Value-added tax (VAT), which was introduced at the start of 2018, has now fully become operational in the United Arab Emirates. However, the consumers still face a number of difficulties in terms of calculating VAT, registering for it, filing the claims, and for the return of VAT registration. Moreover, they also feel confused about VAT supply types.
The consumers often have to face penalties because they are not aware of the VAT registration process in the UAE. Even after knowing that, lack of knowledge about the different types of VAT supplies, as well as the application of tax amount on the goods and service, cause them greater concern. A comprehensive guide can help them know the basics.
This article will provide a detailed guide about different types of VAT supplies in the UAE.
Difference between Top 4 Types of VAT Supplies in the UAE
Since the time of its implementation in the year 2018, the value-added tax has always proven a complicated process for the businesses and services in the UAE. Although it is much more beneficial than the ordinary taxation system, as it demands the tax according to the value of the products and not through a fixed rate on every product or service, it causes confusion to taxpayers.
The following are some of the most important types of VAT supplies in the UAE, as well as the differences among them.
1. Zero Rated Supplies
The very first type of VAT supplies in the UAE is the zero-rated supplies. It means that the rate of tax applied to certain goods, products, or services is zero percent. However, an important distinction is that the input tax can be deducted from the zero-rated VAT supplies. For example, in the case of the export of goods to some other country, the tax rate will be zero.
These supplies include the healthcare service, medicines and equipment, international transport services, first sale of the residential property, educational services, and investment in gold, silvers, and platinum, the export of goods and services, and crude oil and natural gas.
2. Exempt Supplies
The second type of VAT supplies in the UAE is exempt supplies. These are the type of supplies which stay unaffected by the implementation of VAT because they are exempted from the payment of tax. Since there is no tax on these supplies, the input tax is also not deducted from these supplies. For example, the local transport service does not need to pay any tax.
The common exempted supplies include bare land, residential property and leases, residential property from second sales to onwards, charitable services, local transportation services like metro, taxi, and buses, etc. and certain financial services.
3. Out of Scope Supplies
The third type of VAT supplies in the UAE is out of scope supplies. As evident from the name, these are the supplies that do not account in VAT. Due to the implication of VAT, the input tax recovery also does not apply to this type of supply. The example includes the toll on the bridges which do not need tax payment.
The common out of scope supplies include MOT testing, wages of the employees, the charge levied by the government, supplies by the people not registered under VAT, as well as some specific supplies marked by the government.
4. Domestic Taxable Supplies
The fourth type of VAT supplies in the UAE is domestic taxable supplies. The domestic taxable supplies are those which are dealt at the local level. The tax rate of five percent is applicable on these goods and services. Moreover, an input tax of the same rate is also applicable to this type of VAT supply.
The goods and services like commercial property sales and leases, retail purchases and supplies, car sales and rentals, hotels, and restaurants, as well as repairs and maintenance services, are included in the domestic taxable supplies.
Confused about the category your business falls in?
This is the most important issue of most of the consumers as they fail to identify their type of VAT supply rightly. For example, VAT on the property is also included in exempt supplies and domestic taxable supplies, and cause confusion to the layman.
If you are facing a similar issue, here is a great solution. You can acquire the services of best VAT consultancy in Dubai and ensure to comply with all VAT compliances, without getting worried about supply types and applicable rates. You can also ensure to receive support in VAT registration and VAT return processes.
Although the fixed rate of VAT does not change frequently, however, it applies to different products and services at a different rate and under a different category, so do not get confused by it. Consult the services of experts to avoid all the issues and VAT penalties, and ensure to maximize your profit.