General Principles of VAT

Value Added Tax (VAT) is an indirect tax. It is a type of general consumption tax that is collected incrementally, based on the value added, at each stage of production or distribution/sales. It is usually implemented as a destination-based tax. It is also known as goods and services tax (GST) in some countries.

VAT, a general consumption tax, will apply to most transactions in goods and services. There are only a few items exempted from VAT in the UAE. A couple of items are zero-rated and the rest of the items are full rated or standard rated. The criteria for VAT registration will be on the annual turnover of the business entity. The government has tentatively decided to introduce VAT in the UAE by 01 January 2018. The proposed rate of VAT in the UAE is 5%.

Input VAT

Input VAT is the value added tax added to the price when goods are purchased or services are rendered. If the buyer is registered in the VAT Register, the buyer can deduct the amount of VAT paid from his/her settlement with the tax authorities.

Output VAT

Output VAT is the value added tax calculated and charged on the sales of goods and services.

Exempt Supply

An exempt supply is a supply on which VAT is not charged and for which the related input VAT is not deductible..

For example: bare land, local transport, the sale of residential property (second sale onwards) lease of the residential property and certain financial services..

Zero-rated supply

A zero-rated supply is a taxable supply on which VAT is charged at 0% and for which the related input VAT is deductible..

For example exports, healthcare, education, international transport of passengers and goods, the first sale of residential property, medicine, and medical equipment, investment in gold, silver and platinum, crude oil & natural gas etc..

Standard Rate Supply

A taxable supply at the Standard Rate is a supply on which VAT is charged at 5% and for which the related input VAT is deductible. All items which are not coming under both exempted category, as well as zero-rated category, are coming under standard rated supplies.

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