceptions for Deemed Supply
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A supply is not considered as deemed in the following cases:

• No Input Tax was recovered for the related Goods and
Services
• Exempt Supply
• Recovered Input Tax has been adjusted for the Goods and
Services pursuant to the Capital Assets Scheme.
 Date of Supply
Date of Supply is the date on which:

Goods were transferred under the supervision of the supplier

Recipient took possession of Goods if transfer is not

supervised by supplier

Completion of assembly and installation of Goods

Goods are imported under the customs legislation

 Date of Supply
Date of Supply is the date on which:

• Recipient of goods accepted the supply or a date no later than 12

months after the date on which goods were transferred or placed
under recipient disposal – supply on returnable basis

• Services were completed

• Receipt of payment or date on which tax invoice was issued

 Date of Supply – Special Cases

Date of supply in Special Cases:

• Periodic payments provided it does not exceed 12 months from
the date of provision of goods and services – earliest of (a)
issuance of Tax Invoice (b) date payment is due as per invoice
(c) the date of receipt of payment
• Vending Machine – date on which funds are collected from the
vending machine
• Voucher – date of issuance or supply thereafter
 Place of Supply – General Rule

Goods
Place of supply is determined by location of goods when the supply
takes place
Services
Place of supply of Services shall be place of residence of the supplier
Water & Energy
Place of actual consumption by a Taxable person to a Non-Taxable
Person
 Place of Supply – Special Cases
Telecommunication & Electronic Services
• The place where the services are used regardless of the place of
contract or payment.
Services related to goods, such as installation of goods supplied by
others
• The place where the services are used regardless of the place of
contract or payment.
Supply of means of transport to a lessee who is not a Taxable Person
in the State and does not have TRN in an Implementing State,
• The place where such transport is placed at the disposal of the
lessee.
 Place of Supply – Special Cases
Supply of Restaurant, hotel and food and drink catering services

• The place where the services are actually performed.

Cultural, artistic, sporting, educational or any similar services

• The place where the services are performed.
Supply of Transportation Services

• The place where the transport starts

IMPORT / EXPORT OF SUPPLIES
SCENARIO 1 – SUPPLIER OUTSIDE GCC

Foreign Buyer in UAE

Supplier
If Taxable Supplies
• Reverse charge mechanism- buyer submits VAT amount to
FTA as and when collected from Customer
• NO CASH FLOW IMPACT`

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 IMPORT / EXPORT OF SUPPLIES
SCENARIO 2 – SUPPLIER OUTSIDE GCC

Foreign Buyer in
Supplier UAE
If Supplies are ZERO RATED or EXEMPT
• VAT charged at ZERO RATED
• NO CASH FLOW IMPACT

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IMPORT / EXPORT OF SUPPLIES
SCENARIO 3 – IMPORTS FROM FOREIGN SUPPLIER AND RE-EXPORT TO GCC

Foreign Buyer in Re-export to

supplier UAE GCC
If Taxable Supplies
• Buyer in UAE to pay upfront VAT to FTA
• VAT paid can be recovered in that GCC State only
• CASH FLOW IMPACT

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IMPORT / EXPORT OF SUPPLIES
SCENARIO 4 – IMPORTS FROM FOREIGN SUPPLIER, SUBSEQUENT RE-EXPORT TO
GCC

Foreign supplier Buyer in UAE Re-export

If Taxable Supplies
• If the intention is to consume goods locally, and subsequently it is
re-exported to GCC state, the VAT recovered shall be paid back to
FTA
• VAT paid (for re-exports) can be recovered in that GCC State only
• CASH FLOW IMPACT
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IMPORT / EXPORT OF SUPPLIES
SCENARIO 5 – IMPORTS FROM FOREIGN SUPPLIER

