The most asked question by almost all financiers is How to calculate VAT? Indeed, it has become an important part of businesses, and its increasing demand makes it the most popular sales tax in the world. It adds benefits to the businesses and, therefore, today, business owners find it mandatory to have VAT. Before getting to know about calculation, let’s have a look at the VAT description, and you can also get to know about a Trusted Partner for VAT Services in the UAE.
What is VAT (Value Added Tax)?
Value Added Tax is the amount of tax on goods and services by the supply chain department. This tax is applicable from the purchase of raw materials to the dispatch of the final product to the consumer. It’s a type of sales tax that applies to taxable goods and services. It is important for businesses, and one can use this service for many items.
When Was VAT Introduced to Dubai?
Almost 150 countries, including all 29 countries of Canada, the European Union (EU). Australia, New Zealand, Singapore, and Malaysia have implemented VAT in their businesses, and this makes this tax the most popular type of sales tax in the world. The VAT rule was implemented in Dubai on January 1, 2018. It’s suggested that it will be charged on all goods and services in the UAE. The standard VTA rate for most goods and services is 5%; however, some goods have a 0%rate or exemption.
Why is it needed?
Before VAT, the UAE government was solely dependent upon oil and petroleum products as a source of revenue. This caused the government to add more facilities for the public. Introduction VAT in the UAE opens new doors of growth and prosperity. VAT helps the government generate revenue that automatically helps in adding high-quality public services for the nation. The biggest perk of this tax is that it includes non-life insurance and reinsurance companies, too. It means VAT is providing benefits to the insurance companies and also to the Reinsurance setups for the insurance companies.
Method of Calculating VAT in the UAE
After all the discussions, the major question is: How to calculate VAT from the total amount? Businesses that registered for VAT must keep accurate records of what they earn and how much VAT they pay. This record-keeping will save the business from future financial obstacles.
It is very important to understand how to calculate VAT tax in Dubai because in the UAE, the difference between the VAT paid and VAT collected is refunded or paid to the tax authorities. 5% tax on the invoice value has to be paid by the customers of all registered businesses. Moreover, businesses should pay 5% value added tax on goods and services they buy directly from the dealers.
To calculate, there is a formula that allows taxpayers to calculate and pay it to the government. Basically, businesses registered for VAT have to pay a calculated amount, not the full amount of VAT collected over sales. The formula is given below:
VAT = Output VAT – Input VAT
- VAT output means the amount of VAT collected on the sales of goods and services to consumers.
- Its input means the amount of VAT collected on the payment for purchasing raw materials from vendors.
To calculate, simply subtract collected on sales from the VAT spent on buying raw material. For this calculation, just figure out the output the tax collected during the tax period and the input VAT that can be claimed back. Business One Tax & Accounting can help you with your taxation.
Example
For example, an OPQ Ltd company runs a coffee shop and spends AED 100,000 to purchase raw materials.
- The tax applicable is 5%, which is AED 5000.
- OPQ Ltd is generating AED 200.000 by selling coffee made from this raw material. The 5% output tax on this amount is AED 10,000.
The final VAT payment will be calculated as follows:
- Net VAT Payment = Output VAT – Input VAT
- AED 10,000 – AED 5,000 = AED 5,000
This calculation will be helpful for those who find it easy to calculate it.
The Collection
Value added tax is added during each step of the supply chain, and eventually it is paid by the customer. More conveniently, it’s safe to say that businesses collect this tax on behalf of the government. For this reason, value added tax is also referred to as an indirect consumption tax. As VAT is an indirect tax, businesses should keep records of every transaction where VAT is involved. This step ensures the transparency of the business and also helps the government to track the financial activities of the business.
Trustworthy Source for VAT Tax Calculation in the UAE
Many businesses found it difficult to occupy themselves with these taxation matters. Therefore, some reliable companies in the UAE provide these services. Business One Tax and Accounting is a Trusted Partner for VAT Services in the UAE. Why? Business One Tax & Accounting is the finest VAT service provider in the UAE with a team of talented chartered accountants and experts who deal with your tax matters efficiently. By trusting BOTAX, you can completely focus on your goals without worrying about tax and government requirements.
How to Register your Business for VAT in the UAE?
- Based on the annual revenue of the businesses, the UAE government has set a threshold for tax registration.
- Businesses earning over AED 375,000 annually must register for it.
- Businesses earning between AED 187,500 and AED 375,000 annually can register voluntarily.
- Businesses earning less than AED 187,500 annually are not required to register.
Important steps
- Visit the Federal Tax Authority (FTA) website and sign up for an e-Services account.
- Access your e-Services account dashboard.
- Click “Add New Taxable Person” and follow the straightforward steps to complete the value added tax registration.
Thus, now you have complete knowledge about how to calculate VALUE ADDED TAX To make your work hassle-free, contact Business One Tax and Accounting, a trustworthy VAT Service Provider.
