Difference between Normal Invoice and Tax Invoice in Uae
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Difference between Normal Invoice and Tax Invoice in Uae

In the United Arab Emirates (UAE), a normal invoice is a document that a business issues to its customers for the sale of goods or services. A normal invoice typically includes the name and address of the business, the date of the invoice, a unique invoice number, and the description, quantity, and price of the goods or services being sold.

A tax invoice, on the other hand, is a document that a registered business issues to its customers for taxable supplies of goods or services. In addition to the information included in a normal invoice, a tax invoice must also include the value of the taxable supply in AED, the applicable VAT rate, the VAT amount, and the total amount payable, including VAT.

The main difference between a normal invoice and a tax invoice is that a tax invoice includes VAT-specific information and is used for taxable supplies, while a normal invoice does not include VAT-specific information and is used for non-taxable supplies.

Normal Invoice

Date: 01/01/2022 Invoice No.: 123456

Supplier: ABC Company Address: 123 Main Street, Dubai, UAE

Customer: XYZ Company Address: 456 Main Street, Dubai, UAE

Description Quantity Price (AED) Total (AED)
Goods 1 500 500
Services 1 1,000 1,000

Total: 1,500

Tax Invoice

Date: 01/01/2022 Invoice No.: 123456

Supplier: ABC Company Tax Registration No.: 123456 Address: 123 Main Street, Dubai, UAE

Customer: XYZ Company Tax Registration No.: 987654 Address: 456 Main Street, Dubai, UAE

Description Quantity Unit Price (AED) Value (AED) VAT Rate VAT Amount (AED) Total (AED)
Goods 1 500 500 5% 25 525
Services 1 1,000 1,000 5% 50 1,050

Total: 1,575

Please note that these are just examples and the details and amounts may vary depending on the specific circumstances of the transaction.

Simplified Tax Invoice UAE Explained with Example
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Simplified Tax Invoice UAE Explained with Example

In the United Arab Emirates (UAE), a simplified tax invoice is a document that a registered business issues to its customers for taxable supplies of goods or services. The simplified tax invoice must include the following information:

  1. Name, address, and tax registration number of the business
  2. Date of the invoice
  3. A unique invoice number
  4. Description of the goods or services being supplied
  5. Quantity and unit price of the goods or services
  6. The value of the taxable supply in AED
  7. The applicable VAT rate and amount
  8. The total amount payable, including VAT

Here is an example of a simplified tax invoice in the UAE:

Simplified Tax Invoice

Date: 01/01/2022 Invoice No.: 123456

Supplier: ABC Company Tax Registration No.: 123456 Address: 123 Main Street, Dubai, UAE

Customer: XYZ Company Tax Registration No.: 987654 Address: 456 Main Street, Dubai, UAE

Description Quantity Unit Price (AED) Value (AED) VAT Rate VAT Amount (AED) Total (AED)
Goods 1 500 500 5% 25 525
Services 1 1,000 1,000 5% 50 1,050

Total: 1,550

Please note that this is just an example and the details and amounts may vary depending on the specific circumstances of the transaction.

Requirements of Limited Liability Company Registration in Different Free Zones in Dubai along with Cost Comparison
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Requirements of Limited Liability Company Registration in Different Free Zones in Dubai along with Cost Comparison

Here is a general overview of the requirements for setting up an LLC with two directors in the different free zones in Dubai:

Dubai Airport Free Zone (DAFZA):

  • A minimum of two directors is required to set up an LLC in DAFZA.
  • The directors must be natural persons and must be at least 21 years old.
  • The directors can be of any nationality.
  • A minimum of one shareholder is required, and the shareholder can be an individual or a corporate entity.
  • A minimum of AED 1,000,000 in paid-up capital is required.

Dubai International Financial Centre (DIFC):

  • A minimum of two directors is required to set up an LLC in DIFC.
  • The directors must be natural persons and must be at least 21 years old.
  • The directors can be of any nationality.
  • A minimum of one shareholder is required, and the shareholder can be an individual or a corporate entity.
  • There is no minimum capital requirement for LLCs in DIFC.

Dubai Internet City (DIC):

  • A minimum of two directors is required to set up an LLC in DIC.
  • The directors must be natural persons and must be at least 21 years old.
  • The directors can be of any nationality.
  • A minimum of one shareholder is required, and the shareholder can be an individual or a corporate entity.
  • There is no minimum capital requirement for LLCs in DIC.

Dubai World Central (DWC):

  • A minimum of two directors is required to set up an LLC in DWC.
  • The directors must be natural persons and must be at least 21 years old.
  • The directors can be of any nationality.
  • A minimum of one shareholder is required, and the shareholder can be an individual or a corporate entity.
  • There is no minimum capital requirement for LLCs in DWC.

Dubai Multi Commodities Centre (DMCC):

  • A minimum of two directors is required to set up an LLC in DMCC.
  • The directors must be natural persons and must be at least 21 years old.
  • The directors can be of any nationality.
  • A minimum of one shareholder is required, and the shareholder can be an individual or a corporate entity.
  • There is no minimum capital requirement for LLCs in DMCC.

Here is a table comparing the cost of forming an LLC with two directors in the different free zones in Dubai:

Free Zone LLC Formation Fee Trade License Fee Office Rental Other Costs Total Cost
DAFZA AED 15,000 AED 10,000 – 20,000 AED 30,000 – 60,000 per year AED 5,000 – 10,000 AED 60,000 – 95,000
DIFC AED 15,000 AED 10,000 – 20,000 AED 30,000 – 60,000 per year AED 5,000 – 10,000 AED 60,000 – 95,000
DIC AED 15,000 AED 10,000 – 20,000 AED 30,000 – 60,000 per year AED 5,000 – 10,000 AED 60,000 – 95,000
DWC AED 15,000 AED 10,000 – 20,000 AED 30,000 – 60,000 per year AED 5,000 – 10,000 AED 60,000 – 95,000
DMCC AED 15,000 AED 10,000 – 20,000 AED 30,000 – 60,000 per year AED 5,000 – 10,000 AED 60,000 – 95,000

It is important to note that these costs are estimates only, and the actual cost of forming an LLC with two directors in a free zone may vary based on your specific circumstances. It is recommended that you consult with a business setup consultant or a professional, such as an attorney or an accountant, to obtain a more accurate estimate of the costs involved.

Here are 10 key points to consider while setting up a business in Dubai:
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Here are 10 key points to consider while setting up a business in Dubai:

Here are 10 key points to consider while setting up a business in Dubai:

  1. Choose a suitable business structure: It is important to choose a business structure that is appropriate for your business and aligns with your business goals and objectives.
  2. Choose a suitable business location: It is important to choose a business location that is suitable for your business and meets your needs.
  3. Obtain necessary licenses and approvals: You will need to obtain various licenses and approvals in order to operate legally in Dubai.
  4. Set up a corporate bank account: It is important to set up a corporate bank account in Dubai in order to manage your business finances and facilitate financial transactions with customers and suppliers.
  5. Register for taxes: If your business is required to pay taxes in Dubai, you will need to register for the appropriate taxes and pay them on time.
  6. Set up a physical presence: In order to operate a business in Dubai, you will need to have a physical presence in the city.
  7. Hire employees: If you are setting up a business in Dubai, you may need to hire employees in order to operate effectively.
  8. Comply with local laws and regulations: It is important to familiarize yourself with the local laws and regulations that apply to your business and ensure that you comply with them.
  9. Protect your intellectual property: If you have developed intellectual property (such as trademarks or patents) that is important to your business, it is important to protect it in Dubai.
  10. Seek professional advice: Setting up a business in Dubai can be a complex process, and it is recommended that you seek the advice of a professional, such as an attorney or an accountant, to ensure that you comply with all necessary legal and administrative requirements.
Comparison of Cost of Company Formation in Dubai Mainland and Freezone
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Comparison of Cost of Company Formation in Dubai Mainland and Freezone

The cost of forming a limited liability company (LLC) with two directors in Dubai mainland and the various free zones in Dubai can vary significantly, as it is influenced by a number of factors, such as the business activity you choose, the location you choose, and the type of services you require.

