BENS SCHOOL

Updated on July 19, 2022

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HOW TO CALCULATE VAT IN UAE

Under the Federal Decree-Law No. 8 of 2017, all goods and services will be subject to VAT as a consumption tax.

In accordance with FTA laws, businesses in the United Arab Emirates must now register for VAT by January 2018.

Every company has a duty to know how to calculate VAT.

HOW CAN BUSINESSES OWNERS CALCULATE VAT IN UAE?

The VAT in the UAE is set at 5%, making it one of the lowest in the world. United Arab Gulf (UAE) businesses collect taxes and fees on behalf of the state.

The formula for calculating VAT is as follows:

Taxes on products and services are called Value Added Taxes (VAT) because they are charged even after they’ve been produced.

OUTPUT TAX

Output tax is the proportion of the ultimate selling price that a seller receives.

The VAT rate in the United Arab Emirates is 5%.

To put it another way, if the selling price of the product or service is AED 200, then the Output Tax (VAT collected at the time of resale) will be AED 10.00. The collected VAT is also known as the output VAT.

INPUT TAX

The percentage of the final product’s cost that a buyer pays for the products and services utilized to manufacture it.

The VAT rate in the United Arab Emirates is 5% of the invoice value (excluding special cases, e.g., profit margin scheme).

Since 5% VAT is charged on products and services with a cost price of AED 100, the input VAT (VAT paid at the time of purchase) is calculated as AED 100×5% = AED 5.00. Vat Credit or Recoverable VAT are other names for input VAT.

VAT PAYABLE

Everyone in business is responsible for collecting the so-called production tax.

Taxes paid on the purchase of products, including VAT, should be reclaimed. To figure out how much you owe the government, deduct your input tax from your output tax.

VAT CALCULATION EXPLAINED WITH AN EXAMPLE

Before you file your VAT return, you must know exactly how much VAT you owe. If you’d want an illustration of how VAT is computed, here’s one:

AED 500,000 has been spent on raw materials by Company A. As a result, the total purchase price will be taxed at a rate of 5%, or $750.

AED $25,000 is the result of multiplying AED 500,000 by 5%.

Company Assuming A sells the goods made from the raw materials he obtained, the total sales value is AED 800,000. As a result, an output tax of 5% of revenue is determined as follows.

AED 40,000 is equal to 40% of AED 800,000.

Because of this, Company A will owe the government:

Taxes on products and services are called Value Added Taxes (VAT) because they are charged after they have been produced.

difference between VAT (40) and standard VAT (25 percent )

AED 15,000 is the VAT equivalent.

GET EXPERT HELP FOR VAT CALCULATION

VAT is a new tax in the United Arab Emirates, and many people are unsure of what it means at first. VAT in the United Arab Emirates (UAE) can have significant penalties and legal ramifications if it isn’t calculated correctly.

Because there are so many, I don’t have an issue with numbers.

You can improve your financial management with the help of our VAT experts. Any inquiries or concerns about VAT legislation can be addressed by contacting us.