Via Emirati Decree No 13 of 2016, the UAE established the Federal Tax Authority under H.H. Sheikh Khalifa Bin Zayed Al Nahyan (President of the UAE) in 2016 due to the following reasons:
• Reducing oil resource reliance
• Increasing non-oil revenue from the UAE
• To promote economic stability in the UAE.
• Attaining economic variety
Value Added Tax:
• VAT is a tax imposed at the point of sale on the consumption or use of products and services. VAT is a kind of indirect tax and is implemented worldwide in more than 150 countries. VAT is in every country (or similar regulation). Although it sounds close to the general sales tax levied on end-consumers, VAT is a more advanced tax structure that overcomes many of the problems affecting the general sales tax.
• VAT is paid at each point of the supply chain, where the VAT costs are borne by end-users, while specialist agencies collect and operate on behalf of the Federal Tax Authority as tax collectors.
Mandatory VAT rules on entities:
• To charge VAT on taxable products or services provided by them.
• May reclaim any charged VAT on products or services relating to business.
• Keep records of accounts that will enable the government to assess and receive the collected VAT.
If your company is VAT-registered, you have to prepare a quarterly report of your accounts, the amount of VAT you have charged, and the amount of VAT you have paid to the government. However, the tax submission period is on a monthly basis for large classes. It will be a formal and easy online submission.
If you have charged more VAT than you have paid to the authority, you must change your accounts report and pay the government the difference. You will recover the difference from the authority if you have paid more VAT than you owed.
Entities exempted from VAT:
Unless expressly exempted in Article (46) of the Federal Decree-Law No. (8) of 2017 on Value Added Tax, or subject to a zero-rate according to Article (45) of the Federal Decree-Law, VAT, as a general consumption tax, shall be levied at 5% on all transactions of products and services. For example:
• Exports outside of the UAE of products and services.
• Any forms of transport, like airplanes, vessels, trams, trains.
• First residential buildings sales/rent.
• Aircraft or vessels designated for air or sea rescue and assistance.
• Specific investments in precious metals like raw gold.
• Specific healthcare systems and associated products and services, like non-cosmetic procedures.
• Specific educational programs and related products and services, like tuition fees.