Starting January 1, 2018, all registered companies in the UAE are required to charge 5% Value Added Tax (VAT) on the supply of taxable goods and services. The VAT collected from customers must be paid to the Federal Tax Authority trn verification (FTA). While it is clear that 5% VAT must be charged, businesses need to determine the appropriate value on which to levy VAT Registration. Incorrect valuation can lead to underpayment of taxes, resulting in noncompliance and legal issues, or overpayment, reducing company revenue.
The process of figuring out the right value for VAT Registration is called valuation. The UAE VAT law’s ‘Value of Supply’ provision offers guidance on accurately valuing supplies for VAT. This removes confusion that leads to under or overvaluation, avoiding disputes on valuation.
So how do you determine the value of supply for VAT in the UAE?
Value of Supply in the UAE VAT Registration uae System
First, it is important to understand ‘Consideration,’ which sets the scope for determining value of supply.
The UAE VAT law defines consideration as ‘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.’ This means consideration can be monetary or non-monetary.
Based on the consideration received for goods and services, value of supply is categorized into two situations:
Entire consideration is monetary
Full or partial non-monetary consideration
If the entire consideration is monetary, the value of supply is the consideration less VAT Registration. In other words, it is the sale value including all charges and expenses like discounts, packing fees, etc.
For example, Ali Spares Ltd sells spare parts worth AED 400,000 to a customer who pays by debit card. They also charge AED 5,000 for packaging. Here, the value of supply is AED 405,000 (Spare parts AED 400,000 + Packaging AED 5,000). VAT will be AED 20,250 (405,000 x 5%).
In general, consideration is assumed to include VAT unless stated otherwise.
Determining Value Inclusive of VAT
To find the value when the total consideration includes VAT, deduct the VAT amount. To calculate VAT Dubai:
VAT Amount = Total Consideration x 5 (VAT Rate) / (100 + 5 VAT)
For example, if the total consideration for spare parts is AED 425,250 inclusive of 5% VAT, the VAT amount is AED 20,250. Deduct this from the total consideration of AED 425,250 to get the value of supply of AED 405,000.
In summary, the UAE VAT law provides guidance to accurately determine the value of supply for VAT, avoiding under or overvaluation. Following the rules on monetary and non-monetary consideration allows businesses to calculate the correct VAT Dubai.