Here is a general comparison of the cost of forming an LLC with two directors in Dubai mainland and the different free zones in Dubai:

Dubai Mainland:

  • LLC formation fee: AED 15,000 – 20,000 (approx. USD 4,100 – 5,500)
  • Trade license fee: AED 10,000 – 20,000 (approx. USD 2,700 – 5,500)
  • Office rental: AED 50,000 – 100,000 per year (approx. USD 13,600 – 27,200)
  • Other costs: AED 5,000 – 10,000 (approx. USD 1,360 – 2,720)

Total cost: AED 80,000 – 150,000 (approx. USD 21,840 – 41,000)

Dubai Free Zones:

  • LLC formation fee: AED 15,000 – 25,000 (approx. USD 4,100 – 6,800)
  • Trade license fee: AED 10,000 – 20,000 (approx. USD 2,700 – 5,500)
  • Office rental: AED 30,000 – 60,000 per year (approx. USD 8,160 – 16,320)
  • Other costs: AED 5,000 – 10,000 (approx. USD 1,360 – 2,720)

Total cost: AED 60,000 – 115,000 (approx. USD 16,320 – 31,600)

It is important to note that these costs are estimates only, and the actual cost of forming an LLC with two directors in Dubai mainland or a free zone may vary based on your specific circumstances. It is recommended that you consult with a business setup consultant or a professional, such as an attorney or an accountant, to obtain a more accurate estimate of the costs involved.

Below is the table for further understanding:

 

Location LLC Formation Fee Trade License Fee Office Rental Other Costs Total Cost
Dubai Mainland AED 15,000 – 20,000 AED 10,000 – 20,000 AED 50,000 – 100,000 per year AED 5,000 – 10,000 AED 80,000 – 150,000
Dubai Free Zones AED 15,000 – 25,000 AED 10,000 – 20,000 AED 30,000 – 60,000 per year AED 5,000 – 10,000 AED 60,000 – 115,000

I

Business Setup Consultants Dubai
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Business Setup Consultants in Dubai

There are many business setup consultants in Dubai who can assist you with the process of setting up a business in the city. Here are a few examples:

  1. Taxhelp.ae: Taxhelp.Ae is a global business consulting firm that offers a range of services to help entrepreneurs and businesses set up and operate successfully in Dubai.
  2. PRO Desk: PRO Desk is a professional business setup consultancy that helps entrepreneurs and businesses navigate the complex process of setting up a business in Dubai.
  3. Jitendra Business Consultants: Jitendra Business Consultants is a Dubai-based business consulting firm that offers a range of services to help businesses set up and operate successfully in the city.
  4. Creative Zone: Creative Zone is a free zone business setup consultancy that helps entrepreneurs and businesses set up and operate in the various free zones in Dubai.
  5. AON Business Advisors: AON Business Advisors is a business consulting firm that offers a range of services to help businesses set up and operate successfully in Dubai.

It is important to note that there are many other business setup consultants in Dubai, and it is recommended that you do your research and choose one that is reputable and experienced in assisting businesses like yours. It is also a good idea to get recommendations from other business owners or to seek the advice of a professional, such as an attorney or an accountant, to ensure that you choose a business setup consultant that is right for your needs.

Limited Liability Company Formation Dubai
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Process of Limited Liability Company Formation in Dubai Explained

A limited liability company (LLC) is a type of business structure that is popular in Dubai, as it offers the benefits of limited liability protection to the owners of the company. Here is a general overview of the process of forming an LLC in Dubai mainland:

  1. Choose a business activity: The first step in setting up an LLC in Dubai is to choose a business activity that your company will engage in. There are a wide range of business activities that are allowed in Dubai, and it is important to choose one that aligns with your business goals and objectives.
  2. Choose a business name: Once you have chosen a business activity, you will need to choose a business name for your LLC. The business name must be unique and must not be similar to any existing company names in Dubai.
  3. Obtain necessary approvals: Depending on the business activity you have chosen, you may need to obtain approvals from various government agencies in order to operate legally in Dubai. This may include obtaining approvals from the Dubai Department of Economic Development, the Ministry of Economy, or other relevant authorities.
  4. Prepare the company’s articles of association: The articles of association are a legal document that outlines the rights and responsibilities of the owners of the LLC, as well as the terms and conditions of the company.
  5. Register the LLC: Once you have obtained all necessary approvals and prepared the articles of association, you can register your LLC with the Dubai Department of Economic Development. This process involves submitting the necessary documents and paying the required fees.
  6. Obtain a trade license: In order to operate a business in Dubai, you will need to obtain a trade license. This license must be renewed annually, and it is important to keep it up to date in order to operate legally in the city.
  7. Set up a corporate bank account: It is important to set up a corporate bank account in Dubai in order to manage your business finances and to facilitate financial transactions with customers and suppliers.

It is important to note that the process of forming an LLC in Dubai can be complex and time-consuming, and it is recommended that you seek the assistance of a professional, such as an attorney or an accountant, to ensure that you comply with all necessary legal and administrative requirements.

Business Set up Dubai
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How to Set up Business in Dubai?

Setting up a business in Dubai can be a complex process, as it involves various legal and administrative steps that must be completed. Here are the general steps that you will need to follow to set up a business in Dubai:

  1. Choose a business structure: The first step in setting up a business in Dubai is to choose a business structure that is appropriate for your business. There are several different types of business structures available in Dubai, including sole proprietorships, partnerships, limited liability companies (LLCs), and public joint stock companies. Each type of business structure has its own advantages and disadvantages, and it is important to choose one that aligns with your business goals and objectives.
  2. Choose a business location: Once you have chosen a business structure, you will need to decide where to locate your business in Dubai. There are several options available, including mainland Dubai, one of the city’s free zones, or a special economic zone. Each option has its own set of rules and regulations, and it is important to choose one that is suitable for your business.
  3. Obtain necessary licenses and approvals: Depending on the type of business you are setting up and the location you have chosen, you may need to obtain various licenses and approvals in order to operate legally in Dubai. This may include obtaining a trade license, registering your business with the Chamber of Commerce, and obtaining any necessary approvals from the relevant authorities.
  4. Set up a corporate bank account: It is important to set up a corporate bank account in Dubai in order to manage your business finances and to facilitate financial transactions with customers and suppliers.
  5. Register for taxes: If your business is required to pay taxes in Dubai, you will need to register for the appropriate taxes and pay them on time. This may include VAT (value-added tax), corporate tax, and other taxes that are applicable to your business.

