VAT on Provision of Healthcare Services in Uae

VAT was implemented in UAE on 1 January 2018 in pursuance with the UNIFIED VAT AGREEMENT (UVAT), signed by all six GCC countries.

VAT is levied on the supply of goods and services. This tax is levied on END CONSUMER and is NOT A TAX ON BUSINESS. However, the businesses act as a collection agent on behalf of Federal Tax Authority (FTA). The suppliers of taxable goods and services charge the VAT on their supply and pay the same to the government. Details of the charge, collection and payment process are given in the coming paragraphs.

What Are Health Care Services?

Health care services” includes both services and goods related to such health care.

These may include the furnishing of:

Whether VAT Law is Applicable on Health Care Services?

Yes, it is applicable to the health care services. But these services are taxable at a rate of Zero percent (0%).

How VAT Works Throughout The Supply Chain?

VAT is charged at each step of the supply chain. End consumers generally bear the VAT cost while the registered businesses shall collect VAT on behalf of the tax authority. The VAT charged by a supplier shall be adjustable input tax against the tax payable on sales i.e. output tax.

for example;

A hospital purchases bandages from the factory, the factory shall charge VAT at the time of sale to the hospital and when the same bandage is used by the hospital for a treatment (a taxable service) then the hospital will charge the VAT from a patient who is end consumer.

What Is Meant By Zero Rated Supply Of Health Care Services? 

Supply at the rate of zero percent means when the registered supplier of taxable goods and services will charge VAT at zero percent; for example;

Services Charges:   AED =100,000/- only
VAT @ 0%                AED=0/- only
Total                         AED =100,000/- only

Why Are Health Care Services Called Taxable If The Tax Is Not To Be Charged (0%)? Why Shouldn’t These Services Be Exempt?

There is different treatment of tax for the exempt supplies and the supplies at the rate of zero percent. The exempt supplies have no implication of tax law whatsoever, however, the supplies at zero percent can receive the benefits of input taxes.

What Is The Benefit Of Zero Rated Supplies?

Every business receives some inputs and supplies some outputs. Therefore, it will have to pay tax on its purchases and then collect tax on its sales. In case of taxable supplies, the business will be required to pay the difference between the tax collected on sales and tax paid on purchases; for example

Purchases (Inputs)                  AED 100,000
Input Tax                                  AED   5,000
Sales (Outputs)                       AED 150,000
Output Tax                              AED    7,500

Payment to Federal Tax Authority

Output Tax                              AED 7,500
Less: Input Tax                       AED 5,000
Tax payable                            AED 2,500

When the business TAXABLE AT THE RATE OF ZERO PERCENT, there will be no tax on the supplies and all the tax paid on purchases will be REFUNDABLE for the business.

But when the business is EXEMPT, there will be no application of VAT law and all the taxes paid on the purchases will become part of the cost and there will be no adjustment and NO REFUND.

When Is It Considered That Supply Of Services Has Been Made?

A basic rule is that when services are completed but where the transaction is continuous over a period of several month or year i.e. different date of providing service, issuing invoice or receipt of payment then earlier of the following

Example:

Stay Healthy Hospital give treatment to Abu Al Hassan for his disease. Abu al Hassan treatment completed on 25 July 2017 but issues invoice on 15 August 2017. In this case, the date of supply will be 25th July as per basic tax point and vat will be due on the same date.

But where payment is received earlier i.e. 10 August 2017 then it will be considered as tax point and tax is due on the same date.

What is VAT Return?

VAT Return is a statement in a prescribed format file electronically on the Federal Tax Authority (FTA) portal. And it contained detail of all kinds of sales purchases made by the registered taxpayer.

When And by Whom VAT Return is Filled?

Every registered person file return.
Small/Medium size entities/business file return on monthly basis.
Large Size Business Entities File return on quarterly basis.

What are Other Requirements Regarding Filling?

The general provision regarding filling;

Whether There Is Specific Kind Of Record That Should Be Maintained By Service Provider After Implication Of VAT?

Yes, there are some additional records to be maintained but more or less it is same as to accounting Records.

Following should be maintained with accuracy whether it is in electronic format or manually

On Which Expenses VAT Can be Recovered Through Input Credit?

Read more about VAT Implications on Residential Buildings

Q: Will VAT be Charged on The Renting of Building?

A: The rent of residential building will be exempt from VAT.

Q: How VAT Will Effect on Multi-Purpose Building (Residential-Commercial Building)?

