Knowing more about VAT


Value Added Tax introduced by the UAE government in January 2018 is a type of consumption tax on most supplies of goods and services.

VAT is applied to each level of the supply chain. VAT is bored by end-users and businesses collect it on behalf of the government.

VAT has a wide range of terms used for activities like maintaining VAT records, filing VAT returns, applying for de-registration, etc.

We have picked some of the useful terms, to provide a better understanding of VAT working in UAE–

  • VAT – Value Added Tax – an indirect form of tax, imposed by the UAE government. Currently, the prevailing rate is 5%, which is levied at each stage of production and distribution and the import and export of goods and services.
  • Taxable person – a registered person, firm, sole trader and professional or the one who is obligated to register under the laws laid by the government.
  • TRN – Tax Registration Number – a unique code number in the VAT certificate of each taxable person issued by the authority. TRN is to be mentioned in tax invoices of sales, purchases, etc.
  • ConsiderationConsideration is the amount received or expected to be received for the provision of any service or for the supply of goods.
  • Tax Period – refers to a period where the calculation of payable tax, preparation of financial statements, etc. needs to be done. It is allocated by the FTA to each taxable person either quarterly or monthly.
  • Tax Invoice – A printed or a written document with tax payable occurrence sent by the dealer to the purchaser.
  • Designated Zone – An area specified by the government, considered to be outside UAE for VAT purpose. Not all free zones are designated free zones.
  • Tax Group – formation of a group of two or more persons as a single taxable person following the rules laid by the FTA.
  • Excise Tax – levied on specific goods typically deemed as harmful for human health or environment including tobacco, energy drinks, sweetened drinks, e-cigarettes etc.
  • Output Tax – VAT charged on the sale of goods or services which are taxable.
  • Input Tax – VAT paid by the person on purchases of goods or services.

Other crucial terms for filing VAT returns

  • Standard Rated – includes all the taxable supplies with the application of VAT at the prevailing tax rate (currently 5%) in each emirate.
  • Zero Rated Sales– includes supplies with a VAT tax rate at zero per cent.
  • Out of Scope Sales– includes the sales not specified under the UAE VAT law.
  • Exempt Salesincludes the sales which are exempted from VAT tax.
  • Reverse Charge Supplies – includes supplies in which the buyer is liable to pay VAT under the reverse charge mechanism.

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