It is important to note that the process of setting up a business in Dubai can be complex and time-consuming, and it is recommended that you seek the assistance of a professional, such as an attorney or an accountant, to ensure that you

Economic Substance Regulations
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Economic Substance Regulations Explained in Detail

The Economic Substance Regulations (ESR) in the United Arab Emirates (UAE) are a set of rules that were introduced in 2019 to ensure that companies operating in the UAE have economic substance in the country. The ESR apply to a range of companies that carry out certain activities in the UAE, including companies that are registered in one of the UAE’s free zones, as well as companies that are licensed by the UAE Ministry of Economy.

Under the ESR, companies that carry out relevant activities in the UAE must meet certain requirements to demonstrate that they have sufficient economic substance in the country. Relevant activities include:

  1. Banking: This includes activities such as accepting deposits and providing loans, as well as other activities related to the provision of financial services.
  2. Insurance: This includes activities such as underwriting and reinsurance, as well as other activities related to the provision of insurance services.
  3. Investment fund management: This includes activities such as managing investment funds, as well as other activities related to the management of financial assets.
  4. Lease-finance: This includes activities such as providing leases or financing for the acquisition of assets, as well as other activities related to the provision of lease-finance services.
  5. Headquarters: This includes activities such as providing management or administrative services to group companies, as well as other activities related to the operation of a headquarters business.
  6. Holding company: This includes activities such as holding and managing investments, as well as other activities related to the operation of a holding company.
  7. Shipping: This includes activities such as the operation of ships, as well as other activities related to the shipping industry.
  8. Intellectual property: This includes activities such as the development, ownership, or exploitation of intellectual property, as well as other activities related to the use of intellectual property.

To meet the requirements of the ESR, companies must demonstrate that they have a physical presence in the UAE and are conducting genuine business activities in the country. This may include having employees, equipment, and business premises in the UAE, as well as maintaining records and accounts that accurately reflect the company’s business activities.

It is important to note that the ESR apply to companies that carry out relevant activities in the UAE, regardless of where they are incorporated or where their parent company is located. Companies that fail to comply with the ESR may be subject to fines and other penalties.

BEST FREE ZONES IN UAE 2022 TO START BUSINESS?
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BEST FREE ZONES IN UAE 2022 TO START BUSINESS?

The United Arab Emirates (UAE) is a thriving hub for business development, attracting both local and foreign investors. This is due to the country’s proactive government, favorable economic policies, and entrepreneurial culture. The UAE also offers tax and financial benefits to foreign investors looking to start or expand their businesses in the country.

One of the key reasons the UAE has become a global business hub is its free zones, which are special economic areas that offer tax and regulatory advantages to businesses. When setting up a company in a UAE free zone, businesses can benefit from full foreign ownership, full repatriation of capital and profits, and tax exemptions, among other perks. Free zones are designed to promote international business in the UAE and offer 100% foreign enterprise ownership.

If you are considering starting a business in the UAE and are unsure which free zone is right for you, this article discusses some options that may be suitable based on your needs.

1. DMCC Authority Free Zone

The Dubai Multi Commodities Centre (DMCC) is a free zone in Dubai that is known for its potential and opportunities in the retail and commerce sectors. It is a gateway to global trade and an ideal location for businesses in the financial and commodities sectors. DMCC has received recognition as the “Global Free Zone of the Year” by the Financial Times FDI magazine for four consecutive years and is the largest free zone in the region. It is the only free zone that offers freehold options and is conveniently located in the heart of Dubai’s Jumeirah Lakes Towers district.

2. Al Khaimah Economic Zone (RAK EZ)

The Al Khaimah Economic Zone (RAK EZ) is a free zone in the United Arab Emirates (UAE) that was created through the merger of the Ras Al Khaima Free Trade Zone (RAK FTZ) and the RAK Investment Authority (RAKIA). It is known for its trading activities and is particularly suitable for companies that need warehousing facilities. RAK EZ has customizable warehouses and plots of industrial land available for development, and its activity list is one of the largest among all the UAE free zones. The activities in RAK EZ are divided into categories such as commercial, service, industrial, media, educational, and individual/professional e-commerce.

3. DWC Free Zone

The Dubai World Central (DWC) Free Zone enhances Dubai’s reputation as a leading logistics and trade hub. It is connected to the Jebel Ali Port and Al Maktoum International Airport through the dedicated Dubai Logistics Corridor, forming a single custom-bonded zone that speeds up the flow of sea-to-air and air-to-sea cargo. DWC Free Zone also has direct access to major trans-emirate road networks, making it a highly efficient and connected logistics platform. Its multimodal capabilities provide unprecedented levels of connectivity, speed, and efficiency

4. JAFZA Free Zone

The Jebel Ali Free Zone (JAFZA) prioritizes long-term customer relationships and fosters alliances with global investors by offering them world-class infrastructure, value-added services, and incentives. This allows these investors to take advantage of significant business opportunities in the region. JAFZA was the first free zone in the world to receive ISO certification in 1996 and is one of the fastest-growing free zones in the Middle East, Africa, and South Asia (MEASA) region, giving it direct access to a market of over 2 billion people.

5. Dubai Airport Free Zone Authority (DAFZA)

The Dubai Airport Free Zone (DAFZA) is home to over 3100 companies from a variety of industry sectors, including light industry, pharmaceuticals, trading, manufacturing, logistics, jewelry, IT, and mobile phone accessories. It is conveniently located adjacent to the Dubai International Airport and offers modern facilities with top-quality infrastructure. DAFZA has established itself as a gateway connecting markets in the Middle East and Africa with Europe and Asia. It provides foreign companies with office space and warehouses that they can fully own in a tax-free environment. This allows organizations to easily establish a presence in Dubai and begin operations quickly.

6.KIZAD

The Khalifa Industrial Zone Abu Dhabi (KIZAD) offers licenses for various activities such as trading, logistics, industrial, and services at cost-effective fees. Its low operating costs, ease of doing business, and market accessibility make it a popular choice for investors from around the globe. KIZAD is connected to the Khalifa Port, one of the most advanced deep-sea ports and the first semi-automated container ports in the region, which is located between Dubai and Abu Dhabi to facilitate trade in the country.

Starting a business in a Dubai free zone can be a complex process, and it is advisable to seek local guidance and legal advice about the various incorporation and registration formalities. At Hallmark, we provide consulting and advice to streamline the process of setting up a business in a Dubai free zone and make the documentation and paperwork process smooth and hassle-free, so that you can focus on growing your business in Dubai.

What is the estimated cost of business registration in the United Arab Emirates?
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What is the estimated cost of business registration in the United Arab Emirates?

The cost of business registration in the United Arab Emirates (UAE) can vary depending on a number of factors, including the type of business structure you choose, the location of your business, and the sector in which you operate. Here are some estimates of the costs involved in business registration in the UAE:

  1. Limited liability company (LLC): Setting up an LLC in the UAE typically costs between AED 20,000 and AED 50,000, depending on the location and sector of your business. This cost includes the trade license fee, the Chamber of Commerce registration fee, and any other applicable fees.
  2. Sole proprietorship: Setting up a sole proprietorship in the UAE typically costs between AED 10,000 and AED 20,000. This cost includes the trade license fee, the Chamber of Commerce registration fee, and any other applicable fees.
  3. Branch office: Setting up a branch office in the UAE typically costs between AED 50,000 and AED 100,000. This cost includes the trade license fee, the Chamber of Commerce registration fee, and any other applicable fees.
  4. Free zone company: Setting up a company in a free zone in the UAE typically costs between AED 10,000 and AED 50,000, depending on the location and sector of your business. This cost includes the trade license fee, the Chamber of Commerce registration fee, and any other applicable fees.
  5. Professional services company: Setting up a professional services company in the UAE typically costs between AED 10,000 and AED 50,000, depending on the location and sector of your business. This cost includes the trade license fee, the Chamber of Commerce registration fee, and any other applicable fees.

