Check this comprehensive VAT guide prepared for UAE region for reference purposes.

Business Impact

VAT Flow

Accounting Treatment

Example

Contoso LLC purchased a product of AED 50000 on which 5% standard VAT is applicable. VAT paid is AED 2,500 (Input VAT)

Contoso LLC sold product of AED 100,000 on which 5% standard VAT is applicable. The VAT is AED collected is 5,000. (Output VAT)

Net VAT Payable by Contoso LLC to Government is AED 5,000 – AED 2,500 = AED 2,500.

Accounting Entries in Contoso Books

Nature of Supplies  

Example of VAT Due Calculation

M/s Contoso LLC made taxable sales of the following on which standard rate of 5% is applicable. All supplies are inclusive of VAT. Expenses (Purchases) incurred by the company in the making of total sales amounted to AED 65,000 inclusive of VAT. Let us see how the VAT due is calculated with different scenarios.

Output Tax Payable = Sales (Incl. of VAT) *5/105

Input Tax Recoverable = (Total Supplies – Exempted Supplies) *5/105

Net VAT Payable/(Refundable) = Output Tax – Input Tax

Place of Supply of Goods

Place of Supply of Services

Exceptions to Place of Supply of Services

Domestic supplies
If the recipient is registered for VAT in another GCC state, then the place of supply for the service is the other GCC state.

Imports from outside GCC
If the supplier is a non-UAE resident who provides service to a VAT-registered resident in the UAE, then the place of supply is the UAE.

Installation
The place of supply for installation services is where the installation is done. Real estate-related services
This type of service includes:
(i) Real estate experts and agent services
(ii) Granting the right to possess or use real estate
(iii) Services related to construction work   The place of supply for real estate services is where the real estate is located.

Hotel and restaurant service
For restaurants, hotels, and catering services, the place of supply is where the services are performed.

Telecommunication and electronically-supplied services
The place of supply for wired and wireless telecommunication services and electronically supplied services will be the location where the services are used or received.

Cultural services
For cultural, art, sports, educational, or similar services, the place of supply is where the services are performed. Passenger transportation services
The place of supply for passenger-related transportation services is the location where transportation begins.

Reverse Charge Mechanism

A mechanism under which the recipient of goods or services is required to pay VAT instead of the supplier, when the supplier is not a taxable person in the member state where the supply has been made.

Example

Import Value

Import is defined as the arrival of Goods from abroad into the State or receiving Services from outside the State.

In case of Normal Import Transactions

In Case of Excise Duty Goods

Filing

Filing Online through FTA Portal

Return filing Monthly / Quarterly

If last day is a public holiday, deadline be extended to the first business day after the holiday

Return must contain details of all supplies bought and sold

Each Emirate wise break up of supplies may be required

Late filing may attract penalties

Any corrections for a previous period can be made

VAT Record Keeping

Each company shall maintain its accounting books/records in its place of business for a period of at least 5 (five) years from the end of the financial year of the company.

Following record examples that shall be maintained by the business with accuracy, paper/electronic format, for the specified period.

APPENDIX

 Value Added Tax: A tax imposed on the import and supply of Goods and Services at each stage of production and distribution, including the Deemed Supply.

Tax: Value Added Tax (VAT)

GCC States: All countries that are full members of The Cooperation Council for the Arab States of the Gulf pursuant to its Charter.

Implementing States: GCC States that are implementing a Tax law pursuant to issued legislation.

Goods: physical property that can be supplied including but not limited to real estate, water, and all forms of energy as specified in this Decision.

Services: anything that can be supplied other than Goods.

Standard rate: the applicable VAT rate as specified in Article (3) of the Decree-Law.

Import: the arrival of goods from abroad into the State or receiving Services from outside the State. Concerned Goods: Goods that have been imported, and would not be exempt if supplied in the State.

Concerned Services: Services that have been imported where the place of supply is in the State, and would not be exempt if supplied in the State.

Person: natural or legal person.

Taxable Person: any Person registered or obligated to register for Tax purposes under the Decree-Law.

Taxpayer: any person obligated to pay Tax in the State under the Decree-Law, whether a Taxable Person or end consumer.

Legal Representative: the manager of a company or a guardian or custodian of a minor or incapacitated person, or any other Person appointed legally to represent another person.

Tax Registration: a procedure according to which the Taxable Person or his Legal Representative registers for Tax purposes at the Authority.

Tax Registration Number (TRN): a unique number issued by the Authority for each Person registered for Tax purposes.

Registrant: The Taxable Person issued with a TRN.

Recipient of Goods: Person to whom Goods are supplied or imported.

Recipient of Services: Person to whom Services are supplied or imported.

Tax Return: information and data specified for Tax purposes and submitted by a Taxable Person in accordance with a form prepared by the Authority.

Consideration: all that is received or expected to be received for the supply of Goods or Services, whether in money or other acceptable forms of payment.

Business: any activity conducted regularly, on an ongoing basis and independently by any Person, in any location, such as industrial, commercial, agricultural, professional, service or excavation activities or anything related to the use of the tangible or intangible property.

Exempt Supply: a supply of Goods or Services for Consideration while conducting Business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law.

