The simple answer to is VAT applicable on services in UAE is, Yes VAT (Value Added Tax) is applicable. Let us now understand in detail about applicability of VAT.
What is VAT?
The Federal Tax Authority official website has defined VAT as:
“Value Added Tax (VAT) is a tax on consumption levied at each stage of supply chain and ultimately born by the end consumer”
So in simple words VAT is a tax that comes into play when a supply of goods or services takes place. Consumer or end user will bear the final burden. Let us further simply this for the purpose of understanding:
Now coming back to question regarding applicability of VAT on services in UAE.
Is VAT applicable on services in UAE?
In order to elaborate the point let us read the article 2 of the Federal Decree-Law No. (8) of 2017 on Value Added Tax:
Tax shall be imposed on:
- Every Taxable Supply and Deemed Supply made by the Taxable Person.
- Import of Concerned Goods except as specified in the Executive Regulation of this Decree-Law
So, Article 2 is stating that Every Taxable supply should have Value Added Tax. But now the question is What is Taxable Supply?
What is Taxable Supply?
Article 01 of the Federal Decree-Law No. (8) of 2017 defines taxable supply as:
“Taxable Supply: A supply of Goods or Services for a Consideration by a Person conducting Business in the State, and does not include Exempt Supply”
I think the question is already answered regarding the applicability of VAT on services. Article 01 has clearly defined that VAT includes both supply of Goods and Services and there is no distinction.
It is worth mentioning here how services are defined by the Federal Decree-Law of 2017.
What is Supply of Services?
Article 06 of the Federal Decree-Law No. (8) of 2017 defines supply of services as:
“A supply of Services shall be every supply that is not considered a supply of Goods, including any provision of Services specified in the Executive Regulation of this Decree-Law”
In simple words this means that any business activity if it is not of tangible goods then it falls under the scope of services and what should be charged accordingly.
The question Is VAT applicable on services in UAE? can simply be answered with strong Yes. VAT is applicable on any business activity that is undertaken within the country (United Arab Emirates). It is irrelevant that whether in such supply tangible goods are transferred or not.
The only point to consider is whether some business activity is undertaken or not. If the answer is yes then it is highly recommended to consider the applicability of Value Added Tax (VAT).
If you need further elaboration feel free to contact us. We as professional tax consultants are always there to assist you.