The UAE introduced Value Added Tax (VAT), a broad-based indirect tax levied on the consumption of goods, from January 1, 2018 at a standard rate of 5 per cent.
With the implementation of VAT, if you have questions feel free to ask me. I will publish most popular reader questions and answers daily.
How to ask Babu: Message us on Facebook or email us here with 'VAT Question' as the subjectline.
VAT Questions today
Do property owners have to register for VAT? What if the property is registered in joint names?
If property is owned and self-used, registration is not required.
If it is rented but if it is residential property more than 3 years old, registration is not required. However, if it is residential property newly constructed or a commercial property (irrespective of new or old), the registration is required, if the rental exceeds Dh375,000.
However, if property is not for rental or business and sold in individual capacity, registration is not required irrespective of selling price.
Is VAT applicable on renewal of lease agreement of residential property?
No
In contracting business we get payment delays up to 6 months and often the payment settlement is lesser value than the invoiced value. Can we prepare the "Performa Invoice" or a "payment application" at initial stage without actually paying VAT?
Yes. If it is a valuation application under consecutive invoices or periodic payments. However once it is certified, you shall raise tax invoice. If final settlement is lesser than tax invoice, you shall issue tax credit note.
We are a Dubai registered company buying and selling in different countries and ship goods directly between those countries. Is VAT applicable in my business?
If goods are not entering UAE, the transactions would be out of scope of UAE VAT laws.
Our company is a newly registered free zone entity, do we have to register for VAT?
No, unless you cross the threshold limit of Dh375,000 in next 30 days.
Does VAT apply on transport of goods within the country over lands?
Yes.
Do auto-maintenance workshops need to register for VAT?
Registration is based on taxable supplies and not the nature of activity. If the workshop’s turnover exceeds threshold limit, it must register.
My DMCC company has only one activity which is brokerage between non-GCC suppliers, and non-GCC importers. Since both suppliers and importers are out of GCC is VAT applicable?
Applicable if brokerage service is performed in UAE.
Is VAT applicable on sale and trading in used auto tires and spare parts?
Registration is based on taxable supplies and not the nature of activity. If the workshop’s turnover exceeds threshold limit, it must register.
Hover over the icon to see if VAT applies to that item.
VAT's up Babu?
Here's a list of all the questions asked by our readers and Babu's answers since we started this column.
1. Will my children’s school tuition fees be affected by VAT?
No
2. Will VAT impact school expenses like bus fare, uniforms and text books?
Yes, VAT is applicable on uniforms, text books and stationery. However, bus fare is an exempt category.
3. Would all shopping of clothes, bags, shoes and other outfit essentials be subject to VAT?
Yes
4. Will my morning coffee cost 5 per cent higher with VAT?
Yes
5. Will my gold purchases be affected by VAT?
On gold jewellery and coin purchase you pay VAT, but not on gold bullion (for investments)
Find out today's gold rate in Dubai and the UAE
6. Will my residential rent be higher with VAT?
No
Save even more: What are the cheapest areas to rent in Dubai in 2018?
7. For expats, will sending money home cost more with VAT?
Yes
8. Will my flight tickets be more expensive with VAT?
No
9. Would I be charged VAT for online shopping on sites such as Souq, ebay or Namshi?
Yes
10. Will my optics expenses comes under the purview of VAT?
Yes
11. Will my petrol be taxed?
Yes
12. Will prepaid phone recharge cards have VAT added to the price?
Yes (read more here)
13. Our rent notice renewal amount is the same as for next year amount 100,000, would it become 105,000?
No, if you are asking about a residential property.
14. Will VAT applied to the revenues of my newly opened company?
No, VAT is a consumption tax and applicable only to the supplies you make.
15. I am renewing the car insurance in December and as of now no VAT is applied on my premium, can the insurance company charge me the VAT in January for the premium I paid in December 2017?
No. VAT is applicable only from January 1, 2018
16. How about salary; is there VAT or any other tax on salaries?
No, VAT is a consumption tax
17. Do I have to pay VAT on university fees?
Yes, if the university is privately owned and/or funded.
