The value-added tax payment in the UAE refers to the tax paid by the value-added tax registered enterprise to the government. From January 1, 2018, businesses registered in the UAE VAT must levy a 5% VAT on the supply of taxable goods and services. Similarly, when they purchase goods or services from a supplier, they must pay a 5% value-added tax.

As we all know, the value-added tax levied by registered enterprises needs to be paid to the government, but what is the problem? Should one pay all the VAT collected at the time of sale? Is there any way to derive or determine the value-added tax payable to the government?

do not worry! We will answer all these questions in detail for you.

Before starting to answer the questions, let us understand what “exported value-added tax” and “imported value-added tax” are, which will help us determine the value-added tax paid to the government.

The VAT amount is the amount you charge when making taxable sales. On the other hand, input VAT is the amount you pay for taxable purchases from suppliers. The input VAT you pay will be paid back to the government by the supplier. As a result, the government provided the income of the input VAT to the recipient or buyer, and allowed him to use the input VAT to adjust the amount of the input VAT and pay the rest. You may be interested in reading “How the VAT System Works” to learn more.

Ok! Although it sounds great, there are certain conditions and restrictions on making a claim for input tax.

So far, most of the above questions about VAT payment can be answered, but for clarity, let us discuss them in detail.

Method of determining VAT payment in the UAE

The formula for determining the UAE VAT payment is very simple. All you need to do is calculate the total output VAT collected during the tax period and the total output tax that you are eligible to recover. After determining, apply the following formula: 

VAT payment = output VAT-(minus) input VAT

VAT payment example

The output VAT and input VAT of Rose General Stores are as follows

Output VAT 300,000 dirhams

Enter 200,000 dirhams for VAT

Rose General Stores’ VAT payment is determined by using the input VAT to adjust the output VAT, as shown below:

Output VAT 300,000 dirhams* (minus sign) Output VAT 200,000 dirhams = 100,000 dirhams are VAT payable and need to be paid to the government. It seems easy to determine VAT payment.

wait! What if the input VAT is greater than the output VAT?

Yes, this is the correct question. In some cases, your input VAT may be higher than your output VAT. In this case, this will result in a refundable VAT, which can be carried forward to the next return period and can be used to offset your future VAT liabilities.

Online VAT payment

The VAT payable determined after offsetting the output VAT with the input VAT must be paid through the FTA portal. Online VAT payment tools will be provided in the FTA portal, where registered companies can remit VAT payable.

HOW TO MAKE VAT PAYMENT USING GIBAN

In order to facilitate the payment of VAT by registered VAT, the free trade agreement introduced a new tax method: GIBAN. This is in addition to the existing e-Dirham facilities and credit card payment options. Let us understand what GIBAN is and how to use GIBAN to pay VAT.

What is GIBAN?

GIBAN (Generated International Bank Account Number) is the only IBAN (International Bank Account Number) that will be allocated to each taxable person based on value added tax. Taxpayers can use GIBAN to transfer funds from certain UAE financial institutions. Transfers through GIBAN will ensure timely processing of fund transfers between bank accounts.

What tax obligations can be paid using GIBAN?

GIBAN can be used to settle outstanding value-added and consumption tax amounts and fines.

Since when can GIBAN be used as a payment method?

From February 28, 2018, GIBAN can be used as a payment method.

How does the taxable person get GIBAN?

Each taxpayer will be assigned a GIBAN based on the TRN (tax number). GIBAN will be displayed on the personnel dashboard of the FTA electronic service portal.

How to use GIBAN to pay?

To use GIBAN to pay taxes due, you need to follow these steps:

Jiban flow chart

Therefore, the free trade agreement reduces the tax burden of taxpayers by using GIBAN to provide new payment methods. Taxpayers can avoid 2-3% of the fee when paying by credit card and choose to use GIBAN for payment, which can ensure that the amount is remitted to the FTA in time.