Just a Quick Review about VAT in UAE
The value-added tax or known to the world as VAT is an indirect tax. More than 100 countries in the world are using this system wherein a value is added to every supply chain. The United Arab Emirates (UAE) government has decided to set one of the lowest VAT rates in the world at 5%.
What is the Basis of VAT Registration in UAE?
The UAE government has released the information with regard to VAT in 2017; the year when the VAT law was also released. It has been known that those businesses who have hit the mark of having AED 375,000 taxable supplies are required to register for VAT. On the other hand, if a business has AED 187,500 worth of taxable supplies, they can opt to voluntarily register.
What are the Criteria for Tax Liability?
For the first time since the release of the VAT law and the implementation of VAT in UAE, the Federal Tax Authority has clarified something with regard to the criteria of tax liability. This is for people to be able to determine who is liable for VAT on goods and services: supplier or end consumer?
The FTA has issued a statement last March of this year due to a dispute that arose from a business entity and its consumers.
With this, the FTA has given a criterion on when an end consumer is liable for VAT and two criteria on when a supplier is liable for VAT.
End Consumer VAT Liability
They have highlighted the Federal Decree-Law No (8) of 2017 on Value Added Tax that was released last year along with the Executive Regulations. They have clarified that end consumers are only liable for bearing the cost of VAT in the cases that they have received the goods and services after the implementation of the VAT and the contract given to them before the VAT implementation has the statement saying that the amount due is exclusive of VAT.
Supplier VAT Liability
On the other hand, suppliers can be liable to VAT in two cases:
- If a company has given a contract to an end consumer stating that the amount due is inclusive of VAT, and
- If a company has given a contract to an end consumer without any statement about VAT.
It has also been emphasized by the FTA that suppliers shall be liable for accounting for VAT in all cases as they are responsible for paying it to the government.
Importance of Knowing These Criteria
The issue that has risen from a certain company and its customers have also awakened the consciousness of people when it comes to VAT liability. This is not something that should be taken lightly as the application of VAT in UAE is mandated by law and expected by the government to be followed diligently by the residents of the country especially the businesses who are considered as the ones that collect the VAT from consumers. This is why there is a number of tax agents in UAE and Farahat & Co. are authorized to help and represent tax-registered businesses. In this way, there shall be no excuses for not following the law.