Taxable Supply: a supply of Goods or Services for a Consideration by a Person conducting Business in the State, and does not include Exempt Supplies.

Deemed Supply: anything considered a supply and treated as a Taxable Supply according to the instances stated in the Decree-Law.

Input Tax: Tax paid by a Person or due from him when Goods or Services are supplied to him, or when conducting an Import.

Output Tax: Tax charged on a Taxable Supply and any supply considered to be a Taxable Supply.

Recoverable Tax: amounts that were paid and can be repaid by the Authority to the Taxpayer pursuant to the provisions of the Decree-Law.

Due Tax: Tax that is calculated and charged pursuant to the Decree-Law.

Payable Tax: Tax that is due for payment to the Authority.

Tax Period: the specified timeframe, for which Payable Tax shall be calculated and paid.

Tax Invoice: a written or electronic document in which the occurrence of a Taxable Supply is recorded with details pertaining to it.

Tax Credit Note: a written or electronic document in which the occurrence of any amendment to a Taxable Supply that reduces or cancels it is recorded and the details pertaining to it.

Government Entities: Federal and local ministries, government departments, government agencies, authorities and public institutions in the State.

Charities: societies and associations of public welfare not aiming to make a profit that are listed within a decision issued by the Cabinet upon the recommendation of the Minister.

Mandatory Registration Threshold: an amount specified in this Decision that if exceeded by the value of Taxable Supplies or is anticipated to be exceeded, the supplier must apply for Tax Registration.

Voluntary Registration Threshold: an amount specified in this Decision that if exceeded by the value of Taxable Supplies or taxable expenses or is anticipated to be exceeded, the supplier may apply for Tax Registration.

Transport-related Services: shipment, packaging and securing, preparation of Customs documents, container management, loading, unloading, storing and moving of Goods, or any another closely related services or services that are necessary to conduct the transportation services.

Place of Establishment: the place where a Business is legally established in a country pursuant to its decision of establishment, or in which significant management decisions are taken and central management functions are conducted.

Fixed Establishment: any fixed place of business, other than the Place of Establishment, in which the Person conducts his business regularly or permanently and where sufficient human and technology resources exist to enable the Person to supply or acquire Goods or Services, including the Person’s branches.

Place of Residence: the place where a Person has a Place of Establishment or Fixed Establishment, in accordance with the provisions of the Decree-Law.

Non-Resident: any person who does not own a Place of Establishment or Fixed Establishment in the State and usually does not reside in the State.

Related Parties: two or more Persons who not separated in economic, financial or regulatory aspects, where one can control the others either by Law, or through the acquisition of shares or voting rights.

Designated Zone: any area specified by a decision of the Cabinet upon the recommendation of the Minister, as a Designated Zone for the purpose of the Decree-Law.

Export: Goods departing the State or the provision of Services to a Person whose Place of Establishment or Fixed Establishment is outside the State, including the Direct and Indirect Export.

Direct Export: An Export of Goods to a destination outside of the Implementing States, where the supplier is responsible for arranging transport or appointing an agent to do so on his behalf.

Indirect Export: An Export of Goods to a destination outside of the Implementing States, where the overseas customer is responsible for arranging the collection of the Goods from the supplier in the State and who exports the Goods himself, or has appointed an agent to do so on his behalf;

Overseas Customer: A Recipient of Goods who does not have a Place of Establishment or Fixed Establishment in the State, or otherwise resides in the State, and who does not have a Tax Registrations Number.

Voucher: any instrument that gives the right to receive Goods or Services against the value stated thereon or the right to receive a discount on the price of the Goods or Services. Vouchers do not include postage stamps issued by the Emirates Post Group.

Capital Assets: Business assets designated for long-term use.

Capital Assets Scheme: a scheme by which initially recovered Input Tax is adjusted based on actual use during a specified time.

Administrative Penalties: amounts charged to a Person by the Authority for a breach of the provisions of the Decree-Law or the Federal Law No. (7) of 2017 on Tax Procedures.

Tax Group: two or more Persons registered with the Authority for Tax purposes as a single taxable person in accordance with the provisions of the Decree-Law.

Notification: notification to the concerned person or his Tax Agent or legal representative of decisions issued by the Authority through the means stated in the Federal Law No. (7) of 2017 on the Tax Procedures.

Tax Evasion: the use of illegal means by a Person resulting in lowering the amount of Due Tax, non-payment of the Due Tax or a refund of Tax that he does not have the right to have refunded under the Decree-Law.

Disclaimer

This guide is prepared only with my individual knowledge and personal understanding of the VAT. Please confirm with the relevant authorities for any guidance required. I’m not responsible in any capacity and please let me know any mistakes or errors in the comments section. This document is prepared for the general understanding of Value Added Tax (VAT) applicable to the UAE region. The document may contain a collection of information from various sources, application of our skills and expertise on the subject. The document is not created for any commercial purposes instead purely for knowledge sharing exercise among our internal employees, external clients or other public. Any words, sentences or content resembling other publications can either be coincidental or used solely for informative purposes only. If such publications wish to remove such content from this document, they may write in the comments section.