31 May Some Important Concepts about VAT
Understanding basic concepts of VAT can save you thousands of dirhams.
To avoid compliance risk and to assess the impact of VAT on your business, make sure you adhere to the important VAT concepts and definitions.
- The issuance of a valid tax invoice may dictate the time of supply, and therefore determine in which tax period the output tax should be accounted for.
- A Vat registered business must issue a tax invoice to the recipient of a domestic taxable supply of goods/services
- In certain conditions, the customer may be able to issue a ”self-billed” tax invoice on behalf of the supplier
- The receipt of valid tax invoice is the primary documentary evidence to support the recovery of VAT incurred by the purchaser
What is a Tax Invoice?
To be valid, a tax invoice needs the following information, but not limited to:
- The word “Tax Invoice” clearly displayed on the invoice
- A Unique Invoice number
- The date of issue of the tax invoice
- Name, address and tax registration number of the supplier
- Time of the supply (In case different from invoice date)
- For each item or description, the quantity of goods/services supplied, the rate vat applicable, the amount of vat payable
- Any discount offered and the gross amount payable in AED
- If invoice in Foreign currency should be expressed in UAE Dirhams as well.
- The total amount of Vat Summary expressed in UAE Dirhams with the rate of exchange and source of the rate (The rate should be the central bank issue rate).
Definition of Supply
It is important to know whether a taxpayer is supplying goods or services as there are different rules for each in order to determine when and where the supply takes place.
The passing of ownership of physical property or the right to use that property as an owner, to an another person
Anything which is not a supply of goods is a supply of services
Place of Supply
Place of supply rule determines whether a supply is made in the UAE or outside the UAE for VAT purpose:
- If the supply is treated as outside the UAE, no VAT will be
- If the supply is treated as inside the UAE, VAT maybe charged.
Basic rule: Place of supply is the location of goods when the supply takes place
Special rule: for example:
- Cross border supplies
- Water and energy
Basic rule: Place of supply is where the supplier has the place of residence
Special rule: for example:
- Cross border supplies of services
- Electronically supplies services
Place of Supply – Services (Special Rule)
- Jabel Ali free zone
- Dubai Cars and Automotive zone
- Dubai Textile City
- Free zone area in Al Quoz
- Free zone area in Al Qusais
- Dubai Aviation city
- Dubai Airport free zone
- Ajman free zone
Umm al Quwain
- Umm al Quwain free trade zone in Ahmed bin Rashid Port
- Umm al Quwain free trade zone on Sheikh Mohammed bin Zayed Road
- Free trade zone of Khalifa port
- Abu Dhabi Airport free zone
- Khalifa industrial zone
- Hamriyah free zone
- Sharjah Airport International free zone
Ras Al Khaimah
- RAK free trade zone
- RAK Maritime city free zone
- RAK Airport free zone
- Fujairah free zone
- Fujairah oil industry zone (FOIZ)
Tax Treatment for Designated-Zone