A: Supply of residential part of multi-purpose building shall be charged either zero-rated or exempt depending on whether it is first supply or subsequent supply.

Q: Which Buildings Are Residential Buildings (Rbs)?

A: It mainly includes buildings that can be occupied by any person as the main place of residence. Following is the list of such buildings;

On the contrary; movable/temporary buildings, hotels, motels, B&Bs, hospitals, serviced apartments-where accommodation service is not only offered service, offices, warehouses, shops, unlawful buildings or any kind of building that has commercial substance, are not RBs.

Q: Are Owners of Rbs Required to be Registered in VAT?

A: If owners of RBs have no other business activity then they are not required to be registered in VAT.

Example: a citizen of UAE, who is the owner of his residential building, is not carrying any business then he is not required to be registered in VAT  in UAE.

On the contrary; an owner of RBs have also other business activity, like running a retail business, is required to be registered in VAT.

Q: Will the Supply of Rbs Be Chargeable to VAT?

A: No, the supply of RBs will remain exempt from VAT, only if either of the following conditions met;

Q: How Shall “Period of Tenancy” be Determined?

A: It shall be determined from the contract of tenancy. Further, an extension of a period of tenancy or extension in renewing tenancy agreement shall not be covered in “period of tenancy”.

Q: Will Early Termination of Lease Effect “Period of Tenancy”?

A: No, if any party exercise his right of early termination then it shall not effect on “period of the tenancy.

Q: Will Supply of Converted Rbs be Chargeable to VAT?

A: Yes, a supply of converted RBs are chargeable to VAT @ 0%, only if following conditions met;

Example: Mr. A, an original owner, constructed a building for renting it to different professionals for offices. Construction of such building completed on 1st February 2018. He couldn’t receive a positive response from business personnel by the end of 31st December 2018 and most of the rooms in building remained vacant. On 1st January 2019, Mr. A decided to convert this commercial building to residential building. Documentation of such conversion completed on 30th April 2019. By 30th April 2019, neither part of building utilized for residential purposes. Now, on 31st May 2019, he got an offer from his friend Mr. B to sell A’s building for AED 500,000 where Mr. A agreed thereto.

Thus, VAT shall be charged @ 0% on AED 500,000 as all above-stated conditions are met.

Q: Will VAT Be Chargeable on Subsequent Supplies?

A: Subsequent supplies of RBs is exempt from VAT irrespective of holding period, even if supply is within 3 years of completion of the conversion, in converted RB case.

Example: Mr. C purchased Residential Building from Mr. B on 30th June 2020 and further sold to Mr. D after 6 months i.e. 31st December 2020 for AED 700,000. It shall be exempt from VAT, irrespective of holding period.

Read more about VAT For Real Estate in UAE

Questioner about the Implications of VAT on Imports

  1. What does import mean?

Import is the arrival of goods or receipt of services from abroad into the state from outside.

  1. Who is an importer?

An importer is a person whose is enlisted as the importer of the goods for customs clearance purposes. With respect to services, it is the recipient of these services.

  1. Who is liable to be registered?

The importer whose taxable supplies made and import received exceed AED 375,000 for the last 12 months.

  1. What do concerned goods and concerned services mean?

Concerned goods and services are referred to those goods and services that are not exempt from the VAT.

  1. What is the input and output tax regarding import?

Tax paid by a Person or due from him when conducting an import is called input tax.

Tax charged by a Person on a taxable supply is called output tax.

  1. On what import goods VAT is payable?

VAT shall be imposed on all import of goods except as specified in the Executive Regulation of the Decree-Law as exempted and zero-rated goods.

  1. What is the rate of VAT on Import?

A standard rate of 5% shall be imposed.

  1. Does custom duty is exempt if VAT is paid?

VAT is in addition to customs duty. The VAT is calculated on the total import value which includes freight, insurance, and customs duties.

  1. What if goods are exported for completion of manufacturing then reimported?

In such case, the value of supply reimported will be the value of the Services rendered. However, these goods are to be transferred temporarily from the domestic market into a zone designated by authority or outside the State for completing the manufacturing or repair in order to re-import them into the state.

  1. What is a reverse charge mechanism?

The liability to pay VAT (VAT Implication) is on the supplier, however, if the supplier is unregistered and outside the state than this liability falls upon registered importer.

  1. Is VAT applicable on import or export to GCC countries?

As a general rule, these export or imports are not subject to VAT.

  1. What will be the place of import, if goods are transferred to other GCC countries after import in one?

The place of import for Goods shall be the State of the First Point of Entry if goods are transported to other GCC state after import in one.

