What is what and Explanation

Value Added Tax is a tax on consumption levied at each stage of the supply chain and ultimately borne by the end consumer VAT is a transaction-based indirect tax which is levied at each step of the supply chain. End consumers generally bear the VAT cost while registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the Federal Tax Authority. VAT is used in more than 180 countries around the world. All OECD countries except for the US have VAT (or a variation). While it feels exactly the same as a general sales tax to end-consumers, VAT is a more sophisticated tax and overcomes many challenges that affect the general sales tax.

VAT Refund for Tourists

Tourists to the UAE can also get the VAT they have paid back when they leave the country. However, they are required to pay a 15 per cent administrative fee as well as a 4.8 per cent tag fee for every individual claim. Tourists visiting the UAE who are at least 18 years old are eligible for the refund. The visitor must also intend to exit the UAE along with the purchased goods within 90 days. However, the VAT paid cannot be refunded unless the total value of tax-inclusive purchases is at least Dh250. Tourists can get their money back at the airports in Abu Dhabi, Dubai and Sharjah. Tourists will receive their refunds through a special device placed at the departure port – airport, seaport, or border port – by submitting the tax invoices for their purchases from the outlets registered in the Scheme, along with copies of their passport and credit card. Once these documents are submitted, tourists can either recover the VAT in cash in UAE dirhams, or have it transferred to their credit card. Until October 2018, 4,000 retail outlets across the UAE were connected electronically to the system. These eligible outlets can be identified with posters displayed on their storefronts and visible to visitors.

VAT services in UAE and exemption

Under VAT there are three categories: 5% Value Added Tax Zero-rated supplies Exempt supplies

FTA defines conditions for companies to de-register from VAT in UAE

Failing to submit application could lead to the imposition of administrative penalties Abu Dhabi: The Federal Tax Authority, FTA, has defined the conditions for tax de-registration, in accordance with Federal Decree-Law No. 8 of 2017. In a statement issued on Saturday, the Authority clarified the conditions and procedures for de-registration for Value Added Tax (WAT), since its implementation. The FTA explained that if a registrant stops making taxable supplies or if the value of the taxable supplies made by the registrant over a period of 12 consecutive months is less than the voluntary registration threshold of Dh187,500 and it is not expected that the total value of the registrant’s anticipated taxable supplies or expenses subject to tax in the coming 30-day period will exceed the voluntary registration threshold, then the registrant must submit a de-registration application to the Authority. It went on to say that the de-registration application must be submitted within 20 business days of the occurrence of any of the aforementioned cases using the Authority’s e-Services portal, adding, “knowing that failing to submit the de-registration application within the period specified in the tax legislation will lead to the imposition of administrative penalties as stipulated in the Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.” The Authority confirmed that registrants will not be de-registered unless they have paid all due taxes and administrative penalties and filed all required tax returns for the period in which they were registered as stipulated under the tax legislation.

FTA clarification on VAT application for e-commerce

The UAE’s Federal Tax Authority (FTA) on Wednesday further clarified that though five per cent value-added tax (VAT) will be applicable to general e-commerce purchases however there are a number of special rules that apply specifically to e-commerce transactions. It said the tax will also be applicable on digital services including supply of domain names, web hosting and remote maintenance programmes and equipment, software, images, text and information provided electronically such as pictures, screen savers, electronic books, documents and other digitised files such as music, movies and games on demand and online magazines. Other services identified under the banner of “electronic services supplies” include the supply of advertising space on a website and the rights associated with that advertisement, and political, cultural, artistic, sports, scientific, educational or entertainment broadcasts, including broadcasts of events, live streaming via the internet, the supply of distance learning services, and services of any equivalent type that have a similar purpose and mission. The growth of e-commerce sector picked up even further in the wake of coronavirus pandemic with UAE residents on average spending over Dh6,000 a year. “In light of the increasing importance of the e-commerce sector, clear mechanisms for procedures have been identified. Value-added tax, as it relates to the supply of goods and services through electronic means, contributes to supporting the activities of this vital sector, which depends on a locally developed digital and technological infrastructure,” said Khalid Ali Al Bustani, director-general of FTA. It added that taxable persons should charge VAT to customers when supplying taxable goods or services at the standards rate of 5 per cent or at a rate of zero per cent where law permits. If the supplies are exempt from tax, these supplies are not treated as a taxable supplies and therefore no VAT needs to be charged on these supplies. As per the Article (18) of Decree Law, a non-resident shall register for tax and makes supplies of goods or services, there is no threshold limit applicable to the non-residents. “This means if a consumer in the UAE buys a service/product from an online platform (social media, e-commerce, education, games, arts, fashion, music or any other services), the non-resident shall register for the VAT within the stipulated time and comply with local tax legislation,” As per the UAE legislation, the place of supply of electronic services shall be UAE if the use and enjoyment of the supply is within the country. Pursuant to Article (31) of the Decree law, provision of electronic services are subject to tax.

Introduction to Taxation System
Introduction to Taxation System

The Gulf Cooperation Council (GCC) announced the introduction of a new tax system in all its member states-the United Arab Emirates (UAE), the Kingdom of Bahrain, the Kingdom of Saudi Arabia (KSA), and the Sultanate of Oman-Qatar and Kuwait. Since the announcement, due to changes in certain existing business practices, the need for companies in these countries to understand tax topics and prepare in advance has increased. Please note here that as the first article in the GCC VAT series, we will briefly introduce taxation. The term tax only refers to the fees or amounts paid by individuals or business entities to the government. The taxation mechanism is an old concept. It can be traced back to ancient Egypt, Greece, Roman Empire, etc. Nowadays, almost all countries in the world have established one or more tax systems, which force individuals or business entities to pay different types of taxes on income or different economic activities in their own country. Based on this, taxes can be roughly divided into “direct taxes” and “indirect taxes”. Let us understand what are direct taxes and indirect taxes? The proposed new tax system VAT is an indirect tax levied on the supply of goods and services in the member states of the Gulf Cooperation Council. Particulars Direct Tax Indirect Tax Meaning Direct tax is a type of tax in which the occurrence of tax and the tax burden belong to the same person or business entity. These taxes are usually levied on the income of individuals or business entities. Indirect tax is a type of tax in which the occurrence of tax and the tax burden are borne by different individuals or business entities. This usually applies to various economic activities such as manufacturing, sales, service, etc. Examples Corporate Tax : Taxes paid on the Profit or gains and business entity earns Income Tax : Tax levied on income an individual earns Sales Tax : Tax levied on sale of goods Excise Duty : Tax on manufacturing of goods Service Tax : Tax levied on rendering of Services WHO is liable to Pay Tax Income individuals or individuals need to pay taxes directly to the government, for example, individuals need to pay income taxes directly to the government. In this case, the tax burden is transferred to the final consumer, that is, the business entity acts like a designated agent of the government, collecting tax from the final consumer and depositing the tax into the government account The new tax system VAT which is proposed to be implemented is an indirect tax levied on the supply of goods and services in GCC member countries. Let us understand-why tax? The government has been providing citizens and residents with many public services, such as healthcare, roads, public schools, parks, and police services, all of which are provided by the government budget. Taxation will help increase new sources of income, which will help provide high-quality public services. This will also help the government’s fiscal revenue to reduce its dependence on oil and other hydrocarbon natural resources to a certain extent.

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