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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.

 

SUPPLIER

  • 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

 

CUSTOMER

  • 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.

 

Goods

The passing of ownership of physical property or the right to use that property as an owner, to an another person

Services

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.

 

Goods

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

Services

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)

Place of supply of services supplied to a recipient who is registered in other GCC state is that other GCC state
Place of supply of services supplied by a person not a resident of UAE to a business resident in UAE is in the UAE
Place of supply of services relating to the installation of goods is where the service is performed
Place of supply of hotel, catering and restaurant services is where they are performed

 

Designated Zone

Dubai

  • 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

  • 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

Abu Dhabi

  • Free trade zone of Khalifa port
  • Abu Dhabi Airport free zone
  • Khalifa industrial zone

 

Sharjah

  • 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

  • Fujairah free zone
  • Fujairah oil industry zone (FOIZ)

 

 

Tax Treatment for Designated-Zone

Company located in main land and supplies good or services to a designated zone company will charge VAT.

Company located in mainland and supplies goods or services to a designated zone company will charge VAT.

Company located in designated zone supplies goods to company inside the designated zone. No VAT is charged.

Company located in designated zone supplies goods to company inside the designated zone. No VAT is charged.

Company located in designated zone supplies services to company inside the designated zone will charge VAT

Company located in designated zone supplies services to company inside the designated zone will charge VAT

Company in the designated zone made supplies to company or Individual outside the state. No VAT shall be charged

A company in the designated zone made supplies to company or Individual outside the state. No VAT shall be charged

Goods are imported into the UAE with intentions of transferring these goods to another implementing state i.e. KSA

Goods are imported into the UAE with intentions of transferring these goods to another implementing state i.e. KSA

Company in the Mainland import goods from outside GCC. The company must file VAT Return and pay the VAT due.

A company in the Mainland import goods from outside GCC. The company must file VAT Return and pay the VAT due.

Company in the designated zone makes supplies into the designated zone to a consumer. The company charges VAT

A company in the designated zone makes supplies into the designated zone to a final consumer. The company charges VAT

Company in the designated zone made supplies to company or Individual outside the state. No VAT shall be charged

A company in the designated zone made supplies to company or Individual outside the state. No VAT shall be charged

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