The VAT LAW

What is VAT?

Value Added Tax (VAT) is a tax on consumption levied at each stage of the supply chain and ultimately borne by the end consumer.

VAT is a transaction-based indirect tax which is levied at each step of the supply chain. End consumers generally bear the VAT cost while registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the Federal Tax Authority.

VAT is used in more than 180 countries around the world. All OECD countries except for the US have VAT (or a variation). While it feels exactly the same as a general sales tax to end-consumers, VAT is a more sophisticated tax and overcomes many challenges that affect the general sales tax.

Tax Registration Number (TRN):

A unique number issued by the Authority for each Person registered for VAT purposes.

VAT Registration:

A procedure according to which the Taxable Person or his Legal Representative registers for Tax purposes at the Authority.

VAT Period:

A specific period of time for which the Payable VAT shall be calculated and paid.

VAT Threshold:

A business must register for VAT if the taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, a business may choose to register for VAT voluntarily where the total value of its taxable supplies and imports (or taxable expenses) is in excess of the voluntary registration threshold of AED 187,500.

VAT on Free Trade Zones:

The UAE cabinet has defined some of the free trade zones as designated zones. These are treated as 'outside the UAE' for tax purposes. The movement of goods / services within and between these zones is VAT-free. Please find the list of designated zones here.

Scope of VAT, VAT shall be imposed on:

1. VAT should be imposed on every Taxable Supply and Deemed Supply made by the Taxable Person.

2. VAT should be imposed on import of Concerned Goods except as specified in the Executive Regulation of this Decree-Law.

VAT Rate:

Without prejudice to the provisions of Title Six of this Decree-Law, a standard rate of 5% shall be imposed as VAT on any supply or Import pursuant to Article (2) of this Decree-Law on the value of the supply or Import specified in the provisions of this Decree-Law.

Responsibility for VAT:

The VAT imposed shall be the responsibility of the following:

1. A Taxable Person who makes any supply stipulated in Clause (1) of Article (2) of this Decree Law.

2. The Importer of Concerned Goods.

3. The Registrant who acquires Goods as stated in Clause (3) of Article (48) of this Decree-Law.

VAT on Supply of Goods:

VAT is applicable on every supply that is not considered a supply of Goods, including any provision of Services specified in the Executive Regulation of this Decree-Law.

VAT on Supply in Special Cases:

As an exception on VAT to what is stated in Articles (5) and (6) of this Decree-Law, the following shall not be considered for VAT on a supply:

1. VAT is exempted on the sale or issuance of any Voucher unless the received Consideration exceeds its advertised monetary value, as specified in the Executive Regulation of this Decree-Law

. 2. Vat is no applicable on the transfer of whole or an independent part of a Business from a Person to a Taxable Person for the purposes of continuing the Business that was transferred.

VAT on Supply of more than one component:

The Executive Regulation of this Decree-Law shall specify the conditions for VAT treating on a supply made of more than one component for one price, whether such components are Goods or Services or both.

VAT on Supply via Agent:

1. VAT on the Supply of Goods and Services through an agent acting in the name of and on behalf of a principal is considered to be a supply by the principal and for his benefit.

2. VAT on the Supply of Goods and Services through an agent acting in his name is considered to be a direct supply by the agent and for his benefit.

VAT on Supply by Government Entities:

1. VAT on Government Entity is regarded as making a supply in the course of business in the following cases:

a. VAT is applicable if its activities are conducted in a non-sovereign Capacity.

b. VAT is applicable if its activities are in competition with the private sector.

2. A Cabinet Decision shall be issued for VAT at the suggestion of the Minister determining the Government Entities and their activities that are considered as conducted in a Sovereign Capacity and instances where its activities are considered not in competition with the private sector.

VAT Refunds:

You can claim VAT refunds in a number of circumstances. You may be a taxable person in a net tax refundable position or someone who is eligible for refunds under the special schemes. Refer to the detailed guidance on the conditions and requirements for VAT refunds below:

VAT refunds for taxable persons.

• VAT refunds for foreign businesses.

• VAT refund for tourists.

• VAT refund for UAE nationals building new residences.

• VAT refunds for Foreign Governments, International Organizations & Diplomatic Bodies.