  1. What is the benefit of registered Importers for VAT?

The benefit of registration and getting Tax Registration Number (TRN) is

  1. If goods are imported into UAE then VAT can be paid via Tax return.
  2. If goods are imported in the state and then exported to another country then VAT to be paid at the time of Tax Return.
  3. Import of goods into the designated zone or transferred in between from one to another designated zone has no VAT applicability.
  4. What if an Importer is not registered?

The consequences of not being registered are

  1. The person has to pay VAT at the time of import.
  2. VAT is to be paid at the time of import on goods that are imported then exported to other countries.

We appreciate and thank you for going through the information furnished above and welcome you to connect with us for further details.

Read more about VAT on Telecommunication and Electronic Services

Is it an article (23) of Decision No. (52) are under taxable supplies and how can we charge VAT on these services?

The answer is YES! All the above-categorized services consider as taxable services and service provider charge VAT by the standard rate of 5% on given invoice to the service recipient.

How to manage the rendering of telecommunication and electronic services outside UAE?

The export of telecommunications services shall be subject to the zero rate in the following situations:

  1. Telecommunication services commence by telecommunication supplier inside the state of UAE to a nonresident of UAE who is the supplier of Telecommunication services.
  2. Telecommunication services commence by telecommunication supplier inside the state of UAE to the nonresident of UAE who is not the supplier of Telecommunication services.

What’s the impact of VAT if unregistered person (outside UAE) Invoice to the registered person (inside UAE)?

In that case, VAT implemented on the rendering of telecommunication and electronic services outside state depend on the place where a supply is initiated shall be identified according to the following:

  1. The place of the Person who commences the supply.
  2. If (a) point does not apply, the Person who pays in return for the services.
  3. If (a) and (b) point do not apply, the Person who contracts for the purposes of the supply.

Am I file VAT return?

Yes! Telecommunication and electronic services related industries also file return on monthly or quarterly basis on given format and pay VAT with the return.

How telecommunication and electronic services get registered to be the part of VAT?

The process of Registration under VAT is decided by Cabinet in Article (6), (7), (8) of decision no. (52) Named as Executive regulation of the federal Decree-Law no (8) on value-added tax. In the Process of registration telecomm and electronic services registered under Mandatory registration or voluntary registration.

When telecommunication and electronic services get mandatory registration?

The Mandatory Registration Threshold shall be AED 375,000 by applying through the application under article (6) within thirty days of being required to register.

When telecommunication and electronic services get Voluntary registration?

The Voluntary Registration Threshold shall be AED 187,500 by applying through the application under article (6) within thirty days of being required to register.

Which type of services considers telecommunication and electronic services?

The Cabinet decision defines the “telecommunication and electronic services” meaning and industrial products as follows;

Telecommunication services” means delivering, broadcasting, converting or receiving any of the services specified below by using communications equipment or devices that transmit, broadcast, convert, or receive such service by electrical, magnetic, electromagnetic, electrochemical or electromechanical means or other means of communication, including:

  1. Wired and wireless communications.
  2. Voice, music and other audio material.
  3. Viewable images.
  4. Signals used for transmission with the exception of public broadcasts.
  5. Signals used to operate and control any machinery or equipment;
  6. Services of an equivalent type which have a similar purpose and function.

Electronic services” means Services which are automatically delivered over the internet, or an electronic network, or an electronic marketplace, including:

  1. Supply of domain names, web-hosting and remote maintenance of programs and equipment;
  2. The supply and updating of software;
  3. The supply of images, text, and information provided electronically such as photos, screensavers, electronic books and other digitized documents and files; d. The supply of music, films, and games on demand;
  4. The supply of online magazines;
  5. The supply of advertising space on a website and any rights associated with such advertising;
  6. The supply of political, cultural, artistic, sporting, scientific, and educational or entertainment broadcasts, including broadcasts of events;
  7. live streaming via the internet;
  8. The supply of distance learning;
  9. Services of an equivalent type which have a similar purpose and function.

As you know well-known companies execute their business in the United Arab Emirates for decades. Some of these companies named as follows;

Read more about UAE Tax Invoice Article (59)

What Is Tax Invoice?

Tax Invoice is a written or electronic document in which the occurrence of a Taxable Supply is recorded with details.

