United Arab Emirates Newsletter - Spring 2018

Value Added Tax (VAT) has been introduced in the UAE on 1 January 2018. The VAT Law in UAE is framed in accordance with the GCC VAT Framework and is governed by Federal Decree-Law No. (8) of 2017 read with the related Regulations issued by the Federal Tax Authority (FTA). 


VAT is a consumption-based tax and is applicable on supply of goods or services at a standard rate of 5% except if specifically exempted or zero-rated. Certain supplies have been made zero rated viz. exports of goods and services, international transportations of passengers or goods, supply of means of transportation and related services, investment in precious metals, supply of residential buildings, crude oil or natural gases etc. Further, exemptions have been granted to few other supplies which include mainly financial services, supply of bare land, local passenger transports, basic healthcare services.


Each person making supply who has a place of residence in the State is required to obtain registration if the value of aggregate supplies made by him exceed the compulsory registration threshold of AED 375,000/- during the preceding 12 months. There is also an option to get oneself voluntarily registered if the value of supply or expenses exceeds AED 187,500/-. The concept of Tax Group has also been introduced to allow single registration to various entities working in a group.


The liability to pay VAT is on the supplier making taxable supplies of goods or services. In some cases, the liability has been shifted on the recipient of goods or service, referred to as Reverse Charge Mechanism. The taxable person is also entitled to recover the input tax paid on the purchase made by him for making taxable supplies. There are conditions and mechanism for input tax recovery, its adjustment and for claiming refund.