UAE Guide: Implications of VAT
The introduction of VAT in UAE on 1st January, 2018 has resulted in the economy to expand on a large scale simultaneously giving rise to implications to various divisions of the economy.
Implication on an Individual level
As a general consumption tax, VAT will apply to the majority of transactions of businesses dealing in goods and services, however granting a limited number of exemptions to certain goods and services.
This has resulted in an increased cost of living, the trend of which is likely to increase further slightly for a few years, although this will vary based on each individual’s lifestyle and spending behaviour. For example, where the individual mainly spends on the things that are exempted from VAT, there will not be much significant increase that can be seen as implications arising to the individual.
The value added tax will be levied by the government at a standard rate of 5% on all goods and services with certain exemptions with rules which will require businesses to be clear on the amount of VAT that will be required by an individual to pay for each and every transaction. Keeping this information in mind, individuals will be able to decide whether or not to buy something.
Implication of VAT on businesses in Dubai, Abu Dhabi, Sharjah, UAE
Vat requires businesses to maintain proper records and documents of the various business transactions in order for them to find out the net tax payable. Therefore, all businesses will have to act in a more responsible way and carefully document their business income, expenses, other costs and associated VAT charges.
Businesses and traders registered under VAT will charge the consumption tax on all the goods and services that sell to all of their customers at the prevailing rate and incur VAT charges from all the goods and services that they buy from their suppliers. The difference between the two will be payable as net VAT to the government or the excess tax paid can be reclaimed as refund from the government.
Implication of VAT on tourists in Dubai, Abu Dhabi, Sharjah, UAE
Even tourists are not exempt from the purview of the Value Added Tax since VAT is mainly a consumption based tax and hence applies to all sales of goods or services irrespective of the customer’s status. In view of this, the Federal Tax Authority (FTA) has announced Recovery Self-Service Kiosks for Tourists scheme to be available at major shopping malls and hotels. This comes in addition to the existing ones which have been placed at air, land and maritime entry and exit ports across the UAE aiming to provide additional services to tourists, thus enhancing the status of UAE to be a leading destination on the international tourism map.
The refund scheme of VAT for tourists has further enhanced the status of the nation. This Refund for Tourists Scheme has been set up at multiple shopping malls and hotels with a debuted nine self-service kiosks which is in stage one of implementing the plan where those kiosks are equipped with state-of-the-art technology that will allow the requests of tourists to completely process refund of the Value Added Tax paid by them during their visit or stay in the nation before their departure. This adds convenience at the same time justification for the money spent by them in UAE.
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