VAT Applicability: How to Identify the Applicability of VAT on a Supply?

Identifying VAT applicability on supply


Under VAT, it is important for every business to identify the VAT applicability on supplies.The levy of VAT on a supply depends upon 5 key factors. Let us understand the factors which play a role in determining the VAT applicability on a supply.

1. Business supply

A business is 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 tangible or intangible property. Only a supply which is in the course of conduct of business will be in the scope of VAT levy.

2. Taxable supply

A taxable supply is a supply of goods or services for a consideration by a person conducting business in UAE. Taxable supplies under UAE VAT are of 2 types:

  • a. Supplies taxable @ 5%
  • b. Supplies taxable @ 0%

A supply should be a taxable supply, and not an exempt supply, for the levy of VAT.

The list of taxable supplies under UAE VAT is available in our article 'UAE VAT rates- Ready reckoner' .

3. Place of supply

The place of supply will determine whether a supply is made in UAE or outside UAE. UAE VAT will be applicable on a supply when the place of supply is UAE. The rules for determining place of supply are different for goods and services.

Place of supply of goods can be divided into 3 categories:

  • a. Domestic supplies
  • b. Exports
  • c. Imports

You can learn more about the place of supply of goods in our article 'Place of supply of goods'.

Place of supply of services can be determined based on the type of service supplied. You can learn more about how to determine the place of supply of services in our article 'Place of supply of services'.

4. Time of supply

The time of supply will determine when to account for VAT on supplies made. It is a mechanism which determines the point in time when the tax liability will arise on a taxable transaction, which a business is liable to pay. Time of supply is also referred to as date of supply. The rules for determining the time of supply are again different for goods and services.

You can learn more about how to determine the time of supply in our article 'Time of supply'.

5. Consideration

Consideration for a supply is 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. Consideration received for a supply will determine the value of supply on which VAT is to be charged. Determination of the value of supply can be categorized into the following situations:

  • a. The entire consideration is received in money
  • b. Full or partial consideration is not received in money

You can learn more about how to determine the value of supply in our article 'Value of supply' . Hence, keeping track of these factors will help a business to decipher the VAT applicability on supplies. Levy of VAT on the correct transactions, at the correct time, on the correct value and at the relevant VAT rate is important to ensure accurate compliance under VAT.



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