The concept of Value Added Tax (VAT) evolved in the 20th century and was enacted by many European countries by 1960s and 1970s. Moving ahead, the developing nations started adopting the procedure by the 1980s. It is a multi-purpose sales tax that gets paid at the point of purchase. We can illustrate the entire ‘value added’ concept in a simple equation:
Value Added = Value of Output – Value of Input
Today, more than 160 countries are registered under the tax, and the global average tax rate is 12%.
Introduction of VAT in UAE
The UAE is a part of the GCC countries. The GCC finance ministers confirmed a provision for GCC VAT Framework Agreement by Dec 2015. In Jan 2016, the UAE financial minister confirmed that the VAT framework will get implemented by 2018. The countries entered into an agreement to implement the VAT in its states with an aim to diversify the sources of revenue. GCC VAT implementation is based on a multi-jurisdictional single market regime and finally, the UAE VAT implementation took place on 1st Jan 2018, with a rate of 5%. Most consumer goods and services like automobiles, fuel, jewellery, food & beverage, restaurants, entertainment, etc. are charged at this rate. Other categories like health, education, transport by sea or air, etc. are zero-rated; and still others like local passenger transport and bare land are exempt from VAT.
We can provide a set-up of a simple accounting systems and implementation of VAT rules:
- Assist with the VAT registration
- Identification and analysis of the VAT impact on your business
- Analysis of IT system and accounting requirements
- Preparation and filing the VAT returns
- Assistance in claiming VAT refunds