According to the value-added tax, it is important for each company to determine the applicability of the value-added tax on supplies. The value-added tax levied on supplies depends on five key factors. Let us understand the factors that play a role in determining the applicability of VAT on supplies.
1. Commercial supply
An enterprise refers to any activity carried out by anyone on a regular, continuous and independent basis anywhere, such as industry, commerce, agriculture, professional, service or excavation activities or any activity related to the use of tangible or intangible property. Only the supply in the course of operation falls into the scope of VAT collection.
2. Taxable supplies
Taxable supplies refer to goods or services provided for consideration by individuals doing business in the UAE. There are two types of taxable supplies under UAE VAT:
One kind. 5% of taxable supplies
b. Consumables @ 0%
Supply should be taxable supply subject to value-added tax, not tax-free supply.
A list of taxable supplies under UAE VAT can be found in our article “UAE VAT Rates-Ready to calculate”.
3. Supply location
The supply location will determine whether the supply is made in the UAE or outside the UAE. When the place of supply is the UAE, UAE VAT will apply to the supply. Goods and services have different rules for determining the location of supply.
Commodity supply locations can be divided into 3 categories:
One kind. Domestic supplies
b. export product
C. Imported goods
You can learn more about where the goods are supplied in our article “Places of Supply”.
The location of service provision can be determined according to the type of service provided. You can learn more about how to determine where the service is provided in our article “Where the Service is Provided”.
4. Delivery time
The supply time will determine when the VAT accounting for the supplied products will be carried out. It is a mechanism used to determine the point in time at which a company’s taxable transactions generate taxable income. The supply time is also called the supply date. The rules for determining the time of supply of goods and services are also different.
You can learn more about how to determine the time of supply in our article “Time of Supply”.
The consideration for supply is all payments received or expected to be received for the provision of goods or services, whether in currency or other acceptable payment methods. The consideration for the supply will determine the value of the supply for which VAT will be charged. The determination of supply value can be divided into the following situations:
One kind. All consideration is received in cash
b. Did not receive all or part of the consideration
You can learn more about how to determine the value of supply in our article “Value of Supply”. Therefore, tracking these factors will help companies decipher the applicability of VAT on supplies. The collection of VAT on the right transaction, at the right time, at the right value and the relevant VAT rate is important to ensure accurate VAT compliance.