Value Added Tax (VAT), is going to be introduced in the United Arab Emirates from the 1st of January, 2018. The rate of VAT is likely to be as low as 5%. The UAE is implementing VAT to provide the UAE residents with better quality infrastructure and public services and to also reduce dependency on oil and other hydrocarbons as a source of revenue.
1. What kind of businesses should register for VAT? And how will the government collect VAT from them?
Not all businesses will need to register for VAT, but, after the VAT implementation, all businesses in the UAE will be expected to record their financial transactions accurately and keep them up-to-date. Businesses with more than a minimum annual turnover will have to register for VAT, though this figure has not been finalized yet by the government. They must formally submit the report of the VAT they charge and VAT they have paid to the government on a regular basis. Depending on the amount of VAT charged and paid, they can either reclaim or pay the difference to the government.
They must also:
- charge VAT on taxable goods or services they supply
- reclaim any additional VAT they’ve paid on business-related goods or services
- keep a range of business records which will allow the government to check their credibility
The government wants to safeguard Small and Medium Businesses(SMBs) as they do not meet the minimum turnover requirement. Such businesses will not have to register for VAT but they will still need to maintain records to show as proof of their annual turnover.
The government is yet to finalize a lot of important details like what will the tax rate be, what is the minimum annual turnover on which tax will be imposed, what is the penalty for non-compliance etc. However, it would be good for businesses to be aware of this impending change and be prepared to align their business models with the government’s reporting and compliance requirement.
2. What is a Tax Certificate?
The exact definition according to Ministry of Finance of UAE is as follows: This is a certificate issued for government authorities, private sector companies and individuals to exempt them from Value Added Tax (VAT) in various countries around the world.
Currently, there are only two types of tax certificates available and they are:
- Value Added Tax (VAT) Certificate
- This certificate is issued for institutions to exempt them from VAT. However, this is applicable only to government entities, registered companies and residents of the UAE.
- Tax Domicile Certificate or Tax residency certificate (TRC)
- This certificate is issued to avoid double taxation and is applicable only to government entities, registered companies and residents of the UAE. It does not apply to subsidiaries as they are not included in the double taxation avoidance agreement. Procedures of obtaining TRC click here.
3. What documents should one furnish to get a VAT Certificate?
- For authorities:
- A request letter signed by the authorized signatory
- A copy of the decree and act of incorporation
- For companies:
- A request letter signed by the company
- A copy of a valid trade license
- For individuals:
- A request letter signed by the applicant
- A copy of the passport and a valid residence permit
4. What is the service fee?
The service fee is AED 500 + professional charges.
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