A tax that is assessed progressively is a value-added tax (VAT), sometimes referred to as a goods and services tax (GST) in some nations. At every stage of manufacturing, distribution, or sale to the final customer, it is added to the cost of a good or service. The business that receives and remits VAT on behalf of the government on behalf of the end consumer may demand a refund of the tax paid. It resembles a sales tax and is regularly contrasted with one. Considering the person who eventually pays the tax and the person who pays it to the taxing authority may not be the same person, VAT is considered an indirect tax.
What is the calculation for VAT liability?
VAT liability is the difference between the input tax (VAT paid on purchases) that is recovered for a certain tax period and the output tax (VAT charged on deliveries of goods and services) that is payable for that tax period.
The following considerations are taken into account while calculating VAT liability:
- The entirety of your company’s revenues and purchases within the relevant return period
- How much VAT do you owe on purchases?
- How much VAT can you reclaim for the purchases you made?
The difference has to be paid to the FTA if the output tax is greater than the amount of the input tax. If the input tax is greater than the output tax, the excess input tax must be recovered from the taxable person. He will be free to deduct this from any future payments due to the FTA.
VAT Evaluation
Based on input and output taxes, firms are required to charge their clients taxes. VAT collected on the sale of goods or the provision of services to customers is known as output tax. The VAT paid on acquiring the supplies for the goods or services is known as input tax.
So, the formula for calculating VAT is:
Output Tax: Input Tax equals VAT.
Registration for VAT
If the taxable imports and supplies reach the AED 375,000 threshold for mandatory registration, the enterprises are required to submit an application for VAT registration. Additionally, if the combined value of a company’s taxable imports and services (or taxable expenses) exceeds the voluntary registration level of AED 187,500, the company may elect to register for VAT voluntarily.
Conclusion: Your business has to send a VAT invoice once you’ve registered it for VAT. All businesses in the UAE are required to follow the FTA-established VAT invoice format in order to avoid VAT fines and penalties. Understanding how to prepare a tax invoice in the UAE is a key responsibility for all businesses. A Tax Registration Number (TRN) must appear on every tax invoice. The consumer ought not to pay VAT if there is no TRN listed on the tax invoice. Various organized businesses offer VAT services in Dubai; one needs to find the business that works best for them.