Foreign supplier Buyer in UAE Outside GCC

If supplied directly outside the UAE
• NO VAT and NO CASH FLOW IMPACT
If received in UAE and then transferred to the Customer
• Imports subject to reverse charge
• Sale is subject to zero rated
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 2
Place of Establishment
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The Place of Residence of the supplier or Recipient of Services shall be as

follows:
1. State where the Person’s place of Establishment is located
2. State which is more closely related to the supply in case place
of Establishment is in more than one state
3. Usual place of residence, in case of no place of Establishment
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Value of Supply
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• If entire consideration is monetary, the value of supply shall be

Consideration less tax

• If non-monetary part is included in consideration, the value of

supply will be monetary part plus the market value of the non-
monetary part of the consideration, not including the Tax
 Zero Rate Category
The Zero rate shall apply to the following goods and services
• Direct or indirect Export to outside the Implementing State

• International Transport of passengers and goods which starts or ends in

the State or passes through its territory, including also services related
to such transport

• Air Passenger Transport in the State

• Supply of air, sea and land means of transport for transportation of

passengers and goods as specified in Executive Regulation
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Zero Rate Category
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• Supply of goods and services related to the supply of the means of
transport
• Supply of aircrafts or vessels designated for rescue and assistance by air or
sea
• Supply of goods and services for onboard consumption – land, air or sea
• Supply or Import of Investment Precious Metals
• The First supply of residential buildings within three years of its
completion, either through sale or lease in whole or in part
• The first supply of buildings specifically designed to be used by Charities
 Zero Rate Category
3
0
• The first supply of buildings converted from non-
residential to residential through sale or lease according to conditions
specified in Executive Regulation
• Supply of Crude Oil and Natural Gas
• Supply of Educational Services and related goods and services for
nurseries, preschool, elementary education and higher educational
institutions owned or funded by Federal or Local Government as
specified in Executive Regulation
• Supply of Preventive and basic healthcare services and related goods and
services as specified in Executive Regulations
 Exempted Category

The following supplies shall be exempt from Tax:

• Financial services
• Supply of residential buildings through sale or lease, other than that
which is zero – rated
• Supply of bare land
• Supply of local passenger transport

The Executive Regulations of the VAT Law shall specify the conditions and
controls for exempting the supplies mentioned above.
 Exempted Category
• Exempt supply means that you will not charge VAT to your customer.
• Any VAT incurred on the purchases will not be claimable.
• Wholly exempt businesses will not be entitled to register for VAT nor
claim any VAT incurred on their purchases.
• Partially exempt businesses (i.e. mixed business) will be able to register
for VAT and claim those expenses to the extent that it is incurred for the
making of taxable supplies. This will mean that VAT incurred on common
costs and general overheads (such as marketing and promotional
expenses, utilities, professional fees, purchases of office furniture) will
not be fully claimable and must be apportioned.
 Zero Vs. Exempt Category
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Zero-rated Category
They count as taxable supplies, but you don't add any VAT to your selling
price because the VAT rate is 0 percent. However Input Tax Credit is
allowed and hence generally in refund position.

Exempt Category
You don't charge any VAT and they're not taxable supplies. This
means that you won't normally be able to reclaim any of the VAT on
your expenses.
 SPECIFIC SUPPLIES- TAXABLE, ZERO-
RATED, EXEMPT
Specific Supplies- Subject to executive regulations Taxable Zero-rated Exempt
General insurance (vehicle, medical, etc) x
Life insurance x
Fee based Financial Services x
Margin-based Financial Services x
Exports of goods and services to outside the GCC x
International transportation and related services x
Supply of identified sea, air and land means of transportation
(e.g. aircrafts and ships) x

Supply of identified investment grade precious metals (e.g.

gold, silver, of 99% purity) x

Newly constructed residential properties that are supplied for

the first time and within 3 years of their construction x

Supply of identified education services x

Supply of identified healthcare services x
Residential properties x
Commercial properties x
Bare land x
Local passenger transport x

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 Reverse Charge
If a Taxable Person imports Concerned Goods or Concerned Services for
the purposes of his business, then he shall be treated as making a Taxable
Supply to himself, and shall be responsible for all applicable Tax Obligations
and accounting for Due Tax in respect of these supplies.
Concerned Goods
Goods that have been imported and would not be exempt if supplied in the
State
Concerned Services
Services that have been imported, where the place of supply is in the State,
and would not be exempt if supplied in the State.
 3
VAT Liability – Due Tax for a Tax
5
Period
VAT is based on the value addition to the goods and the related VAT Liability
of the dealer is calculated by deducting Recoverable Input Tax from the
Output Tax payable over the same period.

