Colour Logo of Fortius Consulting Services

An Ultimate Guide to VAT Tax in UAE

A Man's hand pointing out Value Added Tax (VAT) text in a notepad
VAT made its debut in 2018 when the GCC declared 5% for companies reporting more than 3,75 million Dh annually. The FTA imposed the tax on both businesses and individuals. We all realize the significance of taxes to the economy. It is also essential for people to comprehend all/any applicable taxes and to pay them on time. You can get in touch with VAT consulting services for professional help. Let us give you a detailed explanation of UAE VAT tax specifications and how it works.

An Overview of VAT (Value Added Tax)

The government sector of any nation is in charge of operating the financial system in addition to the country's social drives. Individuals and businesses pay taxes to help these government departments run smoothly. The government spends the money it collects to run the government. Our public educational institutions, infrastructure, hospitals, defense departments, and so on are all funded by taxes. Some taxes, such as income tax, are directly gathered by the government from people earning money. The other type is indirect taxation, which is accumulated through intermediary components like retail outlets, and taxes that fall into this category include VAT tax, sales tax, and so on.
Closeup shot of professional working on financial data
VAT is levied at each point in the supply chain for services and goods purchased and sold in any nation. Since VAT is incorporated into the total price for the consumer, the end consumer must pay for it at various stages of the service/product lifecycle. Individuals or businesses who manufacture and sell services and goods are only accountable for collecting taxes representing the federal government and modifying their accounts to reveal collections from final consumer and cash payments to suppliers on the end consumer's behalf. If you're wondering whether you must pay VAT or sales tax on the last item you bought or the service you used, the answer is probably both. While sales tax is applied only at the point of sale, VAT is applied at all stages of service or product production and is billed at the end.

VAT is one of the honourable methods of reporting and collecting taxes. Businesses, rather than individuals, bring services or products to the market's end consumer. This is a more dependable approach that can help to prevent any misrepresentation of tax evasion. It assists the government in generating sufficient revenue to ensure the smooth functioning of public sectors. This also reduces the country's reliance on its oil reserves. VAT collection is better than relying solely on the country's natural reserves. If you have doubts about whether everyone pays VAT, no, the government has announced a few exemptions where businesses or individuals are not expected to pay VAT. In real estate, supplies for construction works are subject to VAT; however, resources for house development are exempt from VAT. There are numerous VAT consulting services in UAE to provide the best for business firms.

What do VAT Consulting Services Offer Businesses

VAT, like other relevant taxes in the country, necessitates specific steps to ensure a mistake-free tax collection and reporting system. The following is an overview of what kind of VAT consulting firms offer:

Individual/Business VAT Account Enrollment

Businesses and individuals who do not qualify for zero-rated materials exemption and earn more than 3.75 million Dh per year must register for VAT collection. It is currently optional for those making more than 1.875 million Dh per year; they can choose not to register for VAT.

VAT Collection 

All transactions done by a business registered with FTA via the online portal include 5% VAT on every stage of the services or goods supply chain. The tax is given to the supplier on behalf of the end consumer by the business, and the tax is obtained from end consumers representing the UAE government.

VAT Return Filing 

After every tax year, the company must document a tax return to combine the amounts given to various stakeholders. Depending on the consolidated numbers, the business either pays a differential sum to the government or the subsequent VAT payment is revised if the company has already reimbursed more than the accurate figures.

VAT Filing Period

There are essential tax periods; for example, businesses with more than 150 million Dh per year file the VAT return every month, while companies with lesser than 150 million Dh per year file the VAT return for every quarter. The Federal Tax Authority of the UAE may designate a different tax filing time frame for specific cases that fail to comply.

Fortius offers outstanding Business Consulting and CFO Services to businesses in Dubai, the UAE, Singapore, and India. With the finest services and the strongest solutions, we assist businesses to achieve increased profitability, improve internal processes, increase management capability, regulate strategies, and elevate the business to global standards.

ERP implementation and support Bookkeeping and accounting services Business advisory services
Business consulting Services Business incorporation services Virtual CFO services
Corporate tax compliance Risk management consulting ESR consultation services
Financial feasibility study services Management consultants Mergers & acquisition advisory
Tax planning services Tax compliance services VAT implementation services

Learn How VAT Consulting Services Calculate VAT

VAT in Dubai transformed the past of the UAE as on January 1, 2018. VAT is a consumption tax levied on all services and goods mandated by Federal Law No. 8 of 2017. VAT is levied on the value added during the manufacturing process. VAT registration in UAE has been rampant in recent months, as many businesses have already registered for VAT since the FTA (Federal Tax Authority) launched Excise Tax registration and VAT on the website.

Because VAT-registered businesses are responsible for having the precise and proper documentation for VAT-related matters, it is crucial to comprehend how VAT is calculated. Failure to meet the requirements of the Federal Law No. 7 of 2017, Excise Tax Law, and VAT Law will result in severe penalties.

The standard VAT rate in the UAE is 5%, which is applied to the invoice value. If a service or product costs Dhs 150, the VAT would be calculated as follows: 150 x 5% equals 7.50 Dhs VAT. The calculation formula used by VAT consulting services is as follows:

  • VAT is equal to output tax subtracted from input tax.
  • Output tax is the VAT accumulated on the sale of goods or the provision of services to customers.
  • Input tax is the VAT paid on purchasing raw materials for the above services or products.

Also Read : A Brief Explanation of VAT Returns

Last But Not Least

VAT will affect an individual if their consumption habits include the majority of goods exempted from VAT. Thus, over the long run, VAT individual spending behavior might help the economy boost consumption of specific items. Businesses act as dependable intermediaries between individuals and the government to ensure more precise and error-free tax collection. VAT contributes to a more reliable tax collection structure, improving government facilitation at many levels. Contact Fortius Consulting Services, one of the renowned business consulting and CFO services in UAE, to offer the best VAT consulting service for every business operation.‍‍‍