Components of Tax Invoice:

(1) The name, address, and Tax Registration Number of the Registrant making the supply and the Recipient where he is a Registrant
(2) A sequential Tax Invoice number,
(3) The date of issuing the Tax Invoice and date of supply,
(4) A description of the Goods or Services supplied, the unit price, the quantity
(5) Tax rate and the amount payable, any discount offered
(6) An amount payable in AED, apply convert rate where necessary.

Note: A taxable person must follow components of tax invoice when he issues.

Components of Simplified Tax Invoice:

(1) The name, address, and Tax Registration Number of the Registrant making the supply.
(2) The date of issuing
(3) A description of the Goods or Services supplied.
(4) The Tax amount charged.

Exemption from Tax Invoice:

Where the supply is zero-rated no need for issuing of invoice

Circumstances in Which Simplified Invoice is Issued:

Where The Invoice Is Not Issued:

In case of Taxable Person makes more than one supply of Goods or Services to the same person and those supplies are included in the summary tax invoice issued to the recipient in the same calendar month.

Electronic Tax Invoice:  

If the taxable person issue credit notes electronically then:

Conditions Where Recipient Raise Invoice On Supplier Behalf:

The documents shall be treated as it has been issued by the supplier if the following conditions met.

Note: The documents shall have treated as if they had been issued by the supplier if the above conditions met.

What If An Agent Made A Supply?

Where an agent who is a Registrant makes a supply of Goods or Services on behalf of the principal of that agent, that agent may issue a Tax Invoice in relation to that supply he made, and the principal shall not issue a Tax Invoice.

Where The Supply Made In Implementing State:

Following additions must require:

 GCC States:

All countries that are full members of The Cooperation Council for the Arab States of the Gulf pursuant to its Charter.

 What is the Implementing States?

The GCC States that are implementing a Tax law pursuant to an issued legislation

Read more about Tax Credit Note Article (59)

 

 

What is Tax Credit Note?

A Tax Credit Note is a written or electronic document in which the occurrence of any amendment to a Taxable Supply that reduces or cancels it is recorded and the details including it.

Particulars of Tax Credit Note:

(1) The words “Tax Credit Note” clearly displayed on the invoice.
(2) The name, address, and Tax Registration Number of the Registrant making the supply and the Recipient where he is a Registrant.
(3) The date of issuing the Tax Credit Note, the correct amount relating to supply,
(4) The difference between those two amounts and the Tax charged that relates to that difference in AED.
(5) Explanation of the circumstances giving rise to the issuing of the Tax Credit Note.
(6) Information sufficient to identify the supply to which the Tax Credit Note relates

Relief from Issuing Tax Credit Notes:

Where, on application by a Taxable Person, the Authority consider that sufficient records available to establish the particulars of any supply or class of supplies, and that it would be impractical to require that a Tax Credit Note be issued by the Taxable Person, the Authority may determine any of the following, subject to any conditions that the Authority may consider necessary

Note: if the approval has been given by authorities, approval may withdraw at any time if they feel the above condition has been not met.

Electronic Tax Credit Note:

If the taxable person issue credit notes electronically then:

If The Recipient Issue Credit Notes On Behalf Of Supplier:

The documents shall be treated as it has been issued by the supplier if the following conditions met.

If The Agent Made A Supply On Behalf Of Principal:

If an agent who is a Registrant makes a supply of Goods or Services on behalf of the principal of that agent, that agent may issue a Tax credit note in relation to that supply he made, the principal shall not issue a Tax credit note.

 

Read more about Administrative Penalties for Violations of Tax Laws in the UAE

LIST OF PENALTIES UNDER UAE TAX LAWS

A comprehensive list of all administrative penalties for violations of tax laws in the UAE is given.

1. VIOLATIONS RELATED TO TAX PROCEDURES

S.NO

SUBJECT WORD

VIOLATION OF LAW

PENALTIES (IN AED)

WILL BORNE BY

1Record KeepingFailure to keep the required records specified by the tax procedures law and the tax law.
  • 10,000 for the first time
  • 50,000 for each repeat violation
Registrant
2Record submission in ArabicFailure to submit the required records in Arabic when requested by the Authority
  • 20,000
Registrant
3RegistrationFailure to submit a registration application within the timeframe specified by the tax law.
  • 20,000
The person liable to be registered
4DeregistrationFailure to submit a deregistration application within the timeframe specified by the tax law.
  • 10,000
Registrant
5Amendment to tax recordsFailure to inform the Authority of an amendment to tax records that need to be submitted
  • 5,000 for the first time.
  • 15,000 in case of repetition.
Registrant
6Appointment of legal representativeFailure to notify the authority that a legal representative has been appointed for the business within the specified timeframe.
  • 20,000
Legal representative
7Failure to file the tax return by legal representativeFailure of the legal representative to file a tax return within the specified timeframe.
  • 1,000 for the first time.
  • 2,000 in case of repetition within 24 months.
legal representative
8Failure to File tax return by RegistrantFailure of the Registrant to submit a tax return within the timeframe specified by the tax law.
  • 1,000 for the first time.
  • 2,000 in case of repetition within 24 months
Registrant
9

