Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it 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.

VAT 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 members, Canada, New Zealand, Australia, Singapore and Malaysia.

VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.

A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.

Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.

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 from the government budgets. VAT will provide the UAE with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as such a collaborative approach is best for the region.

The standard rate of VAT in the UAE is 5%.

Businesses are responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

VAT, as a general consumption tax, is applied at 5% to all transactions of goods and services unless specifically exempt in Article 46 of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of 0% as per Article 45 of the Federal Decree-Law.

VAT is intended to help improve the economic base of the country. Therefore, there are rules that require businesses to be clear about how much VAT you are paying for each transaction. Consumers should have the required information to decide whether to buy something or not.

Any person is able to object to a decision of the Federal Tax Authority.

As a first step, the person shall request the FTA to reconsider its decision. Such request of reconsideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.

If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before

objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.

As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision.

Log into the FTA e-Services portal via E-SERVICES, and go to EDIT on the VAT section and enter your Customs Registration Number. This will automatically update your records.

If you have been allocated a “Provisional TRN” and this has been communicated to you by email, you will receive the Tax Registration Certificate after the FTA has fully reviewed your application.

A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:

• Any place that is not a building fixed to the ground and can be moved without being damaged.
• Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.
• A serviced apartment for which services in addition to the supply of accommodation are provided.
• Any building constructed or converted without lawful authority.

A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.

A supply of real estate may include the sale, lease or giving the right in any real estate.

The first supply of a new residential building within the first three years of it being constructed is zero-rated. All subsequent supplies are exempt, even if within the first three years.

All supplies of commercial properties are subject to VAT at 5%, and this includes all buildings or parts thereof that are not residential buildings.

The owners of residential buildings who only make exempt supplies do not have to register for VAT if they do not have any taxable business activities. Where owners have taxable business activities, they should consider their obligations further.

The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over the coming 30 days.

An owner of a residential building is not able to recover VAT in respect of expenses related to the exempt supply of the residential building.

An owner of a commercial building is generally able to recover VAT in respect of expenses related to the supply of the commercial building.

The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply within the first three years of completion of construction or a subsequent supply.

The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.

Tax that cannot be directly attributed to exempt supplies or taxable supplies should be apportioned, and only the portion relating to the taxable supplies (at 0% and 5%) may be recovered

The rent of a residential building will generally be exempt from VAT.

The rent of a commercial building will be subject to VAT at 5%