It is important to note that these estimates are general in nature and are intended to provide a rough idea of the costs involved in business registration in the UAE. Actual costs may vary depending on your specific business needs and circumstances.

How many free zones are there in United Arab Emirates ?
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How many free zones are there in United Arab Emirates ?

here are more than 40 free zones in the United Arab Emirates (UAE). Free zones are special economic areas in the UAE that offer tax-free and regulatory-free environments for businesses. Companies operating in free zones are required to have 100% foreign ownership and are not subject to the 51% UAE national ownership requirement that applies to limited liability companies (LLCs).

Free zones are popular with foreign investors because they offer a range of benefits, including:

  • Tax-free environment: Companies operating in free zones are generally exempt from corporate income tax, value-added tax (VAT), and personal income tax.
  • Regulatory-free environment: Free zones have their own set of rules and regulations, which may be less burdensome than those that apply in the rest of the UAE.
  • Ease of set-up: Free zones typically have streamlined processes for business registration and operation.
  • Access to international markets: Many free zones are located near ports or airports, which makes it easy for companies to access international markets.

There are free zones in a variety of sectors, including finance, technology, and healthcare. Some of the most well-known free zones in the UAE include the Dubai International Financial Centre (DIFC), the Abu Dhabi Global Market (ADGM), and the Dubai Multi Commodities Centre (DMCC).

Overall, free zones can be an attractive option for foreign investors looking to do business in the UAE. They offer a range of benefits, including a tax-free and regulatory-free environment, and they are well-suited for businesses in a variety of sectors.

What are different Options for Business Registration in the United Arab Emirates?
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What are different Options for Business Registration in the United Arab Emirates?

There are several options for business registration in the United Arab Emirates (UAE). These options include:

  1. Limited liability company (LLC): LLCs are the most common type of business structure in the UAE. They are similar to corporations in other countries and provide limited liability protection to the owners. LLCs must have at least 51% UAE national ownership, unless they are located in a free zone.
  2. Sole proprietorship: Sole proprietorships are owned and operated by a single individual and do not provide limited liability protection to the owner. They are suitable for small businesses and are relatively easy to set up.
  3. Branch office: Foreign companies can set up a branch office in the UAE to conduct business in the country. Branch offices are not separate legal entities and are therefore not subject to the same regulations as LLCs. However, they must be registered with the Ministry of Economy and the Chamber of Commerce.
  4. Free zone company: Free zones are special economic areas in the UAE that offer tax-free and regulatory-free environments for businesses. Companies operating in free zones are required to have 100% foreign ownership and are not subject to the 51% UAE national ownership requirement that applies to LLCs. There are more than 40 free zones in the UAE, each with its own set of rules and regulations.
  5. Professional services company: Professional services companies, such as law firms and consulting firms, can operate in the UAE as a civil company. These companies are owned by one or more professional service providers, who must hold a professional license issued by the relevant regulatory body.

Choosing the right business structure in the UAE will depend on your business needs and goals, as well as the nature of your business. It is important to carefully consider your options and seek professional advice before making a decision.

Interested in Staring Business in United Arab Emirates Here is the detailed Article
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Interested in Staring Business in United Arab Emirates Here is the detailed Article

The United Arab Emirates (UAE) is a popular destination for entrepreneurs looking to start a business, thanks to its favorable business environment and strong economic growth. The country is home to a diverse range of industries, including finance, tourism, and technology, and it has a well-developed infrastructure and a highly educated workforce.

There are several steps that entrepreneurs should follow when starting a business in the UAE. These steps include:

  1. Choose the right business structure: The first step in starting a business in the UAE is to decide on the appropriate business structure. Options include setting up a limited liability company (LLC), a sole proprietorship, or a branch office of an existing company. LLCs are the most common type of business structure in the UAE, as they provide limited liability protection to the owners.
  2. Obtain a trade license: To operate a business in the UAE, you will need to obtain a trade license from the Department of Economic Development (DED). The type of trade license you need will depend on the nature of your business, as well as the location in which you plan to operate.
  3. Register with the Chamber of Commerce: To register your business with the Chamber of Commerce, you will need to provide various documents, including your trade license, articles of association, and passport copies. The Chamber of Commerce is responsible for issuing business licenses and registering businesses in the UAE.
  4. Obtain any necessary visas: Depending on your nationality, you may need to obtain a visa to enter and work in the UAE. There are several types of visas available, including work visas, investor visas, and business visas. You may also need to obtain a residence visa if you plan to live in the UAE for an extended period of time.
  5. Rent office space: Once you have obtained your trade license and other necessary documents, you will need to find a suitable location for your business. The UAE has a range of options for office space, including serviced offices, coworking spaces, and traditional leases.
  6. Hire employees: To operate your business, you will likely need to hire employees. The UAE has a diverse and skilled labor force, and there are a number of employment laws in place to protect the rights of workers.
  7. Register for taxes: Depending on the nature of your business, you may need to register for various taxes, such as value-added tax (VAT) and corporate income tax. The UAE has a relatively low tax rate compared to many other countries, and it does not have personal income tax.

Starting a business in the UAE can be a challenging but rewarding experience. The country offers a favorable business environment and a range of opportunities for entrepreneurs, and it is well-suited for businesses in a variety of industries. By following the steps outlined above, you can set yourself up for success and grow your business in this dynamic and thriving market.

Understand Value Added tax
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Understand What is Value Added Tax (VAT) ?

Value Added Tax:

Value-added tax (VAT) is a type of consumption tax that is levied on the sale of goods and services. It is a tax on the value added to a product or service at each stage of the supply chain, from production to final sale to the consumer. VAT is a form of indirect tax, which means that it is collected by one entity in the supply chain and passed on to the next entity, rather than being directly paid to the government by the consumer. VAT is used in many countries around the world as a means of raising revenue for the government.

One example of how VAT works is as follows:

  1. A manufacturer produces a good and sells it to a wholesaler for $100. The manufacturer charges a VAT of 10% on the sale, so the total price the wholesaler pays is $110 ($100 + $10 VAT).
  2. The wholesaler then sells the good to a retailer for $120. The wholesaler charges a VAT of 10% on the sale, so the total price the retailer pays is $132 ($120 + $12 VAT).
  3. The retailer then sells the good to a consumer for $150. The retailer charges a VAT of 10% on the sale, so the total price the consumer pays is $165 ($150 + $15 VAT).

In this example, the manufacturer, wholesaler, and retailer all add value to the good by participating in the supply chain, and they all charge VAT on their sales. The consumer ultimately pays the VAT when they purchase the good, but it is collected and passed on at each stage of the supply chain.

There are several advantages to VAT as a form of taxation. One advantage is that it is a relatively simple and transparent system. VAT is easy to administer because it is collected at each stage of the supply chain, and businesses are required to keep records of their sales and VAT payments. This makes it easy for governments to monitor compliance and enforce the tax.

Another advantage of VAT is that it is generally considered to be a more neutral form of taxation compared to other types of taxes, such as corporate income tax or personal income tax. This is because VAT is applied equally to all goods and services, regardless of the type of business or the income level of the consumer. This helps to promote fairness and reduces the potential for tax evasion or avoidance.