 

Payment of taxFailure to pay the tax stated in the tax return/tax assessment form within the timeframe specified by the tax law.
  • The taxable person will incur a late payment penalty as follows
  • 2% of the unpaid tax is due immediately.
  • 4% is due on the seventh day following the deadline for payment.
  • 1% daily penalty will be charged on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300% of payable tax.
Registrant
10Submission of incorrect tax returnThe submission of incorrect tax returns by the Registrant.

 

 

Two penalties are applied:

1- Fixed penalty

  • 3,000 for the first time
  • 5,000 in case of repetition

2– Percentage-based penalty
A percentage-based penalty shall be applied to the amount unpaid to the Authority due to the error and resulting to tax benefits as follows.

  • (50%) if the Registrant does not make a voluntary disclosure or he made the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first.
  • (30%) if the Registrant makes a voluntary disclosure after being notified of the tax audit and before the Authority starts the tax audit.
  • (5%) if the Registrant makes a voluntary disclosure before being notified of the tax audit by the Authority.
Registrant
11Disclosure of errors in a tax return, tax assessment, or refund applicationVoluntary disclosure by a business of errors in a VAT tax return, tax assessment, or refund applicationTwo penalties are applied

1- Fixed penalty

  • 3,000 for the first time
  • 5,000 in case of repetition

2– Percentage-based penalty
A percentage-based penalty shall be applied to the amount unpaid to the Authority due to the error as follows.

  • (50%) if the person/taxpayer does not make the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first.
  • (30%) if the person/taxpayer makes the voluntary disclosure after being notified of the tax audit but before the Authority starts of the tax audit.
  • (5%) if the person/taxpayer makes a voluntary disclosure before being notified of the tax audit by the Authority.
Taxpayer/person
12Voluntarily disclose of errors before tax auditFailure of a business to voluntarily disclose errors in a tax return, tax assessment, or refund application before a tax audit.Two penalties are applied

1- Fixed penalty

  • 3,000 for the first time
  • 5,000 in case of repetition

2– Percentage-based penalty
50% of the amount unpaid to the Authority due to the error.

Taxpayer/person
13Failure to facilitate tax auditFailure of a person or business to facilitate the work of the tax auditor
  • 20,000
Taxpayer/person
14The failure to calculate Tax on behalf of another Person

 

Failure of the Registrant to calculate tax on behalf of another person as required under the tax law
  • 2% of the unpaid tax is due immediately once the payment is late.
  • 4% of the amount of tax which is still unpaid is due on the seventh day following the deadline for payment
  • 1% daily penalty will be charged on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300%.
Registrant
15Failure to account for tax on import of goodsFailure to account for tax due on the import of goods as required under the tax law.
  • 50% of unpaid or undeclared tax
Registrant


2. VIOLATIONS RELATED TO VAT

S.NOSUBJECT WORDVIOLATION OF LAWPENALTIES (IN AED)WILL BORNE BY
1Prices inclusive of TaxFailure by the Taxable Person/business to display prices Inclusive of Tax.
  • 15,000
Taxable Person
2Tax based on marginFailure by the Taxable Person/business to notify the Authority of applying Tax based on the margin.
  • 2,500
Taxable Person
3Designated ZonesFailure by the Taxable Person to provide the Authority with price lists for the Excise Goods produced, imported or sold therebyThe penalty shall be the higher

  • 50,000
  • or 50% of the tax, if any, unpaid on the goods as the result of the violation
Taxable Person
4Tax invoicesFailure by the taxable person/business to issue a tax invoice or alternative document when making any supply
  • 5,000 for each missing tax credit note or alternative document
Taxable Person
5Electronic tax invoicesFailure by the taxable person/business to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes
  • 5,000 for each incorrect document
Taxable Person


3. VIOLATIONS RELATED TO EXCISE TAX

S.NOSUBJECT WORDVIOLATION OF LAWPENALTIES (IN AED)WILL BORNE BY
1Prices Inclusive of TaxFailure by the Taxable Person/business to display prices Inclusive of Tax.
  • 15,000
Taxable Person
2Designated ZonesFailure to comply with the conditions and procedures related to transfer the Excise Goods from one Designated Zone to another Designated Zone, and the mechanism of processing and storing of such Excise Goods.The penalty shall be the higher

  • 50,000
  • or 50% of the tax, if any, unpaid on the goods as the result of the violation
Taxable Person
3Provision of price list for excise goods.Failure by the Taxable Person to provide the Authority with price lists for the Excise Goods produced, imported or sold thereby
  • 5,000 for the first time.
  • 20,000 in case of repetition
Taxable Person

Read more about VAT Registration Questions Answers

What is VAT?