Net Tax Output Recoverable

payable Tax Input Tax

*If the Net Tax is negative refund is collected from the Government
(Input Tax paid is more than Output Tax collected)
9
Input Tax & Output Tax

• Tax paid by a person or due from him when

Input Goods or Services are supplied to him, or when
Tax conducting an Import

Output • Tax charged on a Taxable Supply and any supply

Tax considered as Taxable Supply
 Bad Debts

Reduce Output Tax in a current tax period to adjust the output tax paid for
any previous tax period if all the following conditions are met:
• Goods and Services have been supplied and Due Tax has been
charged and paid
• Consideration for the supply has been written off in full or part as
a bad debt in the accounts of the supplier
• More than six months has passed from the date of supply
• The registrant supplier has notified the recipient of the goods or
Services of the amount of consideration for the supply that has
been written off
 Bad Debts
• The Registered Recipient of Goods or Services shall reduce the
Recoverable Input Tax for the current Tax Period related to a supply
received during any previous tax period where the consideration has
not been paid and all the following conditions are met:
• The registered supplier reduced the output tax and the recipient of the
goods or services has received a notification from the supplier of the
consideration being written off
• The recipient of goods or services received the goods and services and
the relevant input tax was deducted
• The consideration was not paid in full or in part for the supply for over
six months
 VAT Invoice
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• The process of charging VAT on supplies of goods and services requires
businesses to issue VAT invoices.
• A VAT Invoice is a document that must be produced and issued by VAT
registered businesses to provide documentary evidence of the sale of
goods and services in compliance with the VAT law.
• A VAT Invoice is also required by the business as documentary evidence
to support VAT credit claims, i.e. VAT incurred on the acquisition of
goods and services for the purposes of the business can only be
claimed if the business holds a valid VAT Invoice from the vendor.
• The registrant shall issue Tax Invoice within 14 days as of the date of
supply
 VAT Invoice
• Executive Regulation will specify:
• Basic Data that should be included in Tax Invoice
• The conditions and procedures required to issue an electronic Tax
Invoice
• Instances where Registrant is not required to issue and deliver Tax
Invoice to the recipient of goods or services
• Instances where other documents may be issued in place of Tax
Invoice
• Instances where another person may issue a Tax Invoice on
behalf of a registered supplier
• If the supply is in another currency then the Tax Invoice amount shall be
converted into UAE Dirham according to exchange rate approved by the
Central Bank at the date of supply
 VAT Credit Notes
• Original Tax Credit Note when a reduction of Output Tax occurs
• Executive Regulation will specify:
• Basic Data that should be included in Tax Credit Note
• The conditions and procedures required for the issuance of an
electronic Tax Credit Note
• Instances where Registrant is not required to issue and deliver Tax
Credit Note to the recipient of goods or services
• Instances where other documents may be issued in place of Tax
Credit Note
• Instances where another person may issue a Tax Credit Note
 Point of Tax
Goods Services
Earlier of: Earlier of:
(a) Date of Payment (a) Date of Payment
(b) Date at which goods are (b) Date at which services
made available are rendered
(c) Date of issue of VAT (completed)
Invoice (c) Date of issue of VAT
Invoice
 VAT RECORD KEEPING
Books of Accounts and any information necessary to verify entries
including but not limited to:
• Annual Accounts
• General Ledger
• Purchase day book
• Invoices issued or received
• Credit notes and debit notes
Additional records required for specific taxes
• Different taxes may require different records to be kept in order for
taxpayers to be compliant., for example a VAT account

Any other information as directed by the FTA that may be required in

order to confirm the person’s liability to tax, including any liability to
register.