There are also some disadvantages to VAT, however. One disadvantage is that it can be regressive, meaning that it disproportionately affects lower-income individuals. This is because VAT is a consumption tax, and lower-income individuals tend to spend a larger portion of their income on consumption compared to higher-income individuals. As a result, lower-income individuals may bear a greater burden of VAT compared to higher-income individuals.

Another disadvantage of VAT is that it can create compliance costs for businesses. Businesses are required to keep detailed records of their sales and VAT payments, and they must file regular returns with the government. This can be burdensome for small businesses, in particular.

Here are three examples of how VAT is applied in different countries:

  1. In the European Union (EU), VAT is applied at a standard rate of at least 15% on most goods and services. Member states are allowed to set their own VAT rates, within certain limits, and many countries have multiple VAT rates for different types of goods and services. For example, in Germany, the standard VAT rate is 19%, but there is a reduced rate of 7% for certain essential goods and services, such as food, books, and public transportation.
  2. In Canada, VAT is known as the goods and services tax (GST). The GST is applied at a rate of 5%
  3. In United Arab Emirates Value Added Tax is Charged At 5%.
Is VAT applicable on services in UAE?
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Is VAT applicable on services in UAE? 2021 Guide

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:

  1. Every Taxable Supply and Deemed Supply made by the Taxable Person.
  2. 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.

Concluding Remarks:

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.

value added tax consultant in dubai
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Value Added Tax Consultant in Dubai 2021

Taxhelp.Ae one of the leading Value Added Tax Consultant in Dubai offers complete range of Value Added Tax (VAT) Services across United Arab Emirates including Dubai, Abu Dhabi, Fujairah, Umm Al Quwain, Sharjah, Ajman and Ras Al Khaimah.

Our Range of Services:

Why Taxhelp.Ae as Value Added Tax Consultant in Dubai:

Taxhelp.Ae is one of the oldest names in Tax Consultancy Services. Value Added Tax was implement in United Arab Emirates in January 2018. From January 2018 to Current date we have served hundreds of clients in implementing and handling value added tax matters.

What Make us Different:

Some of our strengths are:

  • Diversified Team: Before 2018 United Arab Emirates was tax free country. Therefore at the time of implementing not lot of accountants were available in the country that have diversified experience of handling tax matters. That is why we structured and sourced our team from countries that already have strong taxation structure so that they can input practical knowledge to our valuable clients in the United Arab Emirates. Our team include members from United States of America, United Kingdom, Australia, India, Pakistan, United Arab Emirates and Philippines.
  • No Half Qualified Accountants: We understand the sensitivity of matters with tax department therefore we ensured that our team only includes professionally qualified members. Mostly Chartered Accountants and Certified Public Accountants.
  • Presence in Every State of United Arab Emirates: We have set up our offices in all the states of United Arab Emirates so that clients from every corner of the country can take advantage of our services.
  • Affordable Prices: Quality comes with a price. Right, but we ensured that our services are of high quality and at the same time prices remain market competitive. So you get Quality at Reasonable Price.

Why You Need Value Added Tax Consultant:

Lot of people believe that they are running a very small business and there is no point in increasing the cost by hiring tax consultant. But trust us hiring a tax consultant can save you from heavy losses.

The regulatory body of value added tax law in United Arab Emirates is Federal Tax Authority and they are very strict when it comes to compliance with VAT laws in the country. Fines can go up to 300% of the defaulted amount that is very significant. Therefore it is very advisable to go with Professional Tax Consultants that can save you from troubles. They have background knowledge of hundreds of clients and at the same time they keep updating about the changing laws that is a continuous process.

Who needs to Register for Value Added Tax:

Not every business in United Arab Emirates is required to get registered for the Value Added Tax. There are two criteria for businesses to check whether they are eligible for VAT Registration or not:

  1. Mandatory Registration: If the turn over of the business in previous 12 months exceed AED 375,000/- then it is mandatory for the business to get registered for Value Added Tax.
  2. Voluntary Registration: In case the turn over of the business is greater then AED 187,500 and Less the AED 375,000/- business can apply of VAT Registration Voluntarily.

How to Contact Us:

So if you have already made up your mind of securing your business with the help of professional tax consultant. Lets go to next step visit our contact us page it has information to get in touch with us. From there our professional staff will take care of the rest.

VAT on Sale of Fixed Assets in UAE
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VAT on Sale of Fixed Assets in UAE

In this article we are going to discuss in detail about how to charge VAT on sale of Fixed Assets in UAE?

Before going into detail let us understand what is Asset or Capital Asset as per the VAT law in UAE?

Federal Decree-Law No. (8) Of 2017 on Value added tax define Capital Asset as under:

“Business assets designated for long-term use”

Further Executive Regulations of the Federal Decree-Law No. (8) Of 2017 further elaborates capital assets as:

A Capital Asset is a single item of expenditure of the Business amounting to AED 5,000,000 or more excluding Tax, on which Tax is payable and which has estimated useful life equal or longer than:

a. 10 years in case of a building or a part thereof.

b. 5 years for all Capital Assets other than buildings or parts thereof

Now Going go the Question under discussion how to charge vat on sale of fixed Assets in UAE?

Based on the above definitions if assets qualifies as Capital Asset in VAT Law then :

Buyer/Purchaser:

Buyer or purchaser will treat the Asset under Capital Asset Scheme that is defined in Federal Decree-Law No. (8) Of 2017 as:

“A scheme whereby the initially recovered Input Tax is adjusted based on the actual use during a specific period”

Input tax that is related to the purchase of that Assets should be claimed over the period of use and not exactly in the quarter of purchase.

Seller:

Seller will simply deposit the amount received as VAT to the Federal Tax Authority in the next return due.

Summary on VAT on Sale of Fixed Asset in UAE:

In Simple words Capital Asset in VAT law is only that Asset that is bought for at least Aed 5,000,000 and has useful life of 10 years in case of building and 5 years in case of Capital Assets other then Building.

If Assets qualify the above criteria then buyer needs to claim input based on the useful life of Asset and not in the month of purchase as is the practice of normal expenses. Seller will deposit all the VAT received to the Federal Tax Authority in the next return due.

How to Get Tax Residency Certificate in UAE?
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How to get tax residency certificate in UAE?

Before going into details about how to get tax residency certificate in UAE both for Individuals and Companies it is necessary to understand what exactly tax residency certificate is and why it is required and what are the advantages associated with it.

What is Tax Residency Certificate?

Tax Residency certificate basically is a document that shows that the tax payer whether individual or company is a resident of the country issuing the certificate for tax purposes and therefore should be charged tax accordingly. Means his income should not be taxed again in another country having double tax treaty with country issuing tax residency certificate.

Advantage of Tax Residency Certificate:

Countries around the world have entered into mutual tax agreements (Avoidance of Double Taxation). The prime objective of such treaties is that if a person is charged tax in a country where he is generating income the same income should not be taxed again when transferred to another country.

In order to take advantage of such double taxation treaties every country issues tax residency certificate so that it can be shown in another country and double taxation on the same income can be avoided.

Naturally next question that comes into mind is that who issues tax residency certificate in United Arab Emirates?

Initially the authority for issuing tax residency certificate was with ministry of economy however recently the Government has transferred the authority to Federal Tax Authority UAE.

