UAE VAT and Excise Taxes: ACTouch ERP for VAT & Excise Complances

UAE VAT and Excise Taxes

UAE Government launched UAE VAT and Excise Taxes from 1st Jan 2018 onwards. It contains mainly 2 portions.

Excise Taxes – Its an indirect tax thats levied on specific goods those are identified as harmful to human health and environment.
VAT Taxes – It is an indirect tax thats levied on the items at the each point of sale. Businesses are responsible for collecting and paying these taxes to Government.

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UAE Excise Taxation Systems

Excise tax is an indirect tax levied on specific goods, which are harmful to human health or the environment. Such goods include carbonated drinks, energy drinks and tobacco products.

What is excise tax?

Excise tax was introduced across the UAE in 2017. Excise tax is a form of indirect tax levied on specific goods which are typically harmful to human health or the environment. These goods are referred to as “excise goods”.

When considering whether a product is an excise good, the following definitions apply:

Carbonated drinks include any aerated beverage except for unflavoured aerated water. Also considered to be carbonated drinks are any concentrations, powder, gel, or extracts intended to be made into an aerated beverage.

Energy drinks include any beverages which are marketed, or sold as an energy drink, and containing stimulant substances that provide mental and physical stimulation, which includes without limitation: caffeine, taurine, ginseng and guarana. This also includes any substance that has an identical or similar effect as the aforementioned substances. Also considered to be energy drinks are any concentrations, powder, gel or extracts intended to be made into an energy enhancing drink.

Tobacco and tobacco products include all items listed within Schedule 24 of the GCC Common Customs Tariff.

Rate of Excise tax

The rates of excise tax in the UAE will be:

50 per cent for carbonated drinks
100 per cent for tobacco products
100 per cent for energy drinks.

Purpose behind levying excise tax

The UAE Government is levying excise tax to reduce consumption of unhealthy and harmful commodities while also raising revenues for the government that can be spent on beneficial public services.

How will it affect consumers?

Consumers will need to pay more for goods that are harmful to human health or the environment.

Useful links:

Getting ready for excise tax – Federal Tax Authority
Registering for excise tax – Federal Tax Authority
Federal decree law No. 7 of 2017 on excise tax
Federal law by decree No. 13 of 2016 concerning the establishment of the Federal Tax Authority
Excise tax FAQs – Federal Tax Authority website

Excise tax guidelines:

Registration user guide – excise tax
Importers declaration user guide
Registration user guide – warehouse keepers and designated zones
Registration user guide – tax groups
Getting started guide – excise tax
Getting started guide – tax groups
Taxable person guide – excise tax
Excise tax returns – user guide

UAE VAT (value Added Tax)

Value-Added Tax or VAT is a tax on the consumption or use of goods and services levied at each point of sale. Businesses collect and account for the tax on behalf of the government.

Note: ACTouch.com also supports those companies that use VAT Sales taxes and its business practices. Check here.

About VAT

VAT was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent.

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

Implication of VAT on individuals

VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted.

As a result, the cost of living is likely to increase slightly, but this will vary depending on an individual’s lifestyle and spending behaviour. If an individual spends mainly on those things which are relieved from VAT, he is unlikely to see any significant increase.

The government will include rules that require businesses to be clear about how much VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.

Implication of VAT on businesses

Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges.

Registered businesses and traders will 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-registered businesses generally:

must charge VAT on taxable goods or services they supply
may reclaim any VAT they have paid on business-related goods or services
keep a range of business records which will allow the government to check that they have got things right.

VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis. It will be a formal submission and reporting will be done online.

If they have charged more VAT than they have paid, they have to pay the difference to the government. If they have paid more VAT than they have charged, they can reclaim the difference.

VAT in GCC

The UAE coordinates VAT implementation with other GCC countries because she is connected with them through ‘The Economic Agreement between the GCC States’ and ‘The GCC Customs Union’.

Read Common VAT Agreement of the States of the Gulf Cooperation Council (GCC).

VAT guidelines:

Registration user guide – warehouse keepers and designated zones
Registration user guide – VAT
Registration user guide – tax groups
Getting started guide – VAT
Getting started guide – tax groups
VAT treatment for selected sectors (PDF, 218 KB)
VAT for businesses (PDF, 2.6 MB)
VAT for education (PDF, 1.81 MB)
VAT for retailers (PDF, 6.09 MB)
Guidance on zero-rated and exempt supplies (PDF, 1.44 MB)
10 things you need to know about VAT (PDF, 1.64 MB)
VAT treatment of properties (PDF, 2.63 MB)
VAT treatment for imported goods (PDF, 336 KB)
Know your rights – Tax invoice (PDF, 402 MB)
Know your rights – Education (PDF, 140 KB)
Know your rights – Healthcare services (PDF, 139 KB)

Useful links:

Federal decree-law No. (8) of 2017 on value added tax
UAE Cabinet Decision (52) of 2017 on the executive regulations of the Federal Decree Law No. (8) of 2017 on Value Added Tax
Explaining VAT – Federal Tax Authority
Registering for VAT – Federal Tax Authority
Federal law by decree No. 13 of 2016 concerning the establishment of the Federal Tax Authority
VAT FAQs – Federal Tax Authority

Criteria for registering for VAT

A business must register for VAT if its taxable supplies and imports exceeds AED 375,000 per annum. It is optional for businesses whose supplies and imports exceed AED 187,500 per annum.

A business house pays the government the tax that it collects from the customers, but at the same time it receives a refund from the government on tax that it has paid to its suppliers.

Foreign businesses may also recover the VAT they incur when visiting the UAE.

How to register for VAT?

Businesses can register for VAT through the e-services section on the FTA website. However, they need to create an account first. For more details about VAT registration, please read VAT registration User Guide.

For general inquiries about tax registration and/or application, you may contact Federal Tax Authority through the enquiry form or send an email to info@tax.gov.ae.

How is VAT collected?

VAT-registered businesses collect the amount on behalf of the government; consumers bear the VAT in the form of a 5 per cent increase in the cost of taxable goods and services they purchase in the UAE.

UAE imposes VAT on tax-registered businesses at a rate of 5 per cent on a taxable supply of goods or services at each step of the supply chain.

Tourists in the UAE also pay VAT at the point of sale.

On which businesses does VAT apply?

VAT applies equally on tax-registered businesses managed on the UAE mainland and in the free zones. However, if the UAE Cabinet defines a certain free zone as a ‘designated zone’, it must be treated as outside the UAE for tax purposes. The transfer of goods between designated zones are tax-free.

View list of ‘designated zones’ in the UAE.

UAE VAT and Excise Taxes