VAT is basically an indirect tax but it is also referred to as a type of consumption tax. It is applicable to supply of various kinds of goods and services. It is levied by businesses that are registered for VAT, on supplies of goods/services to their customers in the normal course of their business operations.
VAT is charged by businesses at each phase in the supply chain. In most cases the ultimate consumers bear the cost of VAT while Businesses collect VAT on behalf of the tax authorities.
BASICS OF VAT
VAT is charged on supply of any taxable goods or services by a registered business in the normal course of its business activities.
Mentioned below are details about the approach our tax experts adopt for successful implementation of VAT in companies operating in the UAE:
REGISTERING FOR VAT
Businesses operating in the UAE having annual taxable supplies exceeding the specified threshold of AED 375,000 (or equivalent) are required to register for VAT.
Businesses having annual taxable supplies between AED 187,500 & AED 375,000 can voluntarily register for VAT in the UAE.
Businesses that are not registered under VAT do not have the right to charge VAT on supply of goods/services to their clients and also cannot reclaim VAT paid on their purchases.
After business gets registered for VAT then the business becomes responsible for charging VAT and also for remitting VAT collected from customers to the tax authority on timely basis. The total amount a business is liable to remit to the tax authority is determined by the VAT charged on sales less the figure of VAT that has already been paid on purchases.
In most jurisdictions and regions, the reporting process of VAT is completed when a VAT return is filed with the tax authority. VAT registered businesses are required to file VAT return either monthly or quarterly.