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VAT Payment in UAE refers to payment of tax collected by the VAT registered businesses to the government. From 1st January 2018 onwards, the businesses registered in UAE VAT are required to charge VAT at 5% on the taxable supply of goods and services. Similarly, when they purchase goods or services from their supplier, they have to pay VAT at 5%.
It is a known fact, that the VAT collected by the registered businesses is required to be paid to the government, but how much is the question? Should one pay the entire amount of VAT collected on sales? Is there any method to arrive or determine the VAT payable to the government?
No worries! We will be answering all of these questions for you in detail.
Before we start answering the questions, let us understand what is 'Output VAT' and 'Input VAT' which will help us to determine the VAT payment to the government.
Output VAT is the amount which is collected by you on making taxable sales. On the other hand, Input VAT is the amount paid by you for making the taxable purchase from your supplier. The Input VAT amount paid by you will be in turn paid to the government by your supplier. As a result, the government gives the benefit of input VAT to the recipient or the buyer and allows him to adjust the Input VAT amount with Output VAT and pay the remaining. You might be interested to read 'How the VAT System works' to know more about this.
Alright! While this sounds to be too good, there are certain conditions and restrictions for making claims on your input tax.
By now, most of the above questions on VAT payment would have answered but to make it clearer, let us discuss in detail.
The formula to determine VAT payment in UAE is very simple. All you need to do is calculate your total Output VAT collected during the tax period and total Input VAT which you are eligible to recover. After determining, apply the following formula:
VAT Payment = Output VAT - (minus) Input VA
Example of VAT Payment,
The Output VAT and Input VAT of Rose General Stores is given below
Output VAT AED 300,000
Input VAT AED 200,000
The VAT payment of Rose General Stores is determined by adjusting the Output VAT with Input VAT as shown below:
Output VAT AED 300,000 * (Minus) Input VAT AED 200,000 = AED 100,000 is VAT payable which need to be paid to the government. This looks so easy to determine the VAT payment.
WAIT! What happens if Input VAT is more than Output VAT?
Yes, it is the right question. In some situations, your Input VAT might be higher than the Output VAT. In such a situation, it will result in VAT refundable which can be carried forward to the next return period and will be allowed to be utilized against your future VAT liabilities.
The VAT payable determined after off-setting the Output VAT with Input VAT needs to be paid through the FTA portal. The Online VAT payment facility will be provided in the FTA portal, wherein the registered businesses can remit the VAT payable.