A Comprehensive Guide to Calculating VAT in the UAE

Understanding the basics of the Value Added Tax (VAT) system is essential while calculating VAT in the United Arab Emirates, which was put into effect on January 1, 2018. VAT is a consumer-based tax imposed on the supply of goods and services across the country. It is essential for individuals and companies doing business in the UAE to know how they can calculate VAT. This blog post will lead you through the VAT calculation UAE process, including the applicable VAT rate, taxable supplies, and exemptions.

Understanding VAT in UAE

VAT is a tax imposed on the use of products and services. It is collected at all stages of the supply chain from the manufacturer to the final consumer. Businesses collect VAT and send it to the Federal Tax Authority (FTA). This provides a fair distribution of the tax load throughout the economy.

VAT Rate in UAE

The standard VAT rate UAE is 5%. The goal of this comparatively low rate is to reduce reliance on oil income and diversify the economy. There are certain kinds of products and services which may be zero-rated or exempt from this tax, however the majority are subject to it. Here are some important things to consider about –

• Zero-rated supplies – Exports and international shipping are two examples of products and services that are zero-rated. In other words, there is no VAT due, but companies are still able to deduct input VAT, or VAT paid on purchases.

• Exempted supplies – There are certain items and offerings like basic food items and residential property are not subject to VAT. As a result, there is no VAT to be paid and companies are unable to deduct input VAT.

How to Calculate VAT in UAE

Calculating VAT is a fundamental task for any business operating in the UAE. Here are the two primary methods to Calculate VAT in UAE –

1. Adding VAT to a Net Price

To calculate the total price including VAT, use the below formula –

Total Price = Net Price × (1 + VAT Rate)

Example –

If a product has a net price of AED 100, the equation would be –

Total Price=100×(1+0.05)=100×1.05=AED105

Thus, the total price including VAT would be AED 105.

2. Subtracting VAT from a Gross Price

Use the following formula to get the net price (the original price before VAT was added) from a gross price (the total price including VAT) –

Net Price = Gross Price/ (1 + VAT Rate)

Example –

If the gross price is AED 105, the calculation would be –

Net Price=105/1.05=AED100

This indicates that the initial price before VAT was imposed is AED 100.

VAT Calculation Example

Let’s consider a business selling a product for AED 1,000. The VAT calculation for VAT on goods and services UAE would be as follows:

• Output VAT (VAT collected on sales) –

VAT Amount =1,000×0.05=AED50

• Total amount payable by the customer –

Total Price=1,000+50=AED1,050

On the other hand, if a company spends AED 1,000 plus VAT on items, AED 50 would also be the input VAT (VAT paid on purchases).

VAT Registration Process

If your business’s annually taxable turnover exceeds the registration threshold (currently AED 375,000), you must register for Value-added tax UAE. The specific threshold may vary depending on the function of a company. If you are a commercial broker in Dubai and your business activities exceed the threshold, you will need to register for VAT with the Federal Tax Authority (FTA).

VAT Returns in UAE

Businesses that are registered must submit VAT returns on a regular basis. The turnover of the company determines how frequently VAT returns are made. The Value-added tax UAE return includes details of taxable supplies, VAT collected, and VAT paid. 

Benefits of VAT Consultants Services in UAE

If you are unsure about VAT calculations, registration, or compliance requirements, many businesses choose to work with VAT Consultants Services in UAE. These experts provide –

• Accurate VAT Calculation and Compliance – VAT consultants ensure that your business calculates VAT correctly, reducing the risk of errors and penalties.

• Timely VAT Return Filing – Consultants help prepare and file VAT returns on time, ensuring compliance with FTA deadlines.

• VAT Registration Assistance – They guide businesses through the VAT registration UAE process and provide support in handling VAT audits and disputes.

• Strategic Planning – Consultants can help with the planning of VAT in order to minimize tax obligations and enhance cash flow control.

Conclusion

Calculating VAT in the UAE is a basic necessity for companies who do business in the region. With a standard VAT rate of 5%, it is vital for companies to understand how to calculate VAT correctly, register appropriately, and comply with all regulations. Utilizing VAT consultants’ services can greatly enhance a business’s ability to manage VAT effectively and avoid potential pitfalls.

At Taskmaster LLC, we specialize in providing comprehensive commercial brokerage services in Dubai, including expert advice on VAT registration and compliance. Our staff is devoted to helping businesses in navigating the complex rules of VAT and ensure they meet all regulatory requirements efficiently. Whether you are looking to register for VAT or need assistance with VAT calculations, Taskmaster LLC is here to support your business needs.

Also read: How Much Does It Cost to Open a Business Account in Dubai