Finally coming to the documents required for issuing Tax Residency Certificate the details are as under:

 Documents required to obtain Tax Residency Certificate for Individuals:

  1.  Passport Copy
  2.  Valid Residence Copy
  3.  Certified Tenancy Contract / Title Deed.
  4.  Certified bank statement for at least 6 months during the required year.
  5.  Source of Income/Salary Certificate.
  6.  Immigration Report of residency (Exit & Entry report)

Documents required to obtain Tax Residency Certificate for Companies:

  1. Valid Trade License.
  2. Certified Articles of establishment; incorporation; founding; institutionalizing or Memorandum of association.
  3. Copy of identity card for the Company Owners or partners or directors.
  4. Copy of passport for the Company Owners or partners or directors.
  5. Copy of Residential Visa for the company owners or partners or directors
  6. Certified bank statement for at least 6 months during the required year.
  7. Certified Tenancy Contract / Title Deed.
  8. Certified audited report.

If you are looking for a reliable company that can take care of all these requirements we at Taxhelp can surely assist you in obtaining tax residency certificate in affordable price with peace of mind.

For further details kindly contact us at the details mentioned at the contact us page.

Introduction to Income Statement
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Introduction to Income Statement

The Income statement is one of the most important part of financial reporting or financial statements of an Organization. This is the statement that reflects the profits and Losses Company has made over a specified period of time. The basic concept of Income statement is that it takes into account all the revenues company has made and then subtracts all the expenses company incurred over the same period of time to reach at the profit and loss of the company.

Income statement is one of the three core financial statements of the company. These include

  1. Balance Sheet or Statement of Financial Position
  2. Income Statement
  3. Statement of Changes in Equity

Some of the elements that are part of Income Statement are Revenues, Expenses and Gross Profit etc.

Introduction to Income Statement

Income Statement can be prepared for different time period depending on the requirement of any organization however generally companies prepare them on monthly, quarterly and annual basis to keep strict monitoring of financial results. Below is the example of Income Statement

Sample Income Statement

Components of Income Statement:

Income statement for different companies varies since nature of revenue and expenses for each company is different. However some of the common elements of Income Statement are:

  • Revenues/Sales

Revenue or Sales is the first element of Income Statement. In this total revenue or sale of company are added to reflect total amount of sales or Revenue Company has made over the period of time. Please note that Revenue reported here is the Gross Revenue.

  • Cost of Goods Sold (COGS)

Cost of Goods Sold or Cost of sales is the total direct costs that company has incurred in generating the total Revenues reported above. Please note here that this will include only direct costs as indirect costs are deduced in the below line items. Some of the common examples of direct costs are Direct Labor, Direct Material, Direct parts consumed in production and other similar Direct Costs.

  • Gross Profit

Gross Profit is calculated by the company by subtracting Cost of Goods Sold from Total Revenues. This is the amount of profit company is making after considering only direct costs. Such information is very useful while decision making about production costs.

  • General and Admin Expenses

This part of income statement contains all the indirect expenses company has incurred over the period of time. Some of the examples of indirect costs are salaries and wages of staff, utilities, Rent of building, travel expenses and depreciation and amortization etc.

  • Depreciation and Amortization Expenses

Depreciation and Amortization are a concept of accounting whereby accountant allocate the cost of capital assets over their useful life. These are non-cash expenses but vital part of Income statement.

  • Operating Income before Interest and Tax (EBIT)

This can be defined as the actual profit made by the company from operations without considering Interests, non-operating expenses and taxes.

  • Interest Income and Expense

Interest expenses and income is generally reported separate by the companies to know how much expenses they are bearing on the loan capital utilized and how much they are making from spare capital.

  • Earning Before Taxes (EBT)

This is calculated by subtracting Interest Income and Expenses from Operating Income before Interest and taxes.

  • Income Taxes

This reflects the amount of income tax company is liable based on the income or losses it is generating and depends on the tax law of different countries.

  • Net Income

This is the last element of Income statement this is the actual profit company is making after deducting all types of expenses from total Income.

Real Example of Income Statement Below:

Example of Income Statement
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Internal Audit Services in UAE

Taxhelp.Ae in Partnership with Digits Financial Solutions offers reliable Internal Audit Services across UAE. A reliable Internal Audit not only make positive contribution to the effective management of organization but also help them identify on timely basis risks that might cause danger to smooth operations.

Our Internal Audit staff work with your organization to develop an understanding of business strategy and associated business risks and how to ensure that such risks are identified, communicated and mitigated through effective actions at right time.

We offer cost effective Internal audit services in Dubai, Sharjah, Umm Al Quwain, Ajman, Abu Dhabi, Ras Al khamiah for both mainland and freezone companies.

For further details please visit our contact us page.

Accounting Equation Explained
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Video Tutorial – Accounting for Beginners # 1 / Accounting Equation Explained / Assets = Liabilities + Equity

This is the first video of accounting for beginners series. In this video we have explained what is accounting equation? What are Assets, Liabilities and Equity. For complete videos subscribe to our You Tube Channel.

Video Tutorial – Accounting for Beginners # 1 / Accounting Equation Explained / Assets = Liabilities + Equity

By admin FTA VAT Public Clarifications • VAT NEWS • • 0 Comments

Implications of VAT on Donations, Grants and Sponsorship

Before explaining in details let us understand one very important point that is VAT implications will only arise where the consideration paid is as a result of supply of goods and services. No supply no VAT and the transaction will fall outside the scope of VAT.

VAT on Donations:

Donations provided without any express or implied benefit are not consideration of any supply of goods and services and therefore fall outside the scope of VAT.

Federal Tax Authority has clarified that donations must be unconditional and unrestricted and following principles shall be considered:

  • Does any benefit is received by Donor?
  • Are there any other beneficiaries as a result of donation other than person receiving donation
  • Are there any conditions attached to the potential use of donations?
  • Is there any agreement between the parties making and receiving the donation and what are the conditions?

VAT on Sponsorship:

Sponsorship is generally subject to VAT since the person receiving the sponsorship provides some sort of services such as displaying logo of sponsor, providing free tickets or exclusive merchandise etc.

VAT on Grants:

As mentioned in the above two cases in order to understand the correct implications of VAT we need to determine whether the Grantor is getting any benefit as a result of donation. If there is no benefit the transaction fall outside the scope of VAT. In case there is any benefit the implications of VAT will arise.

 

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VAT on Bank Interest and Dividends

Before going to the discussion let’s understand when VAT is applicable. VAT is a tax that is imposed on import or supply of goods and services. Or in other words in order for an income VAT is applicable only when it is in return of some supply of Goods and services.

So that means the implications of VAT will arise only when there is a supply, in case there is no supply there is no VAT. Let’s understand whether Interest earned or dividends yielded are the result of any supply or otherwise.

Interest Income from Bank Deposits:

Federal Tax Authority is of the view that interest income earned by individuals or businesses is merely the result of depositing an amount of money with Banks and not as a result of supply of Goods and services. Therefore there arises no supply of Goods and services in aforesaid case. That is why the transaction falls outside the scope of VAT and is not required to be shown in the VAT Return.

Dividend Income:

Like interest income Federal Tax Authority clarified that dividend income is simply a distribution of profit as a result of someone share in a business and not as result of supply of some goods and services. Therefore dividend income also falls outside the scope of VAT and there is no requirement to report such income in the return.

By admin FTA VAT Public Clarifications • VAT NEWS • • • 0 Comments

VAT On services of Independent Directors

Why it is important to determine date of supply for independent directors?

The answer to the question is very simple because VAT needs to be accounted for in the same month or quarter where the date of supply falls.

