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.
- Consideration– Consideration 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 Sales – includes 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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