UNDERSTANDING VAT (VALUE ADDED TAX) IN THE UAE
WHAT IS VAT? Value Added Tax, or VAT, is a tax that’s levied on consumption or use of goods and services. In other words, it’s a consumption based tax. VAT is charged at every stage in the supply chain — right from the production to the final purchase.
VAT is a form of indirect tax and is used in more than 180 countries around the world. All OECD countries except for the US have VAT (or a variation).
HOW VAT WORKS THROUGHOUT A SUPPLY CHAIN 
VAT is levied at each stage in the chain of production and distribution and is collected by businesses on behalf of the VAT authorities. VAT is ultimately paid by the end consumer.
VAT RATES AND EXCEPTIONS ï‚¢
The Federal Tax Authority (FTA) has placed a fixed VAT rate of 5% on goods and services in the UAE.
VAT RATES AND EXCEPTIONS : ZERORATED SUPPLIES
The following supplies fall under the 0% VAT category : Exports International passenger transport Transport of international goods, for instance containers and vessels Rescue aircrafts or sea vessels Certain medicines and healthcare devices Certain education services Visa charges First sale/rent of residential buildings Certain precious metals considered as investment
VAT RATES AND EXCEPTIONS : EXEMPT SUPPLIES Exempt supplies are those goods and services that are totally exempted from VAT. The following supplies fall under this category : Goods in designated free zones and financial free zones Local passenger transport Financial services including life insurance and reinsurance of life insurance Salaries and bonus of employees Bare land Residential buildings (except for those that are zero-rated)
VAT REGISTRATION IN THE UAE A business should register for VAT is broadly based on the value of their taxable supplies. The classification is as follows: Mandatory registration Voluntary registration Non-resident registration
MANDATORY REGISTRATION A supplier must register for VAT if the total value of its taxable supplies (which includes zero-rated supplies) and imports within The UAE surpasses AED 375,000 in a 12-month period, or is expected tosurpass AED 375,000 in the next 30 days.
VOLUNTARY REGISTRATION A supplier can also voluntarily register for VAT if its total taxable turnover (including zero-rated supplies and imports within the UAE) exceeds AED 187,500, either during the last 12 months or is expected to exceed AED 187,500 in the next 30 days.
NON-RESIDENT REGISTRATION If a non-resident supplier or business entity makes taxable supplies within the UAE, it needs to register for VAT and file tax returns with the FTA.
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