VAT, Excise Tax, Tax Residency Certificate Solutions In UAE

VAT
Basics

Introducing the concept of VAT will significantly alter various accounting operations in a business. Following are a few basic topics on VAT and how they impact businesses and consumers.

Understanding
Value Added Tax

Any fee charged by a government on income generated, goods, corporate revenues, public-private service delivery, and/or any other transactions to fund government expenditures and public services, is called a tax. There are 2 major categories of tax:

VAT is a form of an indirect tax levied on the consumption of goods and services. It is charged at every step of the supply process. The end consumer usually bears its cost while registered businesses act as tax collectors on behalf of the government while collecting and accounting for VAT.

How does
VAT Works

Let us consider the following example to see how the VAT system works:

A value added tax applies at every step of the sales process, while the registered business receives a refund (or tax credit) on the VAT paid at the previous step. The Federal Tax Authority (FTA) has specified a fixed VAT rate of 5% for the sale of goods and services in the UAE.

Why is the VAT
being introduced?

VAT allows governments to enhance and diversify their sources of income to continue providing a good standard of living for UAE residents. The implementation of VAT is expected to generate AED 12bn of revenue in its first year and up to AED 20bn in the second year.

Registering
for VAT:

Registration for VAT can be both mandatory or voluntary, depending on the business revenues generated.

VAT came into effect starting on January 1st, 2018. The electronic registration portal for VAT was opened from the fourth quarter of 2017 on the FTA website.

VAT
Rates:

The VAT rate is fixed at 5% for most goods and services except for these exempted or 0% tax categories:

Need for
bookkeeping:

The VAT regime will revolutionize business account operation and maintenance. Businesses must register for VAT that meet the minimum annual turnover requirement. Businesses not registered for VAT should maintain their financial records in any case should the government need to establish whether they should be registered. Every business owner registered under VAT must maintain the following records:

According to UAE company law, a mainland company, however, requires a local partner or a local service agent to conduct business.

Excise Tax

What is an excise tax? Excise tax is an indirect tax imposed on the sale of a commodity. This tax is levied on goods when they are imported into the UAE, manufactured in the UAE, or stockpiled in the UAE. Excise tax is normally levied on products that have harmful consequences to people or the environment. The primary purpose of the excise tax is to reduce the consumption of those goods to restrict unhealthy practices. In certain scenarios, goods will be physically labeled to show that the excise tax has already been paid to the government.

Which products are subject to excise tax?

Scope of Excise Tax

A person must register and pay excise tax if they are in the following activities

Tax Residency
Certificate – TRC

What is TRC?

In the UAE, a Tax Residency Certificate is one of the official documents issued by the Ministry of Finance. UAE has signed tax treaties with 55 countries to avoid double taxation. A certificate of tax residency that certifies that an individual or company is resident in a specific country. Foreign investors and companies from other taxable jurisdictions will be able to avoid double taxation. It is issued to companies which have already registered in the UAE or to individuals who have received a residency visa.

Companies in the UAE can make full use of the advantages of double taxation since the UAE has signed double tax treaties with dozens of countries around the globe. It is a bilateral agreement to protect the interests of foreign investors and companies from other taxable jurisdictions. Because offshore companies are not listed with the tax treaties in UAE, they cannot receive the tax residency certificate. Tax exemption certificates can be obtained instead of tax residency certificates by offshore companies. In the UAE, it only allows companies to be tax exempt.

ebs Resources

VAT Basics

Understanding Value Added Tax

Why is the VAT being introduced?

How does VAT work?

Registering for VAT

Headquarter business

VAT Rates

UnderstandingValue Added Tax

A direct tax is collected directly by the government from the taxpayer.

An indirect tax is collected by the government through an intermediary, who collects the tax on behalf of the government from the taxpayer.

How does VAT Works

Consider a manufacturer who produces Microwave oven sets and sells a unit to a wholesaler for AED 500. Under the new tax system, the manufacturer collects a VAT of 5% (AED 25) from the wholesaler on behalf of the government. The wholesaler then pays a total amount of AED 525

The retailer further increases the selling price to AED 1500 and sells it to the end customer. The retailer collects a VAT of 5% (AED 75) from the end customer, while also receiving a refund of the VAT paid to the wholesaler in the previous step.

The end customer pays a total amount of AED 1,575 for the microwave oven set

Why is the VAT being introduced?

Registering for VAT:

VAT registration of a business is mandatory if the total value of their taxable sales and imports within the UAE exceeds the mandatory registration threshold of AED 375,000 for the previous 12 months or within the upcoming 30 days.

VAT registration for any business is mandatory if the total value of their taxable sales and imports within the UAE exceeds the voluntary registration threshold of AED 187,500 for the previous 12 months or within the upcoming 30 days.

Startups and small-scale businesses can register voluntarily if their expenses exceed the voluntary registration threshold, thereby making them eligible for tax credit.

VAT Rates:

International transportation.

Goods and services exported outside the GCC.

Certain investment-grade precious metals (e.g. gold and silver of 99% purity).

Newly constructed residential properties sold within 3 years of construction.

Certain education and healthcare supplies.

Public transport.

Life insurance.

Undeveloped land.

Certain financial services.

Residential properties.

Need for bookkeeping:

InvoicesAn invoice is documentary evidence having details of a taxable supply or a service. Only VAT registered businesses are authorized to issue tax invoices. The receipt of a valid tax invoice is the only primary documentary evidence to support the VAT recovery for a purchaser.

Credit notesWhen products are returned for a refund, credit notes are issued. It is a document sent by a seller to a buyer notifying them that a credit has been made to their account against the goods returned by the buyer.

Debit notesDebit notes are issued when the amount payable by a buyer to a seller increases (due to extra goods delivered or goods already delivered charged incorrectly). These can be issued as a letter or formal document specifying future liability.

Excise Tax

Which products are subject to excise tax?

Carbonated drinks

Tobacco and tobacco products

Energy Drinks:

Scope of Excise Tax

Importing excise products.

Producing or manufacturing excise goods.

Stockpiling excise goods in the normal course of business.

Transferring excise products out of a Designated Zone

Selling excise goods in the UAE. The excise tax will be borne by the seller and the tax amount will be included in the total sale price of the excise product.

Tax Residency Certificate – TRC

Documents Required for TRC

For Companies

All Company Documents

Tenancy contact copy and EJARI

Request letter from the company

Government fees will be approximately AED: 5,000.00

Shareholder passport copy, visa page, ID copy

Audited financial statements

For Individuals

Passport copy and visa page, Emirates ID

Immigration report state that, the person is stayed in Dubai number of days in UAE

Tenancy contact and EJARI

Government fees will be approximately AED: 2,000.00

Source of income / Salary certificate

Audited financial statements

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VAT
Basics

Understanding
Value Added Tax

How does
VAT Works

Why is the VAT
being introduced?

Registering
for VAT:

VAT
Rates:

Need for
bookkeeping:

Invoices
An invoice is documentary evidence having details of a taxable supply or a service. Only VAT registered businesses are authorized to issue tax invoices. The receipt of a valid tax invoice is the only primary documentary evidence to support the VAT recovery for a purchaser.

Credit notes
When products are returned for a refund, credit notes are issued. It is a document sent by a seller to a buyer notifying them that a credit has been made to their account against the goods returned by the buyer.

Debit notes
Debit notes are issued when the amount payable by a buyer to a seller increases (due to extra goods delivered or goods already delivered charged incorrectly). These can be issued as a letter or formal document specifying future liability.

Tax Residency
Certificate – TRC

Documents
Required for TRC

Need help with
Tax Resident Certificate