In business, invoices are usually issued and received for goods or services whose prices include tax. Tax-included refers to the value of tax included in the quotation. According to UAE VAT, in some cases, it is mandatory that the displayed price of goods or services include VAT. In this case, if the taxable person fails to show the price of goods or services including taxes, an administrative fine of Dh15,000 will result. At the same time, when issuing tax invoices for the provision of such goods or services, the value-added tax amount must be quoted separately. In this case, let us understand how to calculate the VAT amount if the quotation includes VAT.
When should the price include VAT?
Except for the following circumstances, each taxable person in the UAE shall display the price of taxable goods or services, including value added tax.
Supply for export
The export of goods or services refers to the provision of goods or services to consignees located outside the UAE. There are multiple options for export, and in each option, the method of levying value-added tax is different. To learn more about the export scheme, please refer to our article “Import and Export under VAT”. In the export scenario where value-added tax is levied, the price of goods or services should not include the value-added tax amount.
The customer is the registrant
When the supply of goods or services is provided to another registered person in the UAE, the price of the goods or services supplied shall not include tax. The VAT amount needs to be displayed separately.
Import of goods or services
When importing goods or services, the registrant in the UAE must impose reverse VAT on the imported products. In this case, the invoice submitted by the consignee should show the price, but does not include the value-added tax paid at the time of import.
Formula for calculating VAT when price includes VAT
When the quotation includes value added tax, the following formula can be used to obtain the value added tax amount:
Tax amount = tax included X tax rate ÷ (100 + tax rate) value
Let’s discuss an example to understand this:
Jehan & Co. of Dubai provides TV to Noor Electronics in Abu Dhabi. The price of the TV (including VAT) is 50,000 dirhams. Jehan & Co. hopes to derive the value of taxation.
Here, the VAT rate applicable on TV is 5%.
In this case, let us derive the value of VAT:
Value with tax = AED 50,000
Tax rate = 5
Therefore, the value-added tax amount = 50,000 * 5/105 = AED 2,381
Therefore, when the price of goods or services includes VAT, anyone who wants to calculate the value of VAT can use this simple formula. Please note that in tax invoices that include value-added tax, even if the product or service is sold at a price including value-added tax, the value-added tax amount must be shown separately in the invoice.