Value Added Tax (VAT) in UAE

This is an indirect tax and a type of general consumption tax that is collected incrementally, based on the value added, on behalf of each steps by production or distribution / sales. Also known as goods and services tax (GST) in some countries.

VAT will apply to most your transactions in goods and services. In VAT only a few items exempted from VAT in the UAE. A few items are zero rated and the rest of the items are fully rated. The selection criteria for VAT registration will be on the annual turnover of the business activity. The UAE government has tentatively decided to introduce VAT 01 January 2018. Proposed rate of the VAT is 5% in the UAE.

Input VAT is a value added tax added to the price when you purchased goods or rendered services. If the buyer is registered in the VAT System, the buyer can deduct the amount of VAT paid from his or her settlement with the tax authorities.

Output VAT is a value added tax calculated and charged on the sales of goods and services.

Exempt supply is a system on which VAT will not be charged and for which the related input VAT is not deductible.

A zero-rated supply is a taxable supply on which VAT is charged at 0%.

Standard Rate is a supply through which VAT  will be charged at 5% and for which the related input VAT is deductible.

Reverse Charge Mechanism Under VAT in the UAE

In United Arab Emirates (UAE) VAT, the Reverse Charge Mechanism is applicable only while importing goods or services from outside the Gulf Cooperation Council  (GCC) countries. By this mechanism, the businesses will not pay physically VAT at the terms of import.

The responsibility for a VAT transaction will be shifted from the seller to the buyer under the Reverse Charge Mechanism. The buyer will reports the Input VAT (VAT on purchases) as well as the output VAT (VAT on sales) in their VAT return for same quarter.

The reverse charge is the amount of Value Added Tax (VAT) would have paid on that goods or services if one had bought it in the UAE. The importer will be disclose the amount of VAT under both Input VAT as well as Output VAT categories of the VAT return of that quarter.

Ketwords: Reverse Charge Mechanism, United Arab Emirates, Value Added Tax, Purchase, Sales.