VAT is a tax amount that is paid on the supplies and goods at various stages of their development. From the raw material to the end product, the buyer of each product has to pay a certain tax amount inclusive of the material and product price.
To define which supplies have to pay what amount of tax, certain classifications and divisions must be made. Knowing VAT and its classifications for various products and supplies is important to figure out the right tax amounts and which products are free of tax for which you can reclaim refunds.
Keep scrolling down the article to get familiar with the types of supplies in the UAE that fall under the VAT.
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Top 6 supply types in UAE under VAT
According to the law defined by the UAE government, there are certain goods and supplies which have various tax rates. These tax rates will be defined depending upon various factors, and they have various categories.
Following are some supplies under VAT in UAE.
1) Standard rated
There are certain supplies and goods in which a standard tax is applied. This standard VAT on various items and supplies is 5%. Any supply that falls under this category has to pay a 5% tax on each sale. Not paying this standard amount will result in many problems and penalties for many businesses. that is why you need to get yourself registered for VAT and know what amount you owe on various supplies. Seek the help of the best VAT consultancy in Dubai for registrations and tax calculations to pay the right amount.
2) Zero-rated
Usually, people mix zero-rated and exempted VAT, but these two are different types. Zero-rated supplies are not exempted from the tax, but the government has not yet implemented any rate for them. The rate for such goods and items is set to zero initially. It is very important to add the 0% tax column in the invoice for such products to make no claims in the future. But if you have paid some tax on the raw material and sold the actual product exclusive of tax, you can ask for tax refunds. Some zero-rated supplies in UAE are as follows.
- Kids clothes
- Medicines
- Medical equipment
3) Composite supply
Composite stands for the composition of an object with the help of two or more elements. The tax on composite supplies depends on various factors and can be determined using the principal component. You need to make sure that no item or component is sold individually to fall under the composite tax category. Following are the factors that will determine the tax for composite supplies.
- Place of supply (whether supply made inside or outside UAE)
- Value of supply
- Date and time of supply
4) Deemed supply
The type of supplies which are not VAT exempted, but the buyer pays a certain amount of tax for such supplies. Later the buyer can ask for the credit and then use the product or supply for a non-business purpose. If you have purchased some non-business use items, you cannot ask for tax recoveries for such supplies. But if you have a purchased an item for business use, then you can ask for a refund; after that, you can use such products for personal or non-business use. Such supplies are known as deemed supplies in the UAE.
5) Out-of-scope supply
Goods and supplies exchanged between the buyer and seller without entering them to UAE are out-of-scope supplies. For example, a UAE-registered local company that sells any products to another local company but outside the UAE will not be in the scope of VAT under the UAE. If they are making this trade in some other country, they do not have to pay the tax according to the law defined by the UAE government.
6) VAT exempted supplies
The type of supplies and goods that do not fall under the tax category is known as VAT exempted supplies. The buyer and seller of such goods do not have to pay any kind of tax. Such exempted supplies do not get affected by the implementation of VAT. If you have paid any past tax on such items or supplies may not be available for return or credit, but in the future, you can get an exemption. The examples of exempted supplies in the UAE are wide in range, and for more details on registrations and exemption, you can consult the experts.
Following are the exempted supplies and institutions in the UAE.
- Pharmaceutical supplies
- Public transport
- Educational institution
Know All The VAT Details!
For paying the right amount of tax and at the right time, you need to be aware of the VAT laws and regulations. Keep yourself aware of tax matters and rules so that you and your company do not suffer. Getting expert and professional help will let you deal with tax matters, register yourself when required to register and ask for refunds when you are eligible.
