Value Added Tax (or VAT) is an indirect tax. Occasionally, it might be referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold. It is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.It was introduced across the UAE on 1st January 2018 at a standard rate of 5%. A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold but exceed the voluntary registration threshold of AED 187,500.Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

Vat Concept.Word vat put on coins and calculator on table

Advantage

The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for using government budgets. VAT provides our country with a new source of income, contributing to the continued provision of high-quality public services in the future. It also helps the government move towards its vision of reducing dependence on income derived from oil and other hydrocarbons.

*Generation of detailed sales, Purchases, Input VAT, Output VAT ledgers etc.

  • As VAT is a consumption tax the revenue generated will be constant.
  • Compared to other indirect tax VAT is easy to manage.
  • Due to catch-up effect of VAT, it minimizes avoidance.
  • Huge amount of revenue is generated on a low tax rate through VAT.
  • As the VAT is collected in small installments so the consumers have minimum burden.
  • VAT is a neutral tax so it can be imposed on all types of business.