VAT (Value Added Tax) is an indirect tax, which is imposed on supplies of goods and services that are bought and sold by taxable person. UAE is one of the Member States of the GCC. All GCC Countries have agreed to implement the VAT w.e.f. 1.1.2019. The Framework unanimously passed by all GCC Countries is based on the consumption based model. As per the UAE VAT Law, VAT was introduced across the UAE on 01 January, 2018.
VAT Registration Threshold
If the Annual Turnover of the company is more than AED 375,000/, it is mandatory for the company to register under UAE VAT
If the Annual Turnover is between AED 187,500 & AED 375,000/, it is optional for the company to be registered under UAE VAT law. Further, if it is less than AED 187,500/, the company need not register under this law.
WHAT IS Business FOR UAE VAT
Any activity conducted regularly, on an ongoing basis and 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 or intangible property.
MEANING OF Taxable Supply in VAT
A supply of goods or services for a consideration by a person conducting business in the State. Supply can be either under zero percent or at standard rate of 5% or a deemed supply, and does not include exempt supplies.
Place of supply for VAT
It will determine whether a supply is made in the UAE or outside the UAE for VAT purposes:
If the supply is determined as made in the UAE: VAT shall be applicable.
If the supply is determined as made outside the UAE: VAT is not applicable.
Date of Supply
It will determine when to account for output VAT on supplies.
All that is received or expected to be received for the supply of goods or services, whether in money or other acceptable forms of payment. It will determine value of supply on which VAT is to be charged.
It is mandatory for Every Taxable Person to Maintain Books of Accounts
Books of account 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 for a minimum of 5 years. No action can be taken by Federal Tax Authority after 5 years but no limit in case fraud is found
Invoices must be issued within 14 calendar days of the date of the supply.
Invoices, credit and debit notes:
All tax invoices and alternative documents related to receiving the goods or services
All received tax credit notes and alternative documents received
All tax invoices and alternative documents issued
All tax credit notes and alternative documents issued
VAT account particulars
VAT due on taxable supplies (incl. those pursuant the reverse charge mechanism)
VAT due after error correction or adjustment
VAT deductible after error correction or adjustment
VAT deductible for supplies or imports.
Records to be maintained
All supplies and imports of goods and services
Exported goods and services
Goods and services that have been disposed of or used for matters not related to business
Goods and services purchased for which the input tax was not deducted
MEANING OF Tax group IN UAE VAT
Tax Group: Two or more taxable persons can register as a single taxable person if all of the following conditions are met:
Each shall have a place of establishment or fixed establishment in the State (e.g. UAE).
The taxable persons should be Related Parties.
One or more persons conducting business in a partnership shall control the others.
Tax grouping is a long-term decision and hence needs to be properly evaluated by doing impact analysis. Tax grouping can be done for UAE companies only, so GCC and Non-GCC companies cannot be included in Tax grouping.
"Related Parties" include two or more legal persons who are not separated on the economic, financial or regulatory/organizational level, where one can control the others either by Law, or through the acquisition of shares or voting rights.
One person must be able to control the other members; or
More than one Legal person where one person, or two or more persons acting in a formal partnership arrangement fulfill below mentioned criteria:
-a voting interest in those companies of at least 50% when added together; or
-a market value interest in each of those companies of at least 50% when added together,
-control by any other means
Reverse charge mechanism under UAE VAT
In the UAE VAT, the Reverse Charge Mechanism is applicable while importing goods or services from outside the GCC countries. Under this, the businesses will not have to physically pay VAT at the point of import.
The responsibility for reporting of a VAT transaction is shifted from the seller to the buyer; under Reverse Charge Mechanism. Here the buyer reports the Input VAT (VAT on purchases) as well as the output VAT (VAT on sales) in their VAT return for the same quarter.
The reverse charge is the amount of VAT one would have paid on that goods or services if one had bought it in the UAE. The importer has to disclose the amount of VAT under both Input VAT as well as Output VAT categories of the VAT return of that quarter.
Reverse Charge Mechanism eliminates the obligation for the overseas seller to register for VAT in the UAE.
Appeal under UAE VAT
Level 1 – FTA reconsideration
As a first step, the taxable person shall request the FTA to reconsider its decision. Such request of re-consideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.
Level 2 – Disputes Resolution Committee
If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before objecting to the Committee. The Committee will give its decision regarding the objection within 20 business days from its receipt.
Level 3 – Federal Courts litigation
As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision
– Administrative penalties are intended to address non-compliance, and encourage compliance and will be not less than 500 dirhams and not more than 3 times the amount of tax for which the penalty was levied.
Tax evasion penalties
– Tax evasion is where a person uses illegal means to either lower the tax or not pay the tax due, or to obtain a refund to which he is not entitled under law and will be Up to five times the relevant tax at stake.