1. What is Value Added Tax?
Value Added Tax (VAT) is an indirect tax that is being introduced by the UAE Government, which will be payable by both businesses and individuals.
2. Why is the UAE Government implementing VAT?
The UAE Government is introducing VAT as part of a national strategy towards building a diversified and robust economy and ensuring the continued provision of high-quality public services for the country’s citizens and residents.
3. When will VAT go into effect?
VAT will be implemented in the UAE, effective from the 1st January 2018, at the standard rate of 5%.
4. Will VAT cover all products and services?
VAT will apply to the majority of transactions related to goods and services unless specifically exempted by law. However, there are some exceptions wherein the transaction may be zero-rated or exempted.
5. Who can or will be able to register for VAT?
A business must register for VAT if its taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. However, it may choose to register for VAT voluntarily if its supplies and imports are less than the mandatory threshold but exceed the voluntary registration threshold of AED 187,500.
Global Messaging FZ-LLC, also trading as SMSGlobal, is registered for VAT purposes from 1 January 2018.
6. Who is liable to collect the VAT?
It is the responsibility of each VAT-registered business to levy and collect VAT on behalf of the FTA.
7. Would VAT be charged on the procurements made by me?
Procurements made from VAT-registered taxpayers/suppliers would be subjected to VAT. Suppliers will be liable to issue valid tax invoices that entitle registered customers to recover VAT incurred via the submission of the VAT return. Certain conditions will need to be met for the customer to claim VAT in its VAT return, detailed in the UAE VAT Executive Regulations.
8. Can a supplier waive VAT chargeable to the customer or otherwise absorb the VAT costs?
The imposition of VAT is governed by the VAT legislation. As a VAT-registered business, the supplier will be required to levy and charge VAT on its supply of taxable goods and services. It cannot waive the imposition of VAT payable in respect of certain fees charge.
9. How do I know which transactions are subject to VAT in the list of transactions?
The tax rate applicable on a particular transaction will be clearly marked on the tax invoice. Against each line item for various products on the invoice, the tax rate applicable will be mentioned along with the per-unit price. This is in line with the requirements for a VAT invoice.
10. I am a corporate customer. Can I claim VAT on my expenses?
If an entity is UAE VAT-registered, it will be able to claim the VAT incurred in respect of business expenses, subject to certain conditions being met:
• It is in possession of a valid tax invoice;
• It has paid the consideration amount; and
• The VAT incurred is in respect of the procurement of taxable supplies.
11. How to claim back VAT paid to the supplier?
The VAT-registered supplier must issue a valid VAT invoice in the name of the customer. This invoice may then be used to claim back the VAT paid to the supplier from the FTA if the conditions, as outlined in the legislation/regulations, for claiming VAT paid are met.
12. If the tax invoice is addressed to the employee, can input tax be claimed?
No, the tax invoice obtained must be in the name of the legal entity with its relevant tax registration number and details in order for the entity to claim the input tax incurred on the basis that the expenditure is incurred for the making of taxable supplies.
13. Will the government bodies charge VAT on its fee?
A government entity is regarded as making a supply in the course of business in the following cases:
• If its activities are conducted in a non-sovereign Capacity.
• If its activities are in competition with the private sector. In this instance, VAT will be levied on the services provided on the basis that the place of supply is in the UAE.
14. How do I know if the price agreed is inclusive/exclusive of VAT?
The imposition of VAT is governed by the VAT legislation. As a VAT-registered business, the supplier will be required to levy and charge VAT on its supply of taxable goods and services from the effective date. It cannot waive the imposition of VAT payable in respect of its supplies.