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How to Calculate and Pay VAT in UAE

How to Calculate VAT in UAE

In the UAE, companies of all sizes must pay specific taxes in order to perform their activities in the country. And among the most important ones, you will find the VAT in UAE, which you must be aware of. And especially if you are a business owner, you must learn how to carry out the calculation and payment process.

In this article, you will learn everything you have to know about the VAT (Value Added Tax) in the UAE. You will learn not only to calculate it but also to complete the registration process for VAT in this country. Furthermore, we will provide you with vital information about the process to claim VAT at the Dubai Airport as well. Let’s observe:

1. What is the Value Added Tax (VAT) in the UAE?

2. How should you calculate VAT in UAE?

3. How can you pay VAT in UAE online?

4. Learn how you can apply for VAT registration in the UAE

5. How can you claim VAT at Dubai Airport?

6. How can Kinza HR help you learn more about VAT in UAE?

1. What is the Value Added Tax (VAT) in the UAE?

Calculate VAT in UAE

Having a clear understanding of the VAT or Valued Added Tax is essential for any person who runs a business. The UAE VAT is a fee that the government charges on several types of goods, services, income, and similar transactions. And the main purpose of this particular fee is to finance public services, as well as government expenditure and more.

So, we can say that it is a general consumption tax that applies to most of the transactions in goods/services. And you should also know that this tax is applied not only in the UAE but in other countries too. However, the VAT rate and calculation will clearly vary depending on the country where you operate your business or company.

In 2018, the UAE government introduced this tax with a rate of 5 percent, which has not changed for now. Businesses will charge this fee on behalf of the government, and the authorities will use it to make different improvements. For instance, they will use this income source to provide high-quality public services and improve the country’s economy and society.

How does VAT work in the UAE?

To understand how the VAT in UAE works, we shall take a look at an example of the process. Let’s use the process of selling vegetables to explain step by step how the VAT must be collected:

  • Farmers who grow vegetables will need to collect the VAT when selling them to a factory. And if they sell their vegetable at a specific price, they must add 5 percent of that price, which will be the VAT.
  • Then, the factory gets the vegetables and starts manufacturing goods with them. And after that, the factory sets a price for the finished product and sells it to retail chains. But it must also charge an additional 5 percent of the product’s price for the VAT.
  • Lastly, the retailer that acquired the product will sell it to end consumers for a set price. And just like the farmers and the factory did, the retailer must charge an additional 5 percent of the product’s price. Therefore, end consumers are the ones who actually end up paying the VAT after this process.

Why is the VAT important for the country’s economy?

After carrying out in-depth studies, the government decided to introduce VAT in UAE to benefit the nation. And besides becoming a favorable element, the UAE authorities also discovered that it would not impact the business sector. In other words, the implementation of this tax would not affect the country’s position and competitiveness.

On the other hand, it is also worth mentioning that it is among the lowest VAT rates on a global scale. Therefore, many foreign investors and entrepreneurs find the UAE an attractive place to start their businesses and reach success.

Furthermore, using the VAT in UAE as an income source can help the country in many other aspects. For instance, apart from improving public services, it can also reduce the dependence on oil and other hydrocarbons as income sources. Since VAT is an important element that helps the national economy, it is one of the most important taxes.

Who is required to register and pay VAT in UAE?

In the UAE, it is mandatory for all businesses to complete the VAT registration process depending on one main factor. If their taxable supplies and imports exceed AED 375,000 on an annual basis, it is mandatory to register for VAT. On the other hand, there are other businesses that can register for VAT, but it is not mandatory for them.

There are two main conditions under which businesses can voluntarily register for VAT in this country, which are the following:

  • If their supplies/imports exceed the voluntary registration threshold (AED 187,500) but do not exceed the mandatory registration threshold (AED 375,000).
  • And if the expenses of those businesses exceed the voluntary registration threshold, they must be aware of something about it. This is an opportunity that was designed to enable start-up businesses/companies with no turnover to register for VAT.

As we mentioned before, voluntary registration for VAT is optional if your business meets the previously mentioned conditions. Therefore, it is up to you to determine if registering for VAT is a benefit or disadvantage for your business. If you consult this matter with our specialists, it will be easier to make the right decision.

2. How should you calculate VAT in UAE?

In order to calculate the Value Added Tax correctly, you can whether use a VAT calculator or calculate it manually. But if you desire to learn how to calculate it, it is vital to know about some basic concepts first. For example, output and input VAT are some of the concepts related to the VAT calculation that you should know.