Possible Scenarios:

  1. Director Free is not known to the director at the outset and he became aware only upon conclusion of Annual General Meeting
  2. Director Fee is known to the director at the outset and periodic or multiple payments are made
  3. Director Fee is known to the director at the outset but there are no periodic or multiple payments

VAT Treatment of all three scenarios is highlighted below for the purpose of understanding

 

  1. Scenario 1: Director Free is not known to the director at the outset and he became aware only upon conclusion of Annual General Meeting:

In case the Board fee for independent director was known only at the conclusion of Annual General Meeting and the independent director has not issued any invoice nor received any payment prior to the date, date of supply shall be the date on which the services was completed in accordance with Article 25 of the VAT Law.

Federal Tax Authority has clarified that the provision of services is completed only when such fees is known to the director despite of the fact that provision of services continues throughout the year.

Therefore when fees is known to the director he shall issue an invoice within 14 days as per the VAT law and account for VAT in the same quarter.

  1. Scenario 2: Director Fee is known to the director at the outset and periodic or multiple payments are made:

Date of supply shall be determined in accordance with Article 26 of the VAT law i.e.

Earliest of:

  • Date of issuance of tax invoice
  • The date payment is shown as due on the tax invoice
  • Date of receipt of payment
  • In case none of the aforesaid events has taken place date of supply shall be triggered at the end of 12 months
  1. Scenario 3: Director Fee is known to the director at the outset but there are no periodic or multiple payments:

Date of supply shall be determined in accordance with the Article 25 of the VAT law i.e.

Earliest of:

  • Date of issuance of Tax Invoice
  • Date of Receipt of Payment
  • Date on which provision of services was completed
By admin FTA VAT Public Clarifications • VAT NEWS • • • • 0 Comments

VAT Treatment of Farm Houses and Farm Land

Article will explain in detail about VAT treatment of farm houses and Farm land for the purpose of understanding.

Tax Treatment of Different Types of Land:

  • Bare land – Tax Treatment : Exempt from VAT – Article 52 of Cabinet Decision 0f 2017
  • Residential Land – Tax Treatment : First Sale within 3 Years of completion Zero Rate, After 3 Years of completion sale or lease exempt from VAT
  • Commercial Land : Tax Treatment – Standard Rate of VAT Applicable

Main Issue How to Classify Land and Buildings:

How to classify Farm land and Buildings in above 3 categories and applying the correct VAT Treatment?

Summary of the VAT Treatment of the issue:

  • Farm houses that meet the definition of residential building shall be either zero rated or exempt. The best indicator of the building being residential building is that it shall be principal place of residence of the person.
  • Other farm houses that are not used as principal place of residence shall be treated as commercial property and VAT at standard rate of 5% is applicable.
  • Farm Land that is covered with buildings and civil engineering works shall be treated as commercial and standard VAT is applied.
  • Farm Land that has no buildings or civil engineering works shall be treated as bare land and is exempt from VAT.
  • Important point to consider whether Farm House and Farm Land form Single Composite supply or Mixed Supply. In case of Composite supply the VAT treatment of predominant factor shall prevail otherwise in mixed supply every element shall be treated separately to determine the correct VAT treatment.

Some Important Points 

Farm Houses that meet the Definition of Residential Building:

Farm House shall be considered as Residential where it is:

  • Principal place of residence of the person

Farm House shall not be considered as Residential where it is:

  • A Place that is not a building fixed to the ground and can easily be moved without being damaged
  • Buildings that are used as hotel, motels or hospital etc.
  • Serviced Apartment
  • Unlawfully Constructed Building
  • Farm houses not used as principal place of residence such as weekend homes
  • In case part of the house is used as residential and part for other purposes, the part that is used for residence may qualify as residential house.

If you are still unsure about how to manage your value added tax relating to farm lands. Our professional value added tax consultants can provide you reliable VAT Consultancy Services.

 

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Application of VAT on Means of Transport

Relevant Section of Law: Article 34 of the Cabinet Decision No. 52 of 2017: Certain means of transport

The supply of the means of transport shall be subject to the zero rate in the following cases:

  1. A supply of an aircraft that is designed or adapted to be used for commercial transportation of passengers or Goods and which is not designed or adapted for recreation, pleasure or sports.
  2. A supply of a ship, boat or floating structure that is designed or adapted for use for commercial purposes and which is not designed or adapted for recreation, pleasure or sports.
  3. A supply of bus or train that is designed or adapted to be used for public transportation of (10) or more passengers.

The most important point to understand before reading the clarification is that the article is highlighting the VAT Treatment of Means of transport and not transport services. Means of transport are the sources through which transportation is provided such as buses and trains. Whereas transport services means carrying goods and passenger from one destination to another.

Main Issue:

The main issue in the above highlighted clause 3 of Article 34 of cabinet decision No. 52 of 2017 is that what exactly is meant by buses or trains designed or adapted to be used for public transportation of 10 0r more passengers.

Generally all the buses and trains are for transportation for passengers so does that mean all the buses and trains supply qualify for zero rating for the applicability of VAT?

Clarification Regarding Clause 3 highlighted above:

Federal Tax Authority has clarified that on the issue as under:

Only buses and trains that are designed or adapted to be used by public in general qualify for zero rating under this section. Any buses or trains that are restricted to specific group of people shall not qualify for zero rated under this section such as buses specifically designed to be used as School buses or Employees of a business etc.

Further Federal Tax Authority has also highlighted some features of Public Transportation buses and trains and features of buses and trains that are not used for public transportation that are mentioned below:

Features of Public transportation Buses or Trains:

  • The vehicles include features that allow the customers to pay or indicate that they possess tickets such as payment booth and ticket scanners etc.
  • Branding either inside or outside vehicle indicating that transportation is available to all.
  • There is branding or other means indicating that transportation is regulated by entity regulating public transportation in emirate.
  • There is evidence that vehicle complied with certain regulations necessary to be used for public transportation imposed by entity regulating public transportation in emirate where the means of transport is used.
  • Features exist that allows third party advertisement to be placed within means of transport.
  • The intended use of the means of transport was for public in general and not for any specific group.

Features of transportation Buses or Trains used for specific purpose and to be charged at standard rate of 5%:

Following are the examples:

  • School Buses
  • Buses use to transport employees or workers
  • Shuttle buses used by hotels
By admin FTA VAT Public Clarifications • VAT NEWS • • • 0 Comments

FTA Pubic Clarification Regarding Tax Invoices

Relevant Section of law: Article 59 of Cabinet Decision No. 52 of 2017: Tax Invoices

Summary:

In all cases where taxable supply is made it is mandatory to issue tax invoice. There are two type of tax invoices acceptable. (i) Normal Tax Invoice (ii) Simplified Tax Invoice.

