Just like the rest of the GCC, except Saudi Arabia (which has implemented value-added tax or VAT earlier this year), the United Arab Emirates is new to VAT. The country and its residents have been enjoying a tax-free life since the beginning of time. However, it has changed since 1 October 2017 when Excise Tax was implemented, and it changed even more when the VAT implementation came into effect on 1 January 2018.
There are still people who have yet to grasp the concept of VAT and what it is all about. No one can blame them as it is not something that people are used to. In light of this, everything that is needed to be known by people to understand the VAT implementation is listed below.
What is Excise Tax and VAT?
For everybody else in the world that has been dealing with tax, this is nothing new. But for those who are still yet to experience it, it can be quite confusing. This is mostly directed at the people who are about to face the tax in UAE.
Excise Tax is an indirect tax added on a product when sold. This is mostly applied on products that are unhealthy and are bought by many anyway. This is why it’s known to be called “Sin Tax” as well. Although there are two kinds of Excise Tax, Ad Valorem and Specific, the UAE has chosen to implement the Specific type of Excise Tax. On the other hand, VAT is a value that is added on a product at each stage of production. The consumers carry the burden of paying for the tax at the point of sale.
Why is the GCC Implementing Taxes Now?
The Gulf Cooperation Council (GCC) has discussed about VAT and Excise Tax. They had come to conclusion that there should be Excise and VAT implementation as it is needed for their countries. This is done for each nation to have a diversified government revenue, not just coming from the oil revenues. Tax in UAE can support the needs of the government to provide better infrastructures and services to the residents of their countries.
With the estimated revenue that the UAE will be getting from VAT in the first year, there is a huge budget that can be accumulated. This will give the government a big support in providing more to the public, in terms of comfortability, conduciveness, and ambiance.
Facts About Excise Tax and VAT in UAE
Excise Tax has been implemented and VAT is coming next. The VAT registration in UAE has made people act swiftly to avoid penalties. VAT came into effect and affected a number of products and services. All the businessmen should be prepared by this time with the first blow of tax, ensuring that they have all participated with the VAT registration in UAE.
Below is a list of facts that can help all businessmen, residents, and even tourists in the UAE.
- As one of the first details that were released by the government, all businesses that have taxable supplies of AED 3.75 million and up annually are required to be registered for VAT. Those who have taxable supplies of AED 1.87 to 3.75 million have the option to register for VAT.
- The VAT rate will be 5%, which is one of the lowest rates in the world. This single flat rate will apply to all the taxable goods and services.
- Since tourists are one of the sources of revenue of UAE, they will also pay VAT at the point of sale.
- Foreign businesses who came to visit are allowed to reclaim the VAT that they have incurred while being in the UAE
- There are 14 zero-rated items, such as airfare, aircrafts and vessels for rescue, precious metals, first three years of supply for a residential building, etc., and four VAT-exempt goods and services, such as supply of bare land, local passenger transport, etc.
- The government has also listed 100 items that are not included in being charged with VAT, such as basic food items, healthcare, and education.
- The Excise Tax was implemented on 1 October 2017. From then on, charges on tobacco, energy drinks, and carbonated drinks are at 100%, 100%, and 50%, respectively.
- The people’s income will not be taxed just yet, and it is believed that it won’t happen in the near future. Although the government is looking into all kinds of tax even more.
- The Federal Tax Authority has its own website that is dedicated solely for people’s FAQs, online registration, and tax filing. The government has made it easy for everyone to avoid any more confusions as this would be the first time that residents in the UAE would deal with tax.
- The VAT implementation will not be delayed on 1 January 2018. It will not excuse anyone nor will it give any consideration for other companies to have more time in preparing. This is why the VAT registration in UAE was announced by the government as early as possible.
There can be more technicalities that you are interested to find out or you might want to simply search the nooks and crannies of the tax laws as you deem it necessary for you to understand the whole concept. Regardless of what you are searching for or what you want to know, you can go here directly to find out more and be guided with the VAT registration in UAE or the VAT itself.