The Ministry of Finance UAE, recently proposed the new law that allows them to impose a tax on all goods and services at a standard rate of 5%, and it's called Value Added Tax (VAT). The announcement perplexed the consumers and business owners alike as they're neither aware of its implementation nor its implication on their business and lives respectively. So we've decided to summarize it for you in order to brief you about the new tax system and its effects.

What is VAT?

VAT is a standard tax of 5% imposed on goods and services unless explicitly exempt or zero-rated. Used goods are expected to be subject to a margin scheme based on profit margins. Exported goods such as gold as an investment, would also be exempted or zero-rated. Reverse Charge Mechanism would also be applied to the B2B (business to business) imports from outside the GCC that means the recipient business will be required to pay the VAT. Certain essential sectors  such as education, healthcare, medicines, charities, and charity related work would be exempted from the new tax law.

When it's applicable?

The new tax law will be applicable with the dusk of new year i.e January 1st, 2018. The threshold for mandatory VAT registration has been set to AED 375,000. Businesses in the region will be able to start VAT registration by Q4 2017

How will it be implemented and commissioned?

Businesses should issue VAT invoices within 14 days of supply. Certain requirements and documents are mandatory while filing the return, which includes the quarterly filing of the tax, archived records of last 5 years, turnover details, etc. The businesses need to make sure they don't hide or forge the balance sheet as it will lead them to heavy penalties and dire criminal offense consequences.

These are just the basic details regarding the imposition of VAT. Further details are provided by the ministry of finance on their own platform and via other mediums such as print, tv, and radio. One needs to know all the nitty-gritty details associated with the VAT in order to avoid the penalty or unfortunate financial errors.