A VAT is an indirect tax levied on goods and services consumed domestically. Ultimately, the responsibility to pay VAT is on the consumer. VAT came into force in Dubai in 2018. The purpose was to bring a new source of income for the government. A businessman is required to follow a lot of rules and regulations under VAT which is the reason confusion arose between Zero Rated VAT and Exempted VAT. VAT Consultants in UAE are helpful to businesses in this matter. They will remove the confusion by categorizing goods under respective heads. Both the terms may sound the same but their implications and results are different. Let’s understand both the concepts:
How VAT is divided?
Vat is divided into three types i.e. Taxable, Zero-Rated and Exempted. Taxable goods and services are charged at a standard rate of 5%. But the confusion arises when goods and services fall under the category of Zero Rated and Exempted. The businesses find it difficult to categorize between the latter two. Both look similar but their right categorization is necessary. Zero Rated VAT means good and services will be charged at 0% instead of the standard VAT rate of 5%.
On the other hand, Exempted VAT means goods and services will not be charged tax at all. Exempted VAT supplies are treated the same as supplies made by non-VAT Vendor as they are not taxable. Zero-rated supply cannot be made by the non-VAT vendor. If Zero Rated supply is made, input tax deductions can be claimed which is not possible in exempted VAT supplies. Zero Rated VAT will form part of taxable turnover while Exempted VAT will not be included while calculating taxable turnover. A person making exempted supplies is not qualified for getting registered under VAT. In the case of Zero Rated Vat supplies, there is a specified threshold that must not be exceeded. If the value of taxable goods crosses a specified threshold limit, the business needs to apply for UAE VAT registration online. In addition to this, all transactions must be documented for proof for claiming taxes. Exempted VAT does not need any documentation.
Here is the certain goods and services under the exempt category.
Exempted VAT does not have any implications on goods and services. Tax in UAE has given certain goods and services under the exempt category. It includes financial services, the supply of residential buildings other than mentioned in zero-rated, the supply of local passenger transport and, the supply of bare land. In short, Zero Rated VAT goods and services is taxable though at 0% while exempted VAT goods and services are not taxed at all.
How VAT Consultants UAE are helpful?
VAT consultants UAE are helpful in understanding this concept better. Alkhadimllc has such professional VAT consultants in Dubai who will update you timely and notify regarding rules and regulations. They will categorize the goods and services between zero-rated and exempt to avoid any confusion related to VAT filing in UAE. Businesses may hamper their work if VAT consultants are not rightly hired. Otherwise, the business owners must have full knowledge of VAT to avoid any bad impacts.