Value Added Tax (or VAT) is an indirect tax and a type of general consumption tax. In a country which has a VAT, it is imposed on the import and supply of Goods and Services at each stage of production and distribution, including the Deemed Supply.

VAT is charged at each step of the ‘supply chain’. Ultimate consumers or end consumer generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on a tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the ‘value add’ throughout the supply chain.

To explain how VAT works we have provided a simple, illustrative example below (based on a VAT rate of 5%):

Step-1 of supply chainStep-2 of supply chainStep-3 of supply chain
A person is supplying the Raw material to Manufacturer.The manufacturer processes the Raw material and sold to the Distributor/Dealers/RetailerDistributor/Dealers/Retailer sold the goods to final consumer.

 

In above steps tax would be charged on each step of a supply chain in the following mechanism;

Persons Selling the GoodsSale Amount5% VAT charged on the Sales5% VAT paid on the purchasesNet VAT payable to Govt.
Raw Material Supplier to Manufacturer1,000,00050,00050,000
Manufacturer to Retailer3,000,000150,00050,000100,000
Retailer to end consumer5,000,000250,000150,000100,000
Total VAT paid to the Govt. by end consumer250,000

Who is required to get register for VAT?

A business should register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of 375,000 AED over the previous 12-month period or business anticipates making taxable supplies with a value exceeding the mandatory registration threshold in the next 30 days. The Person who is required to register must file the registration application with the Authority within (30) days of being required to register.

Could a business Voluntarily choose to Register for VAT?

A business can also choose to register for VAT voluntarily, if the supplies and imports of the business are less than the mandatory registration threshold, but greater than the voluntary registration threshold of AED 187,500 over the previous 12-month period or the business anticipates making taxable supplies with a value exceeding the mandatory registration threshold in the next 30 days.

In connection of above, it is important to mention here that supply of Capital Assets belonging to the Person shall not be taken into account to determine whether a Person in Business exceeds the Mandatory Registration Threshold or Voluntary Registration Threshold.

What is the deadline for registration for VAT?

Deadline for registration is extended till April 30th, 2018. Thus, businesses registering for VAT will not face any registration penalty until April 30th, 2018, but they are required to settle all the taxes due from January 1st, 2018, as VAT law has come into effect from the said date. Earlier, the deadline for VAT registration was December 4th, 2017, which has been extended by the FTA to April 30th, 2018.

Is the English language available in the process of registration?

Yes, registration platform will also be available in English.

Will zero-rated supplies count for the registration threshold?

No, zero-rated supplies would not be counted for the registration threshold. However, concerned Person may apply for the exemption from mandatory Tax Registration upon his request if his supplies are only subject to the zero rate.

What would be the method of registration?

Application for VAT registration would be made through the online system. However, additional documentation may be requested offline by the Authority.

Is it possible to get register as a Tax Group?

Yes, it is possible to be registered for related companies for tax purposes as a single taxable person. In this regard, Businesses that satisfy certain requirements provided by the legislation (such as being under the same ownership and located within the state) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool to simplify accounting for VAT. By registering under the Group VAT scheme, businesses will get a single VAT number and can file a single return. A VAT group allows people and entities that are closely linked financially, economically and organizationally to operate as a single VAT person. In this regard, a request to register a Tax Group shall be made by the representative member of that Tax Group.

Could Registrant apply for the VAT deregistration or not?

Yes, Registrant could apply to the Authority for Tax Deregistration, if Registrant stops making supplies and does not expect to make any such supplies over the next 12-month period or value of his Taxable Supplies during the past (12) months was less than the Mandatory or Voluntary Registration Threshold. However, in the case of voluntary registration, an entity that is registered on a voluntary basis and wants to deregister from a VAT should be registered for at least 12 consecutive months prior to their deregistration application. In this regard, the Registrant must apply to the Authority for de-registration within (20) business days of the occurrence of any of the afore-stated condition.

whether a person registered in Dubai is also required to get register in Abu Dhabi?

