At Lynchpin, we have been providing VAT training & consulting services since July 2016. Since then over 200 professionals have been trained & advised by us for VAT in UAE. During these months, there were many questions which the participants asked about VAT and we thought, it would be a good idea to summarize them in one post so that others can benefit out of it. Let’s see what were the common questions that people asked during our VAT training programs in UAE.
VAT in UAE
Q: Is VAT applicable on my income (salary or business income)
A: No, VAT is not a tax on your income. It is a tax levied on consumption of goods or services. For example, when you buy the goods/services you may be charged with 5% VAT by your supplier.
Q: Is my business required to be registered under VAT?
A: If annual turnover of your business is over AED 385,000, it is mandatory that you should register under VAT in UAE. If the annual turnover of your business is between AED 187,500 to AED 385,000, you have the option to register under VAT in UAE. The benefit of getting your business registered in VAT in UAE is that you can claim the input VAT charged by your supplier, which otherwise will form part of the cost.
Q: What is Output VAT & Input VAT?
A: Output VAT is the amount you charge as VAT to your customers. Input VAT is the amount charged to you as VAT by your supplier. The standard rate of VAT in UAE will be 5%.
Q: How do I record Output VAT and Input VAT in my accounting records?
A: Output VAT is recorded as VAT Payable, when you are recording your sales. Input VAT is recorded as VAT Receivable (unless your business/product is VAT Exempt). At the end of your tax period, if your VAT Payable (Output VAT) is more than VAT Receivable (Input VAT), you have to pay the difference to Government along with the VAT return. However if your Input VAT is greater than your Output VAT, you may claim refund from the Government along with the VAT return.
Q: Is VAT a cost to my business? I am already earning a very low profits, how will I survive?
A: In most cases, VAT is NOT a cost to your business. Generally, any VAT you pay on your business purchases can be claimed against the VAT you collect from your customers on sales. This means that VAT in the end would be a zero-sum game for many businesses. However if your business is under VAT Exempt category, you may not be able to claim/adjust your input VAT and in this case the VAT you have paid would add-up to your cost of doing business.
Q: What will happen to my office rent and house rent? Is VAT applicable on these items?
A: For all commercial rental agreements, VAT in UAE is expected to be charged at standard rate of 5%. For non-commercial (residential) rental agreements, there will not be any VAT applicable which means, your house rent will not get increased because of VAT.
Q: I am planning to buy a house/flat in UAE. Will real estate prices going to increase due to VAT in UAE?
A: If you are planning to buy property for residential use, it is expected that there will be no VAT on your residential property purchases. However if you are planning to buy a commercial property, you may expect that there will be standard rate VAT applicable on commercial real estate transactions.
Q: We are in the business of import & export, how VAT will impact our business?
A: There are different VAT treatments if you are importing the goods in UAE for onward selling inside UAE as compared to importing goods and then re-exporting to other GCC countries (such transactions are called as Transshipment”). For goods imported in UAE which are expected to be consumed in UAE, the import VAT in UAE will be subject to reverse charge (currently, this means that you will not be required to pay import VAT at the time of import, once the goods are sold, thereafter you will pay VAT which you have charged on your sales). If your business is importing the goods for transshipment i.e. re-exporting the goods to other GCC states, in such case you have to pay VAT at the time of import.
Q: How and when I have to file VAT return?
A: It is expected that you will be required to file VAT return in UAE on quarterly basis. The filing of return will be online.
Q: What information I have to show on the VAT return?
A: While the format of the VAT return will be released soon, however you would be expected to show your total sales with an Emirate-wise breakup. This means that you have to keep a record of your sales made in each Emirate in UAE.
There are many other areas which requires deeper explanation. We will keep sharing the further updates on VAT in UAE. The earlier you plan, the better you would be prepared to embrace VAT on 1 Jan.