What is Value Added Tax or VAT?
VAT is a kind of indirect tax levied on sale of goods and services which are ultimately born by the consumer of that goods and services. It’s an integral part of GDP.
When UAE will start implementing VAT?
UAE will start implementing VAT at the rate of 5% (with some exceptions including basic food items, such as education and healthcare etc. ). from 1st January 2018
Calculation of VAT in UAE:
VAT is actually the difference between input tax and output tax.
VAT = Output Tax (VAT collected on sales/services) – Input Tax (VAT paid on purchases or raw material purchased)
Where output tax is the tax collected by the seller for sale of goods or services and input tax is the tax paid by the seller on raw materials required to manufacture its goods and services.
Example on how to calculate VAT:
Suppose X Trading LLC owns a café shop and spends AED.100, 000/- towards obtaining raw materials. Input tax is 5%, so input tax becomes 5% of AED.100, 000/- = AED 5,000/-
Now after selling the food by using the purchased raw materials, X Trading LLC made sales of say, AED.2,00,000. Supposing 5% output tax, output tax becomes AED.10,000 So, final (net) VAT payable by X Trading LLC will be AED 5,000/- = AED 10,000 – AED 5,000.
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