With the introduction of VAT in UAE from 1st January, 2018, VAT rate at 5% will be applicable on supply of goods and services in the State. The businesses registered under UAE VAT are responsible to levy VAT @ 5%, collect it and remit it to the government. On most of the supplies in UAE, VAT rate at 5% will be levied and certain specified goods or services and a certain type of supplies will be classified as exempt supplies and zero rate supplies . Thus, broadly the tax structure for the purpose of levy, can be classified as below:
|UAE VAT Rate Structure|
|Rate Type||Rate of Tax|
As mentioned in the above table, standard rate of 5% will be levied on all taxable supply of goods or services in the state including imports. The VAT rate of 5% will be levied on the taxable value, which the registered person needs to determine in accordance with the provisions of the Act or Regulation. In most of the cases, the taxable value will be the sale value.
The standard rate of 5% is uniform across the GCC member states.
How will I determine whether a supply is a taxable supply? So that the standard rate of 5 % VAT can be levied when goods and service are supplied.
No Worries! It is very simple
The term 'taxable supply' simply refers to all types of supply of Goods or Services for a consideration made by a taxable person conducting business in the State including zero rate supplies but does not include exempt supplies. Though zero-rated supplies are included as taxable supplies, the levy of tax will be at zero percent.
Thus, except zero-rated supplies and exempt supplies, on all other supplies, VAT rate of 5% should be levied.
For you to determine whether 5% VAT should be levied on your supplies, all you need to do is:
1.Determine whether any of your supplies are under zero-rated or exempt supplies list.
2.If none of your supplies are under zero-rated list and exempt list, it is understood that all your supplies are taxable supplies and you need to charge VAT at 5%.
3.If few of your supplies are under zero-rated list or exempt list, except those, all others will be taxable supplies and you need to charge VAT at 5%.
The executive regulations will provide the details of supplies which are zero-rated and goods or services which are exempted. Generally, all exports are zero-rated, however, subject to fulfilment of conditions. Supplies like notified financial services, residential building, local transportation etc. are few examples of exempt supplies.
It is very crucial for businesses to determine the taxable supplies on which VAT rate of 5% is to be levied. An early determination will help you to prepare well in advance and avoid the consequences of non-compliance.