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 VAT RECORD KEEPING
Taxable persons for VAT must in addition retain the following records for at least 5 years
Invoices/ Credit notes/Debit notes
• All tax invoices & alternative documents related to receiving the goods
or services
• All received tax credit notes and alternative documents received
• All tax invoices and alterative documents issued
• All tax credit notes and alterative documents issued
Records of:
• All supplies and imports of goods and services
• Exported goods and services
• Goods and services that have been disposed of or used for matters note
related to business
• Goods and services purchased for which the input tax was not deducted
VAT Account
• VAT due on taxable supplies (including those related to the reverse
charge mechanism)
• VAT due after error correction or adjustments
• VTA deductible after error correction or adjustment
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VAT deductible for supplies or imports
 VAT INVOICE
VAT invoice must be issued within 14 days of supply
To be valid, a VAT invoice issued by a taxable person needs to include the
following information, but not limited to:

• A sequential number which uniquely identifies the document

• The date of issue of the invoice
• The time of supply (only if different from the invoice date)
• The name, address and TRN of the supplier
• The name, address and TRN of the customer
• For each description, the quantity of goods or extent of services
supplied, the rate of VAT and amount payable, expressed in UAE Dirham
• The total amount of VAT expressed in UAE Dirham together with the rate
of exchange applied and the source of that rate.

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 SIMPLIFIED VAT INVOICE
Where consideration for a supply is less than AED 10,000 a simplified VAT
invoice may be issued.

• Tax invoice in a prominent place

• Name, address & TRN of supplier

• Date of Issue

• Description of goods and services

• Total amount payable

• Total VAT chargeable

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 VAT RETURNS AND PAYMENTS
Submission online

Deadlines for submission and payment:

The due date will be 28 days following the end of the return period
where the due date falls on a weekend or national holiday, the deadline
shall be extended to the first following working day

•Late submission or payment can result in a penalty levied by the FTA

•Emirates wise reporting

•Taxable Persons will be required to report details of the value of
supplies made in each Emirate on their VAT returns.

•The mechanism for the allocation of supplies made in each Emirate

will be announced in the Executive Regulations.
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 ACCOUNTING FOR VAT
VAT Accounting entries
At the time of Purchase:
Purchase A/c. or Inventory A/c.
Input VAT A/c.
To Bank / Supplier A/c.
At the time of Sale:
Bank / Customer A/c.
To Output VAT A/c.
To Sales A/c.
Net VAT
payable or receivable:
Output VAT A/c.
VAT Receivable A/c.
To Input VAT Credit A/c.
To VAT Payable A/c.
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Dr. (Net cost of Purchase)
Dr. (Claimable VAT amount on Net
Purchases)
(Net + VAT payable/paid to supplier)
Dr. (Net Sales + VAT received/receivable from customer)
(VAT amount on Sales)
(Net amount of Sales)
Dr. (Total VAT on Sales)
Dr. (If Output VAT less than Input VAT)
(Total VAT on Claimed on Purchases)
(If Output VAT more than Input
VAT)
 VAT AUDIT AND APPEALS
VAT Audit
The FTA can visit businesses to inspect records and make sure persons are paying or reclaiming
the right amount of tax, and are able to check whether businesses are liable to be register
where they are not.

FTA will apply risk based selection criteria to determine whom to audit
FTA will usually conduct the audit at the persons’ place of business or at the FTA offices.
If audit at the person’s place, must be informed at least 5 business days prior to the audit
FTA can close the place of business for up to 72 hours (e.g. suspect tax evasion).
The audited person should be notified of the results of the tax audit within 10 business days of
the end of the audit

Contesting Decisions
If a taxable person is not satisfied with a decision by the FTA, they will be allowed to contest the
decision. The FTA offers three levels of escalation for dispute resolution.

Reconsideration (To be done to FTA)

Appeals (To be done to Tax disputes resolution committee)
Litigation (To be done before Competent court)

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 Q&A

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