Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent.
VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Implication of VAT on Individuals
VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted.
As a result, the cost of living is likely to increase slightly, but this will vary depending on an individual’s lifestyle and spending behaviour. If an individual spends mainly on those things which are relieved from VAT, he is unlikely to see any significant increase.
The government will include rules that require businesses to be clear about how much VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.
Implication of VAT on Businesses
Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges.
Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
VAT-registered businesses generally:
VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis. It will be a formal submission and reporting will be done online.
If they have charged more VAT than they have paid, they have to pay the difference to the government. If they have paid more VAT than they have charged, they can reclaim the difference.
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