Read more about VAT in the education sector here
18. Do we need to pay VAT on existing car loans?
No, loans are in the VAT exempt category.
19. Will VAT apply on rents also and parking in the building?
No, VAT is not applicable on residential rents. If the parking fee is charged separately, you have to pay VAT.
20. Will metro, tram and bus fares be higher for each trip with VAT?
No
21. Are my post-paid phone bills going to be affected by VAT?
Yes
Read more about Etisalat's VAT announcement here
22. Will the purchase of travel packages online have VAT charges?
Yes
23. Would resident healthcare and pharmacy costs based on co-payment be higher with VAT?
No, as long as they are basic healthcare services. This also depends on the health service provider.
24. Will my ATM transactions be affected by VAT?
No
25. Will getting a driver’s licence (including classes and tests) cost more once VAT comes into force?
Yes
26. Will I be charged VAT when renting office space for my SME?
Yes
27. Will VAT be added to my shipping costs if I send out a personal package or cargo?
No, but this is subject to change and custom duties may be subject to VAT.
28. Will all my tech purchases and services be subject to tax?
Yes
29. Will going to the cinema cost more once VAT is rolled out?
Yes
30. Would salon and spa services be affected by VAT?
Yes
31. Will selling my property in the UAE be affected by VAT?
No, if the property is residential.
Read more about VAT on property transactions here
32. Will hotel stays have VAT added to the final bill?
Yes
33. Will going to theme parks and family entertainment venues in the UAE such as Dubai Safari Park, Dubai Parks and Resorts, Ferrari World, Aquaventure, Wild Wadi, cost more with VAT?
Yes
34. Will buying or selling used cars come under the purview of VAT?
Yes
35. I am getting married in Dubai; will wedding venues charge VAT for the rent of the space in 2018?
Yes
36. Is a gym membership going to be more expensive from January 1?
Yes
37. Will government services including ID services, passport services, visa (visit, tourist and residence) services cost higher after VAT?
Possibly. We are waiting for confirmation as to which government entities will be exempt.
38. Will I have to pay more for mobile streaming services such as Netflix, Anghami or iTunes?
Most likely, as per the regulations.
39. Do I pay VAT on bank loans?
No
40. Do I pay VAT on credit card fees?
Yes
41. Can companies claim VAT refund on medical premium related to employees’ family members?
Yes
42. Do display prices of retailers include VAT?
Yes, but retailers have to issue invoices specifying the VAT rate and the actual VAT charged on the product in dirhams.
43. When we export, do we have to add VAT?
Yes, as long as it is exports to the GCC implementing states. If not, then zero per cent VAT tax rate applies.
44. If in January 2018 we have unpaid invoices of the previous year, will the government charge VAT on those?
This depends on the date the invoice was issued.
45. My turnover in last 12 months are below Dh187,500, do I have register for VAT?
No
46. Do gents’ salons and laundries need to register for vat?
Yes, If they have a turnover higher than Dh375,000.
47. Do contracting/construction companies required to register?
Yes, If they have a turnover higher than Dh375,000.
48. If I paid the full amount upfront for a yearly gym membership in April, 2017, do I need to pay more money to cover VAT for the period January to April?
If it is an individual membership and your contract provides for the VAT to be additionally charged or your contract states that the management reserves the right to revise the charges or fees and implement such changes, then, yes – you need to pay more. If not, and you have already been issued invoice for the full year, then no.
If it is corporate membership, it is subject to extra VAT, if conditions of article 70 (6) of executive regulation are met.
49. Can a company claim VAT refund on a car provided to employee for personal use?
No.
As per article 53 (1) (b) of executive regulation, which indicates that if such cars are available for personal use, input credit is non-recoverable. Whether such car is part of employment contract or not, doesn't matter in this case.
50. Can a company claim VAT refund on golf membership paid for senior management?
Depends.
