VAT stands for value added tax it is indirect form of tax which is based on consumption of goods and services. Which means end costumer has to bear the cost of tax. Under VAT (Value added tax) business collect tax from there costumer and pays the tax to Govt.
In UAE Value added tax (VAT) was introduced on 1st January 2018 which levied on both consumption of goods and services at a standard are of 5%.
Let’s explain what is Value added and how it impacts on to end consumer:-
- When manufacturer sells to whole seller he charges AED 100 + 5% tax which totals to AED 105 the tax is paid by the whole seller to the manufacturer.
- When a whole seller sells the goods to a retailer he charges AED 120 + 5% tax which totals to AED 126 is paid by the retailer to the whole seller.
The whole seller who has already paid Tax of AED 5 to the manufacturer will get a input tax credit of it and has to pay only the value added to the goods which is AED 6 – AED 5= AED 1 has to be paid by the whole seller to the Govt. - When a retailer sells good to a consumer he will charge AED 150 + 5% tax which totals to
AED 157.5 which is paid by the end consumer of the goods to the retailer.
Retailer who has already paid tax to the whole seller will get a input credit and the retailer has to pay tax on the Value added which is Input tax- Output Tax which is AED 7.5- AED 6 = AED 1.5
to be paid by the retailer to the Govt.
UAE VAT Law stipulates three types of supplies Standard Rated, Zero Rated and Exempt Supplies.