VAT in Dubai, UAE – Features of the Tax, Rate, Planning, and Refund

UAE is considered to be a tax-free country, but there are still some taxes here, and VAT is one of them. This tax was implemented in the UAE and most of other GCC countries in 2018. The revenues from a VAT in the UAE are estimated at 10-12 billion AED in the first year of its application.

As for the VAT rate in Dubai and other Emirates, it is standard – 5%, but there are those who are exempted from this tax or have a zero tax rate (healthcare and educational segments as well as some kinds of food industries, export, building, are exempted from taxation). Considering the fact, a tax rate over 10 % can shrunk consumer spending ability; local VAT rate seems to be quite minor, regarding the purchasing power of people, besides the main food products remained tax-free.

Every taxpayer has a VAT number in Dubai UAE (this VAT number is a unique identifier for identification. Both companies (including those in free zones, but not offshore companies, and physical persons are obliged to pay this tax.

VAT tax planning and reimbursement options

In order to be able to refund the Input VAT, the following necessary condition must be met.

Input VAT, which can be reimbursed to a taxpayer, for any tax period is equal to the total amount of the input VAT paid for goods and services that can be used to use to do one of the following:

• Taxable supplies.
• Deliveries outside the UAE that would be taxable supplies if they were made in the UAE.
• Deliveries described in the law, which were carried out outside the UAE, and are considered as supplies exempted from VAT if they were made inside the UAE.

In order to determine the input tax that can be refunded, the taxable person must distribute the Input tax as follows:

• The input VAT on supplies, which are fully related to the supplies that meet the above necessary condition is fully reimbursed.
• Input VAT, which does not apply to supplies that meet the above necessary condition, will not be reimbursed unless otherwise provided by law.
• Input VAT, which is partly related to supplies that meet the necessary condition described above, and partly is not applied to them, should be distributed in accordance with the rule described below, and only that part that relates to supplies corresponding to above the "necessary condition."

VAT tax calculating and refund in the UAE

Input VAT, which can be refunded, is calculated as follows:

• The taxable person must calculate the percentage of a reimbursable tax of the amount of reimbursable VAT and non-refundable VAT for the tax period.
• This calculated percentage is approximated to the nearest number.
• Next, this already calculated percentage is multiplied by the Input VAT amount to determine the reimbursement of this part of this Input VAT.

The above calculations must be made for each tax period in which input VAT was charged for VAT exempt supplies, or for activities that are not directly related to the business.

At the end of each tax year, the taxable person must perform the above calculation, but for the entire tax year, it has just ended in the first tax period of the subsequent tax year.

Input VAT that should be refunded for a tax year is compared with the amount of Input VAT actually refunded for all tax periods that make up a tax year, and the adjustment to the reimbursement of the accrued VAT is made in the first tax period of the subsequent tax year.