Zero Rate Suppliers in UAE Need to Pay Indirect Taxes

 

It was on August 27th, 2017 that the UAE government first introduced its Value Added Tax Decree Law. It is believed that on January 1, 2018, indirect taxes were introduced in the UAE. The standard value-added tax rate will be 5 percent, with a nil rate for certain essential items. Analysts across the globe predicted that the purchasing power of commoners had gone down due to the introduction of indirect tax regulation. The value-added service rate of five percent imposed on goods and services is considered one of the lowest tax rates across the globe. The introduction of Vat across the UAE shook all the businessmen right at the beginning of the New Year 2018. They were frightened due to the fact that the government will impose strict law and order in terms of VAT compliance and financial transparency across the commercial sector. It has become mandatory for businessmen to learn about the application of VAT to their respective business activities and transactions. The demand for tax and accounting services has skyrocketed to such an extent that most business houses are seeking the help of third parties in framing new costing schemes. The law is only applicable to those business houses whose expenses or taxable income have exceeded the AED 375,000 threshold within a period of 12 months or so and need to register for VAT schemes. Voluntarily, if any business wants, they may also register their supplies for expenses if they are more than AED 1,87,500. According to Article 45 of Federal Decree Law No. 8 of 2017, value-added taxes of 0% will be levied on the following services:

·         Export of goods and services

·         Exported Telecommunication Services

·          International transportation services for passengers and goods

·          Supply of certain means of transport

·         Buildings specifically designed to be used by charities

·          Precious metals

·         Converted residential building

·          Education services

·          Healthcare services

·          Statement of Reverse Charge (if applicable)

According to Article 46, supplies that are exempt from VAT involve those of

a) Certain financial services

b) Local passenger transport

c) Bare land

d) Residential buildings other than zero-related

 VAT invoices are issued by a VAT-registered supplier, It serves as a proven record for all those people who paid the taxes. One should have the invoice within 14 days once goods and services are supplied.

According to the UAE government, VAT invoices should include the following credentials:

·         Company Name

·         Company Address

·         Tax Registration Number

·         Sequential/Unique Numbering

·          Issue Date

·          Description of goods and services

·          VAT Rate

·         VAT Amount (AED)

·         Unit Price of Goods and Services

·         Customer Name and Address

One also needs to submit a VAT return document whenever it is required by the FTA before the due date. Generally, this is filed on a quarterly or monthly basis. The return document contains output tax due and input tax recoverable, along with other information that is needed to complete the VAT return format. The due date for filing the VAT return is the 28th day after the end of the tax period. Payment at once should also be received by the FTA on or before the 28th day. If someone, for any reason, fails to submit the VAT return paper, then they will have to incur penalties. It has become mandatory that VAT-registered businesses maintain several books of accounts and records for at least a five-year period at a stretch. It includes those of Ø Record of all supplies and imports of goods and services Ø All tax invoices and tax credit notes issued and received; Ø Records of goods and services disposed of; Ø Records of adjustments or corrections made to accounts or tax invoices Failure to maintain the required record will incur a heavy penalty of between AED 10,000 and AED 50,000 for each repeated violation. If someone fails to display prices inclusive of taxes, they generally incur a penalty of AED 15,000. If a person fails to show a tax invoice, they generally pay a penalty of AED 5,000 for each mixing tax invoice or an alternative document.

The introduction of VAT in the UAE leads to rapid economic growth for the country. It helps to standardize a business process and also enables the growth of a country's gross domestic product.