It is essential for businesses to keep track of their sales purchase and expenses, which must include the tax paid. And when it comes to the tax payable by a particular taxpayer, it is equal to the tax collected on output and input. The tax collected on output is sales, meanwhile, the tax paid on input is purchases. Let’s take a look at an example to understand the calculation process:

A coffee shop spends AED 100,000 to obtain raw materials. Remember that the VAT rate is 5 percent, so let’s add it as the input tax. Now, the total calculation will be AED 105,000 (AED 100,000 plus its 5%, which is AED 5,000).

Then, the coffee shop makes sales of AED 200,000 and must pay the output tax, which is also 5 percent. In this case, the total calculation will be AED 210,000 (AED 200,000 plus its 5%, which is AED 10,000). Therefore, the net VAT payable is AED 5,000 (AED 10,000 minus AED 5,000).

3. How can you pay VAT in UAE online?

VAT Calculator UAE

If you are a registered taxpayer, you have to learn how to pay VAT in UAE online. But first, you must file the VAT returns either on a quarterly or monthly basis. And then, make sure to follow these steps to make a VAT payment online:

  • Log in to the FTA (Federal Tax Authority) portal, go to the dashboard, and select the “My Payment” option.
  • Then, you will see the amount you must pay under the “VAT & Penalty Payment” section, which is the Total Outstanding Liability.
  • And below that section, you can enter the amount you desire to pay. Then, click “Make Payment”.
  • Right after clicking “Make Payment”, you will be redirected to the “Payment Information” section. There, you must click “Pay Now” to be redirected to the e-Dirham gateway.
  • Then, you can proceed with the payment, which you can make through an e-Dirham or non-e-Dirham card. Confirm the transaction and you will successfully complete the VAT payment.

Although you can make a partial payment, remember that you must pay the total amount before the due date. Otherwise, you will face some penalties.

4. Learn how you can apply for VAT registration in the UAE

Before paying VAT in UAE, you must complete your registration for VAT through the FTA (Federal Tax Authority) portal. Also, you must follow several simple steps, which we will explain below:

  • You need to open the VAT registration portal on the FTA official website, then create your user account.
  • Once you create your account, you will receive an email to verify your details and activate your new account. After that, you will be able to log in to the portal with your user credentials.
  • After logging in, you have to go to the VAT registration form and provide the required details to complete the process.
  • Make sure to provide all necessary documents and meet the requirements to finish the process. Below, you will learn more about these elements.
  • Once you have successfully completed the application, you must click “Submit”. Then, the FTA will review your application and send you an email to confirm your TRN (Tax Registration Number).

What are the requirements for completing the VAT registration?

In order to register for VAT in UAE, you must provide the following documents during the application process:

  • A copy of your passport.
  • Your Emirates ID.
  • Your Trade License.
  • And any official documents that authorize you to conduct business activities in the UAE.

Apart from your information, you also need to submit information about your business. And when it comes to your business, you must provide the following details about it:

  • A description of your business and its activities.
  • Turnover figures for the last 12 months.
  • The projected turnover figures for the future.
  • And the expected values of its imports and exports.

After providing these required documents, you will complete the process.

5. How can you claim VAT at Dubai Airport?

The UAE government implemented a scheme about VAT refunds for taxable persons, which involves different situations/conditions to claim VAT refunds. And you can claim VAT refunds if you are eligible for them under certain special schemes. Among the taxable persons who are eligible for VAT refunds in the UAE, you can find these:

  • Foreign businesses.
  • Tourists.
  • UAE nationals building new residences.
  • Foreign governments, international organizations, and diplomatic bodies.

If you are a tourist, you can claim VAT refunds incurred on your purchases, as per the FTA rules. Firstly, you should know that there is a digital system implemented at Dubai, Abu Dhabi, and Sharjah airports. This system of the Tax Refund for Tourists Scheme was the first phase of this initiative. Later on, the system became fully operational, and it now includes all airports in the UAE, and land/sea ports too.

And to get a VAT refund, you only need to follow two steps. The first one is asking the shopkeeper to buy tax free, and then, they activate the refund procedure. And the second step is validating your purchase at the airport before departure. This way, you will be able to collect your VAT refund.

6. How can Kinza HR help you learn more about VAT in UAE?

With Kinza HR by your side, the best specialists will help you understand legal matters like this in the UAE. Furthermore, we will provide you with different services to help you improve your company, including Emiratisation Program, Employer of Record UAE, etc. Also, Kinza HR provides temp staffing solutions, permanent hiring solutions, payroll outsourcing services, and many others to take your business to the next level.

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