As per article 53(1) (c), these are not recoverable input credits. For subclause 2 of same article, both conditions should be met; (a) normal business practice and (b) to perform the role. Whereas normal business practice requires reference to industry and not the individual bank policy, proving that it is required to perform the role of a banker, looks unreasonable. Also, provision in the employment contract is not necessary as a business practice.
51. Can companies claim refund on VAT on medical insurance premium paid?
Yes
52. I own two commercial properties, combined rent income is Dh350,000. Will I have to charge vat to the tenants?
Yes
53. I am running a cargo company in Dubai, doing clearing import, export and relocation service for companies & persons. Does VAT apply on the charges of sending cargo from the UAE?
No, but this may be subject to change.
54. I am sending goods from UAE to other countries for a Dubai based exporter using air cargo. The airline issues invoice to our company for freight. Our Company issue invoice after adding our margin to Dubai company. Do I need to charge VAT?
No
55. I own 2 flats in Dubai and I want to sell one of the flats. Is VAT applicable for this?
No, If it is a residential unit, VAT is not applicable
56. Are building maintenance charges subject to VAT?
Yes
57. In centrally air-conditioned buildings is cooling charge subject to VAT?
Yes, if the service is supplied separately from rent and invoiced so.
58. Is VAT applicable on commissions paid to real estate agents?
Yes
59. Is sale of bare land subject to VAT?
No, it is zero-rated.
60. If I supply only zero rated goods and services, should I register for VAT?
As a supplier, you must register for VAT if your taxable turnover, including zero--rated supplies exceeds Dh375,000.
61. Are personal imports such as mementoes, dress, food items brought from abroad as personal baggage going to be taxed under VAT?
No
62. Is VAT is applicable on online remittance offered by banks?
No
63. I'm buying a residential property in Dubai, which is 5 years old, do I have to pay vat?
No
64. Can VAT be charged on interest on credit card purchases?
No, interest from credit cards are exempt
65. Whether every company in JAFZA will get the benefits of a designated Free Zone or they have to apply for a separate license for it?
No, requires separate application. Designated Zones would be specified by the Cabinet decision soon.
66. We are a logistics company exporting goods to outside UAE. We send goods to outside UAE other than GCC countries. Is VAT applicable on freight invoice to UAE customers for exporting goods.
It would be zero rated.
67. Can exporters claim input vat for the expense such as transportation, fuel charges and other expense incurred for this export?
Yes
68. Will suppliers charge VAT in Jebel Ali freezone even if the is transfer is between companies within freezone?
Yes. As of now, JAFZA is not specified as a designated zone. . Designated zones will be specified by the Cabinet decision
69. Whether every company in JAFZA will get the benefits of a designated free zone automatically or they have to apply for it?
No separate application. Designated Zones would be specified by the Cabinet decision.
70. Can companies claim back VAT paid for petrol bills of company-owned vehicles?
Yes, for commercial vehicles. No for motor vehicles which are available for personal use.
71. We are holding a professional license and we are not generating any invoices from this. Our head office is in Zurich, we contact our customers in GCC to provide product information and offers. Do we have to register for VAT?
Yes, if total value of supplies exceeds AED 375,000. Even if you were not generating invoices, the money paid to you by your foreign HO has to be considered for the purpose of the limit.
72. We are in the business of providing of business consultancy services from SAIF Zone. All our customers and vendors are based in USA and Pakistan. We do not provide any services to any UAE company. Do we have to register for VAT?
More information required on what are the specifics of the business consultancy.
73. I am a trader. I have brought materials from Europe and I am supplying to UAE customer on 27th December with delivery note and invoice. But payment terms is 60 days from the date of delivery. Do I need to charge 5 per cent VAT for this items? If yes can I revise the invoice with 5 per cent VAT?
This transaction is not subject to VAT.
74. Is VAT applicable on international shipping services to transport to UAE based customers but billed outside the UAE?
It would be zero rated.
75. I (as an individual) purchased service contract for my car in July 2017. The amount was fully paid by me in July 2017. Company has charged VAT from me. Is this correct?
No, if it was not mentioned in the contract
76. Is VAT applicable when supplying goods and services to vessels docked in a UAE port, and the vessel owner is a UAE company?