The comparison between the two types of tax invoices is mentioned below for the purpose of understanding:

 

 

Normal Tax Invoice

  

Simplified Tax Invoice

 
 

Issued in case of Taxable Supply

 

  

Issued in case of Taxable Supply
 

Can be issued to both registered and unregistered recipients

 

  

Can only be issued in case the recipient of Goods is not registered for VAT

 
 

Can be issued for any amount

 

  

Can only be issued if recipient is unregistered and the consideration for supply is less the AED 10,000

 
 

Requirement to show net value of taxable supply i.e. Amount excluding VAT for each line item

 

  

No Requirement to show net value of taxable supply i.e. Amount excluding tax for each line item
 

Requirement to show net value (Amount excluding tax), tax value (Vat amount) there is no requirement to show gross amount for line items (Amount including VAT)

 

  

Simplified tax invoice values are always shown at gross amount i.e. amount including VAT
 

Requirement to convert invoices issued in foreign currency to AED and mention exchange rate used for conversion

 

  

Requirement to convert invoices issued in foreign currency to AED and mention exchange rate used for conversion

 
 

Rounding shall be performed on line item basis

 

  

Rounding shall be performed on the gross value of supplies

 

Format for Simplified Tax Invoice:

 

Tax Invoice
 

Name of Supplier:

 

  

Address of Supplier:
 

Tax Registration Number of Supplier:

 

  

Date of Invoice:
 

Description of Goods

 

  

Amount (AED)
 

Apple

 

  

10.00
 

Bananas

 

  

15.00
 

Milk

 

  

10.50
 

Total

 

  

35.50
 

VAT

 

 1.69

 

 Format for Normal Tax Invoice:

 

Tax Invoice
 

Name of Supplier:

 

  

Address of Supplier:
 

Tax Registration Number of Supplier:

 

  

Date of Invoice:
 

 

Name of Customer:

 

  

 

Tax Registration Number of Customer:
 

Payment Terms:

  

Date of Supply:

 
 
 

Description of Goods

 

  

Unit Price (AED)

  

 

Quantity

  

Amount Excl VAT (AED)

  

 

VAT Rate

  

 

VAT Amount (AED)
 

Apple

 

  

10.00

  

1

  

10.00

  

5%

  

0.5
 

Bananas

 

  

20.00

  

1

  

20.00

  

5%

  

1.00
 

Milk

 

  

40.00

  

1

  

40.00

  

5%

  

2.00

 
 

Total

 

  

70.00

  

3.50
 

Gross Amount including VAT (AED)

 

  

73.50

 

By admin FTA VAT Public Clarifications • VAT NEWS • 0 Comments

Input tax incurred on Entertainment Expenses – FTA Public Clarification

Relevant Section of Law: Article 53 of the Cabinet Decision No. 52 of 2017: Non Recoverable Input Tax

Summary:

VAT on Incidental or Genuine Entertainment expenses is recoverable. Whereas if the hospitality itself becomes an end itself or reason to attend an event no VAT is recoverable.

Detailed Discussion:

Public clarification is divided into two parts for the purpose of understanding:

  1. Entertainment provided to non-Employees (Only Designated Government Entities can recover)
  2. Entertainment Provided to Employees (Both Designated and non-Designated Government Entities can recover.

Entertainment provided to non-Employees:

Designated Government Entities

Article 53 has provided specific privileges to the Designated Government entities to recover even input tax incurred on the entertainment provided to non-employees. Example of such entertainment services are:

  • Input tax incurred on meeting with delegations from other countries
  • Input tax incurred on meeting with Government representatives from other departments
  • Input tax incurred on ceremonies held to mark significant political events

Entities other than Designated Government Entities

All other types of organizations are not allowed to recover entertainment expenses provided to non-staff members. Examples include:

  • Customers
  • Potential Customers
  • Officials
  • Shareholders

Entertainment Provided to Employees:

Entertainment provided to employees can both be recoverable and non-recoverable depending upon the circumstances:

Entertainment Expenses where input tax is recoverable:

  1. Input tax on foods and Drinks in the normal course of a meeting are recoverable.
  2. Input tax on hospitality provided at the venue of the meeting such as tea and coffee is recoverable.
  3. Input tax on hospitality provide in short breaks during meeting such as lunch break is also recoverable if such costs does not exceed internal policy the business normally has in place.
  4. Input tax on goods and services purchased to be used by the employees free of cost is also recoverable when following situations exist:
  • Where it is legal obligation to provide those goods and service
  • It is contractual obligation or document policy to provide those goods and services which is a normal business practice in such business
  • Where provision of goods and services is deemed supply as per the provisions of Federal Decree Law.
  1. Similarly in case of conferences and business events whereby fee is charged to Employees and Vat is accounted for any input tax incurred on catering services is fully recoverable.
  2. Input tax on incidental normal office expenses for general use by both employees and visitors are recoverable. Examples of such expenses are:
  • Tea, water and coffee used in office by staff and visitors
  • Flowers for display at the reception
  • Dates, chocolates and snacks etc.
  1. Expenses funded or reimbursed to employees for business purposes are also recoverable expenses for the purpose of VAT such as hotel stay or foods and drinks consumed during official business trips.

Entertainment Expenses where input tax is non-recoverable:

  1. Where goods and services are purchased by employer to be used by staff free of cost except situations highlighted above.
  2. Where foods and refreshments are so substantial that they would constitute and end in themselves or may have encouraged someone to attend the meeting.
  3. Where no fee is charged for attending conference and business events, input tax incurred on entertainment for such events will be also non-recoverable.
  4. Where events are held purely for the purpose of entertainment of staff input tax incurred shall also be non-recoverable.
  5. Goods and services purchased to be provided to staff free of charge in order to award them for long term service such as long service awards, retirements gifts, Eid gifts etc. also give rise to non-recoverable input tax.
  6. Input tax on expenses incurred by employee on entertainment of current or potential customers are also non recoverable.
By admin FTA VAT Public Clarifications • VAT NEWS • • 0 Comments

Use of Exchange Rates for VAT Purposes

Federal Tax Authority issued Public clarification regarding use of exchange rate that was a question of great concern for business engaged in import and export activities:

Relevant Reference to the Law:

Article 69 of Federal Decree-Law No. (8) Of 2017 requires that where a supply is made in a currency other than UAE Dirham the amount stated on the tax invoice shall be converted into UAE Dirham at exchange rates approved by UAE Central Bank at the date of supply.

Main Issues:

  • UAE Central Bank did not publish any exchange rates up to May 16, 2018 so how to determine exchange rates up to May 16, 2018.
  • How to use the exchange rates published by UAE Central Bank from May 17, 2018 onward. Important points to consider.
  • Use of Exchange Rate for Import of Services
  • Use of Exchange Rate for Import of Goods

The points are explained below for the purpose of understanding:

UAE Central Bank did not publish any exchange rates up to May 16, 2018 so how to determine exchange rates up to May 16, 2018:

Where tax invoice was issued before May 17, 2018 the amount on the invoice should have been:

  • Converted using a reliable source
  • Consistently used by the supplier from January 01, 2019 to May 16, 2018

Examples of Reliable Sources for the purpose of exchange rates are:

  • Thomson Reuters
  • Oanda
  • Exchange Rates Published by any UAE Bank

How to use the exchange rates published by UAE Central Bank from May 17, 2018 onwards. Important points to consider:

  • Businesses must use exact exchange rates published by UAE Central Bank, that should include the same number of decimals as published e.g. 3.6725000 exactly same shall be used and not rounded off to 3.67
  • UAE Central Bank publishes rate 6.00 pm every day where tax invoice needs to be issued before that rates published on Central Bank website can be used at the time of issue of tax invoice.

Use of Exchange Rate for Import of Services:

Import of services are accounted for in the return under reverse charge mechanism normally. These invoices as mentioned above needs to be converted at UAE Central Bank rate into Dirhams at the date of invoice.

Use of Exchange Rate for Import of Goods

In case of import of Goods, the value of goods is converted intro Dirhams by custom department in customs declaration form. The same value is automatically populated in Box 6 of VAT Return. So taxpayers can use the same value and there is no need to convert again using the UAE Central Bank Rate.