Value Added Tax (VAT) is a consumption tax applied on a good as its value is increased each stage of its production or distribution. It is an indirect tax that is related to a taxpayer’s consumption and not their income. VAT is applicable in more than 160 countries.
VAT would be applicable to non-essential consumer goods. Anything apart from basic food and essential commodities would fall in this taxable bracket. This would include automobiles, electronics, jewellery, restaurant services, and entertainment.
With effect from 1st January 2018, a standard rate of 5% will be charged on the taxable goods across UAE. VAT won’t be charged on non-taxable goods and services that includes Health, education, and local transport etc.
Businesses that have to register themselves as per the criteria laid down by the Federal Tax Authority in UAE. It is mandatory for the businesses to register themselves if their annual turnover exceeds AED 375,000 and this threshold must have been exceeded in the last 12 months.
The Government of UAE has stated that about items in about 100 categories like food, education, health, bicycle, fuel, transport and social services would be exempted from VAT.
As per the VAT law of UAE, the non-compliance will invite penalties. Moreover, there will be a constant risk of losing confidence among the customer base of businesses and given the incompliant nature of the business methodology, it will lose its legal status and  thus, is bound to fall.
  • Corporations: Businesses providing goods or services falling in the taxable category, with an annual revenue of over AED 375,000, would be required to register for VAT. It is optional for companies with annual supplies and imports less than AED 375,000 but over AED 187,500. Here, companies providing health or education services may reclaim the VAT from the government.
  • Consumers: Anyone purchasing a non-essential is liable to pay VAT. Realtors: Any sale or renting of property for commercial purposes would attract VAT.