Now that the VAT regime is live, businesses are faced with the daily challenge of calculating VAT in the UAE on their goods and services.
As with any new legislation, there are pitfalls for the unwary and a mistake or omission when calculating VAT in the UAE can result in hefty fines and penalties.
3 SIMPLE TIPS WHEN CALCULATING VAT IN THE UAE ON GOODS AND SERVICES:
1. WHEN IN DOUBT, USE THE FTA ONLINE VAT CALCULATOR
The Federal Tax Authority (FTA) launched its VAT calculator in February. This online tool assists registered VAT businesses with calculating VAT in the UAE due on their purchases of goods or services.
For small businesses unsure how to calculate their VAT obligations, the FTA VAT calculator is a handy tool.
Go to the FTA website, and go to the “Getting Help” tab. Simply enter the amount before tax and the calculator will display the total tax amount and the total price including VAT. The calculator also allows you to enter the after-tax amount to calculate the VAT amount included in the final price.
2. INPUTS AND OUTPUT CALCULATIONS
In your business’ VAT settlement, you deduct input VAT from your output VAT. The resulting net amount must be reported to your regional tax office. Remember, you only pay VAT on the value your enterprise has added to the goods and services.
If your purchases exceed your sales in any one period, the difference will be negative, and the difference will be refunded.
Let’s look at a simple example of calculating VAT in the UAE for both output and input VAT.
Suppose you own a bakery and spend AED 100,000 on raw materials such as salt, sugar, and flour. Your input tax rate is 5 percent, so the input tax you pay is 5 percent of AED 100,000 = AED 5,000.
Now after selling your delicious baked goods, using the purchased raw materials purchased previously, you make sales of AED 200,000. As your output tax rate is 5 percent, the output tax you pay is AED 10,000.
So, your bakery’s final (net) VAT payable will be: AED 10,000 – AED 5,000 = AED 5,000.
Easy!
3. REMEMBER EXPORTS ARE ZERO RATED
Remember, exports of goods and services beyond the GCC are zero-rated, as is international and intra-GCC transport costs. Moreover, supplies for certain sea, air, and land transportation is also zero-rated for VAT purposes.
Gain A Complete Understanding Of What VAT Is And How It Will Impact Small Businesses In The UAE On A Day-To-Day Basis Today!