Zero-rated
77. Is VAT applicable when supplying goods and services to vessels docked in a UAE port, and vessel owner is a GCC company.
Zero-rated
78. Is VAT applicable when supplying goods and services to vessels docked in a UAE port, and vessel owner is a European company.
Zero-rated
79. We are exhibition stand builders and our clients are from all over the world. Suppose a client from Germany participates in the exhibition held at Dubai World Trade Centre and we construct a stand for them, should we charge VAT?
Yes, this is VAT chargeable
80. In construction contracts, it is understood that VAT is to be paid on all the advance payments. In such cases, during monthly progress bills, is VAT to be worked out on the gross work done deducting advance recovery?
Apply VAT on net amount after advance recovery
81. In construction contracts, the advance is paid during pre-VAT period and its recovery is made during the VAT period. In such a case, should VAT be worked out on gross value or net value after advance recovery?
VAT chargeable to un-recovered advances. Subsequently, VAT is chargeable on net amount after advance recovery.
82. What is the treatment for retention money (held for the maintenance period)? Do we need to work out the VAT on the gross less retention, or on net amount after retention?
Gross amount, if retention is certified.
83. Is VAT applicable to shipping services, if invoiced within the UAE?
It would be zero rated.
84. How is VAT applied when customers exchange old gold ornaments for new?
If customer is not a taxable person, VAT would apply on value of new ornaments. If customer is a taxable person, VAT would apply on both exchanges.
85. How is VAT applied on sale of used cars?
No VAT if the vehicle is sold by an end user of the car; VAT is applicable if sold by a company or business which sells used cars.
86. If we are zero rated, how we can convey our suppliers and customers that we have zero rated products. Can we get any document/certificate from FTA showing we are Zero rated?
You as a person cannot be zero rated. Your specified goods and services can be. You can convey it to your customers and suppliers through reference to relevant articles of the Law.
87. We get jobs on long term/short term contract on daily hire rate basis. Billing will be once in a month. Is there any rule to issue invoice every 14 days, or can we continue with our current monthly billing?
For daily supplies one tax invoice can be issued. Such invoice shall include summary of all supplies made and should be issued in same calendar month..
About VAT in the UAE
VAT is not collected by the government, rather it is collected by businesses at every stage of the supply chain on behalf of the government. Meanwhile, businesses can reclaim refunds from the government for VAT paid to suppliers. Thus, VAT will ultimately be borne by the final consumers rather than being a tax on business activity.
VAT is one of the most common types of consumption tax around the world. More than 150 countries have implemented VAT or its equivalent, Goods and Services Tax (GST), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT Categories
Under the UAE tax laws, VAT-applicable goods and services will be divided into three categories.
VAT at zero rate: Under this zero per cent VAT is charged, VAT credit available. Sales will still need to be recorded in companies’ VAT returns, as with other categories
VAT at standard rate: Under this 5 per cent VAT is charged. Most goods and services will likely fall in this category, including electronics, cars, dining out and entertainment. The 5 per cent VAT rate will be passed on to consumers, with VAT credit available for companies.
VAT exempt category: In this, VAT on inputs is not passed on to consumers, thus no VAT credit is available. Corporates will not be able to recover or reclaim the 5 per cent VAT incurred on exempt items or services. Thus, exempt inputs have the potential to erode business profit margins.
Disclaimer: Gulf News holds no financial or legal accountability for anyone solely relying on these answers. Kindly contact the relevant ministry/authority/company for personal clarification before making any decisions or payments.
These answers are based on the best of our knowledge and research of VAT law and regulations and we are assisted by Sara Al Kabban, the Legal Manager at Al Kabban & Associates, Advocates and Legal Consultants, along with Mr. Dipesh Shah (a Dubai based chartered accountant). For answers to your questions that we needed confirmation on, we are contacting entities directly involved in the supply of those goods and services.
For issues that are not clear in the law and the executive regulations, we will have to wait for further updates from the relevant authorities.