No, a person registered in Dubai is would not be required to get itself register again in Abu Dhabi.

Would a person making sale across the GCC (Gulf Cooperation Council) be liable to register in each member state?

A business selling across the GCC will only be required to register for VAT in another member state if the nature of its supplies of goods and services requires it to be (e.g. the place of supply is in another GCC member state and the reverse charge mechanism cannot be used).

Is only residents of the State are required to register, does this mean that non-residents are not required to get VAT registration?

There is a requirement for non-residents to register for VAT in the UAE, in the event that they need to pay VAT on supplies made by them in the state (e.g. the place of supply is in the UAE and the customer is not able to self-account for the VAT due under the reverse charge mechanism).

 

Read more about Value Added Tax (VAT) In the United Arab Emirates

 

Frequently asked questions (Construction Industries)

VAT in United Arab Emirates

VAT Impact on Construction IndustryImpact on Construction Industries

 

CONSTRUCTION CONTRACTS

UAE VAT Impact on Construction


VAT ON EXISTING CONSTRUCTION CONTRACTS:

Q: How will your current construction contract deal with the introduction of VAT?
A: Under the Contract, the contractor is obliged to pay all taxes as required under the law and thus the contract price is deemed to include these taxes and duties based on the rates applicable at the ‘Base Date.’ However, there are provisions in the Contract that allow a contractor to claim an increase in costs due to a change in the laws of the country where the permanent works are being executed.

Q: Where the supplier supplies goods after the implementation date but has received the payment before the effective date?
A: Those transactions come under the purview of the VAT. Even if the trade happens before the effective date but does not have the clause of tax, then it comes under VAT.

VAT ON FUTURE CONSTRUCTION CONTRACTS:

Q: Construction contracts post January 2018?
A: The importance of construction contracts stating whether or not VAT is payable on top of the contract price was considered. In the absence of the contract price not stating it is exclusive of VAT the contract price is deemed inclusive of VAT. VAT will impact the contract price in construction contracts. Going forward, employers and contractors should be clear as to whether the VAT is to be paid on top of the tender price or if it is included in the Contract Price.

Q: What will be the impact of VAT on construction cost?
A: Majority of contractors and developers will offload VAT costs to the end user, not all VAT will be recoverable, which will lead to a modest increase in construction costs.

Q: What will be the impact of non-registration of sub-contractors of the Construction companies?
A: In particular, larger construction companies may not be entitled to recover VAT from smaller subcontractors who are not registered for VAT or fall below minimum threshold requirements. In such instances, the cost borne by the construction supply chain will lead to higher construction costs.

General Flowchart of VAT Implementation

General Flowchart of VAT Implementation


Q: What will be major construction challenges after incorporating the VAT?

Lead Times:
Lead times are common in most demand led industries, but in the case of major construction projects, they can be extremely long. It is almost certain that a large number of the major projects due to be delivered over the next few years will not have had VAT factored into them, either on the cost or revenue side. To some extent this was inevitable; the gestation of the VAT project in the region has been somewhat erratic to a number of observers and some businesses have planned for that status quo to remain for some time. Clearly, that is no longer the case. The issue associated with the duration of contracts drawn up in the sector is that many will not, at the time of drafting, have included any of the normal terms and conditions relating to VAT which one would ordinarily expect in jurisdictions where the tax has been implemented.

Contract Price:
For the contractor in such instances, will they be in a position to charge VAT in addition to their normal contract price? On the face of it this appears to be a simple question, but in reality, it is often not. Payment for VAT purposes is generally considered to be inclusive of VAT. That means that in our case the contractor will need to agree with their customer that they can charge VAT in addition to the price previously agreed in order to avoid the charge becoming a cost they have to bear themselves. Bearing in mind that contracts in the region are generally struck on a tax-inclusive basis, making this change may not be as straightforward as one would hope, regardless of the position of the customer vis a vis VAT recovery.

Contract Pricing of Future Projects:
Furthermore, from a pricing standpoint, it is unlikely that the market (after the introduction of VAT) would simply reprice itself to cover the VAT charge in full. Indeed, customers may well look to their suppliers to cover some of the VAT charges themselves anyway. There may well be some sort of a transitional regime granting suppliers the right to “grandfather” existing tax-inclusive contracts into the new VAT environment.

