Value Added Tax


Value added tax was implemented in UAE from 1st January 2018 at the rate of 5%. It is a tax that is imposed at each level of value addition to the product.

For e.g.:

  • First a manufacturer purchases raw materials from a supplier to convert them into finished goods & pays input tax on purchase.
  • Manufacturer converts raw materials into finished goods & sells them to retailers charging output tax.
  • Retailer purchases these finished goods paying input tax on them.
  • Retailer further adds on value by selling them to end customers & charging output tax.
  • The ultimate burden of the tax is borne by customers.

For purposes of VAT 3 Categories have been created namely:

  • Standard rated supplies – These supplies are taxable supplies meaning tax has to be charged on the supply of such goods & services.
  • Zero rated supplies – The supply of such goods & services is zero rated & therefore no tax has to be charged on them.
  • Exempt supplies – Supplies falling under exempt category do not require any tax to be charged & therefore they are completely exempt from tax.

What is the difference between Zero rated & exempt supplies?

If a company is dealing in zero related supplies it still needs to register for VAT & file a VAT Return to disclose its VAT position, however a company making exempt supplies need not register for VAT as they are completely exempt from VAT.

When should one register for VAT?

If the company exceeds the mandatory threshold limit of 375,000 AED it is compulsory for a company to get registered for VAT.

If a company wishes to register for VAT voluntarily then it can do so if it exceeds the voluntary threshold limit of 187,500 AED.

A few benefits of voluntarily registering for VAT are:

  • Recovery of input tax – A company can recover its input taxes if it makes standard rated purchases.
  • Tax registration number – A company is given a Tax registration number or TRN which it can use on its relevant documents (Invoices) to generate trust of its customers & suppliers.

ZERO RATED & EXEMPT SUPPLIES

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