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Value Added Tax In UAE: Financial Move for A More Reliable Revenue

The great Gulf Emirates UAE never had to think about imposing a levy for goods and services to generate robust government revenue due to their heavy dependence on income from the oil industry, which is almost 80%. Unfortunately, the story changed on January 1st of, 2018, when both Saudi Arabia and UAE decided to introduce the Value Added Tax system as an outcome of the unexpected oil price crisis and the realization that 21st-century economies need higher and reliable sources of revenue.

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Value Added Tax In UAE: Financial Move for A More Reliable Revenue

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  3. What Is Value Added Tax (VAT)? Tax is defined as a fee charged by the government on goods, services, income, and other transactions to finance public services and expenditures of the government. VAT is an indirect tax levied on the consumption or on the use of goods and services. The VAT system prevails in more than 150 countries, and it's a consumption-based tax where the tariff is charged on each step of the supply chain for the goods and services. The normal range of VAT is from 5% to 25%. In UAE, the standard rate of VAT is 5%; when the VAT was introduced, UAE expected to raise an amount of AED 12bn in the first year of 2018, and it reached a hype of AED 95.4bn in October 2021. VAT consultants in UAE argue that the Ministry of Finance UAE (MOFUAE) needs to strengthen its fiscal framework and reengineer the tax system reducing the dependence on oil revenue by boosting non hydrocarbon sources of revenues

  4. HOW IS VAT CALCULATED? AS WE KNOW, VAT IS IMPOSED ON EACH STAGE OF THE SUPPLY CHAIN, AND THE STANDARD RATE (5%) WILL BE ADDED TO EACH SELLER AND BUYER. FOR EXAMPLE, AN ELECTRONIC GOODS PRODUCER WHO MANUFACTURES A MUSIC SYSTEM SELLS IT TO THE ELECTRONIC GOODS WHOLESALER FOR A PRICE OF AED 1000. ALONG WITH THE WHOLESALE PRICE, THE MANUFACTURER COLLECTS AN AMOUNT OF AED 50 FROM THE WHOLESALER FOR THE GOVERNMENT. SO, THE WHOLESALER HAS TO PAY A TOTAL AMOUNT OF AED 1050. THE WHOLESALER WILL ADD HIS PROFIT TO THE PRODUCT AND SELL IT TO A RETAILER FOR A PRICE OF AED 2000, AND HE WOULD CHARGE 5% VAT (AED 100) TO THE RETAILER ALONG WITH THE PRICE HE CHARGES. FINALLY, THE RETAILER MUST PAY AN AMOUNT OF AED 2100 FOR THE PHONE. AT THE SAME TIME, THE WHOLESALER RECEIVED A REFUND OF THE VAT HE PAID TO THE MANUFACTURER.

  5. About Us, The introduction of VAT has changed the accounting practice of UAE businesses drastically, and our expert team of Profitz Advisory VAT consultants is fully compliant with new VAT rules and regulations. So we address the demands of our clients and assist business firms with VAT Return filing, VAT Compliance Accounting assistance, VAT advisory Services, VAT Registration & De-Registration, and other VAT-related services. Our tax consulting team calculates the impact of VAT implementation on your business by analyzing your previous profit, maximum retail price, consumer base, and VAT exemptions on your goods and services and will create plans and strategies to achieve the profit which you had when you were exempted from taxation.  “ For many years, PROFITZ ADVISORY has been our auditors. They are the best accounting firm in the United Arab Emirates. They provide excellent services. They have well-qualified and experienced accountants. Tax services are timely and reliable. Tm Cookzme We believe that the faith our customers entrusted to us fuels our success journey. A recent testimonial by one of our reputed clients strengthens our commitment to serving more clients from various business sectors of UAE. Please contact us for any VAT related services and assistance.

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