How to Calculate VAT in Dubai?

Updated on July 19, 2022

The United Arab Emirates will implement a value-added tax in the near future.

In the United Arab Emirates, businesses are preparing for VAT compliance.

Businesses want to know everything there is to know about VAT, including how to register, file returns, make payments, and follow through with other processes. In the midst of all the planning and discussion, it’s critical to understand how VAT is calculated in Dubai.

The value-added tax rate will be uniform because 2018 is the first year of implementation.

The government may change the rates at a later date. It is critical that the VAT on the transactions be correctly calculated and applied. While making purchases and transactions, we have demonstrated how VAT is calculated.

It is the responsibility of VAT-registered businesses to keep accurate records of their revenues and VAT payments.

All consumers of the registered businesses will be subject to a 5% tax on their invoices.

In addition to paying the dealers for goods and services, the businesses will have to pay 5% VAT on those purchases.

It is possible to reclaim or pay the difference between the VAT levied and the VAT paid in the UAE. This is why it’s important to understand how VAT is calculated in Dubai.

Value Added Tax Calculation in Dubai :

Dubai’s value-added tax (VAT) will be 5%. The transaction’s value will be used to compute this tax.

In most cases, it is based on the total worth of the goods or services ( Sales less Sales return, Transportation, Freight charges of the transaction ).

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In this case, the government will not be collecting the VAT on its own.

The VAT will be charged to all clients by the merchants or businesses.

When they buy goods and services from their vendors, they will have to pay VAT. To the government will be returned the difference between the VAT recovered on products sold and the VAT paid on goods purchased.

When you sell something or provide a service, you pay VAT. – Tax on Input (VAT paid on purchases or raw material purchased)

How to Calculate VAT, An Example:

If X Ltd owns a café and spends AED 100,000 on buying raw supplies, what kind of results might be expected? Input tax in the United Arab Emirates is 5%, which means that AED 100000 x 5% = AED 5,000.

X Ltd made AED 200,000 in sales after selling the food prepared from the basic materials it bought. If the output tax is set at 5%, the tax on AED 10,000 will be levied as a result.

For example, the ultimate VAT bill for X Ltd, which is AED 10,000 – AED 5,000, would be AED 5,000.

Exactly how will VAT be collected?

This tax is levied at every step of the supply chain and eventually reaches its destination in your wallet.

Instead of the government, the corporations operate as tax collectors. The difference between the VAT paid and the VAT collected is paid to or reclaimed from the government as a whole in the end.

Since the value-added tax is also known as an indirect consumption tax, this is why it’s called that.

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Because VAT is an indirect tax, all transactions including the payment of VAT must be documented. Accounting for taxes paid and taxes charged correctly is critical for corporate operations.

Keeping track of things

As a result, businesses must now keep detailed records of their activities and transactions in order for authorities to examine them. The specifics of the papers needed and the duration of time they must be kept will be provided as soon as they are available.

For more information on how to calculate VAT in Dubai, contact JCA now.