However, whilst such approaches have been seen elsewhere, it remains to be seen whether that would be the case in the GCC. This is, therefore, a major area of potential risk for any contracts agreed before the implementation of VAT but which will be executed or delivered after, the purchaser and vendors are unlikely to simply concede their respective positions easily given the cost of VAT must fall on one of them.

Taxation of Local Services and GoodsTaxation of Local Services and Goods

Q: What will be VAT treatment of a local supply of services to construction company?
A: Where Construction company receives a supply of services from a local service provider in the UAE, and the Local supplier will charge for the services plus VAT to the construction company in tax invoice;

VAT Treatment for Local Supplier and Construction Company
The construction company may claim the VAT charged by the supplier/subcontractor in its tax return if it receives a valid tax invoice and payment is made within 6 months. Input tax may, however, be blocked if services relate to entertainment or employee private use per Article 53 of the Executive Regulations.

Q: What will be VAT treatment of a supply of goods from local supplier to construction company?
A: Construction company can deduct the VAT charged by the supplier in its tax return, provided the VAT is not blocked by the exceptions listed in Article 53 of the Executive Regulations if:
• A valid tax invoice is obtained; and
• The tax invoice will be paid in 6 months.

VAT Treatment for Goods to Local Supplier and Construction Company

Taxation of Imported Goods and ServicesTaxation of Imported Goods and Services

Q: What will be VAT treatment of a supply of services from outside the UAE to construction company?
A: Where Construction company receives services in UAE from outside the UAE and is charged for the service, as outlined in the diagram below. The services will be regarded as being supplied to UAE regardless of whether the foreign office of the Construction company procured and pays for the services.

VAT Treatment UAE and Outside UAE
CA construction company will have to self-account for VAT on the imported service and adjust its tax position using the Reverse Charge Mechanism on its tax return.

VAT Treatment Purchase and Cash

Q: What will be VAT treatment of a supply of goods from outside the UAE to construction company?
A: Where Construction company imports goods in UAE from outside the UAE, as outlined in the diagram below. The goods will be regarded as being supplied to UAE regardless of whether the foreign office of the Construction company procured and pays for the goods.

VAT treatment from Outside UAE to Construction Company
A construction company will have to self-account for VAT on the imported goods and adjust its tax position using the Reverse Charge Mechanism on its tax return.

VAT Purchase From Outside UAE to construction Company

Q: What will be VAT treatment of a supply of goods from outside the UAE to a construction company in UAE and ownership is transferred to the Employer?
A: In the case where Construction company transfers the ownership of goods received from a non-UAE supplier to Employer, upon the transfer of the goods to the transport vessel.
In such case, Employer generally will be the importer on record for customs purposes, and Construction company will use these goods for the purposes of the construction of the site.

VAT Treatment within UAE and Outside UAE

Misc. Consideration related to VATMisc. Consideration related to VAT

 

Reimbursement of Cost Incurred by Employees:

Q: What will be the treatment of cost incurred by the employees, and thereafter reimburse by the construction company?
A: From a VAT perspective, there is always a risk that where the employer has not incurred the expense directly, that the employer may not have a right to recover the associated VAT on the expense (whilst reimbursing the employee for the cost plus local VAT).
Therefore, try to ensure that invoices are made out to its legal name instead of being addressed solely to the employee and valid tax invoices are collected. Furthermore, input tax related to entertainment is irrecoverable, unless the requirements of Article 53 of the Executive Regulations are met, i.e. there must be a contractual obligation or documented policy to provide those services or goods to those employees in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people.

VAT Return Filling Requirements:

Q: When are registered businesses required to file VAT returns?
A: Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be:
• Quarterly for businesses with an annual turnover below AED150m
• Monthly for businesses with an annual turnover of AED150m or more.
The Tax returns shall be filed online using services.

Q: What will be the length of tax period for filing of tax returns?
A: The standard Tax Period applicable to a Taxable Person shall be a period of three calendar months ending on the date that the Authority determines.

Q: What will be the last date of payment of tax to authority?
A: A Tax Return must be received by the Authority no later than the 28th day following the end of the Tax Period concerned or by such other date as directed by the Authority

Q: What will be treatment where tax recoverable exceeds from tax due to authorities?
A: Where Recoverable Tax for a Tax Period exceeds Due Tax for the Tax Period, the excess Recoverable Tax may be repaid to the Taxable Person in accordance with the relevant provisions in the Decree-Law and the Federal Law No. (7) of 2017.

VAT Return Format:

VAT Return Format

 

Read more about VAT For Real Estate in UAE


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