Complicated VAT Calculation Products in UAE
There are some Complicated Zero VAT Items in UAE.
In this category, certain items are not taxable at the first stage and taxable at the next stage. Also, there are items that become taxable when the purchaser changes.
In the first Category of Zero Tax Items, Telecommunication products come in a tricky or complicated category.
The prepaid card of Telephone and internet cards are not having any Tax. They come under the ZERO VAT category. This treatment is only for card sales. When a customer uses the balance in the card, the usage is taxable.
For example, if a person uses AED10.50 out of AED 50 dirhams balance in the card, the total balance available will be 39.50 for further use.
But, out of the used 10.50, AED 10 goes to Telecommunication company and 50 Fils (AED 0.50) goes to Federal Tax Authority as VAT at the rate of 5% of the usage.
Another example of a Taxable and Non-taxable situation of the same item is a Free Zone sale. If an item is sold to a reseller or an agent from a Free Zone, there will not be any tax. It is treated as a ZERO TAX item. But in case of a sale to an individual, the same item will have the normal tax rate of 5%. This is due to end-user consumption.
The reseller will collect VAT from his end-user. But if the end-user directly approaches the non-tax area, the item becomes a Taxable item.
EXEMPTED FROM VAT
In the exempted category, the following are the segments EXEMPTED FROM VAT
- Finance related service
- Life Insurance and Re-insurance contracts
- Transfer of Shares, debentures and related securities
- Buildings of Residence purpose
- Bare Land in UAE
- Transport Services
- Medicines and Medical items brought through Ministry of Health
- Telephone Prepaid cards except usage of service
- Taxes and Refunds collected for Government
In the Financial Services category, the following are some of the activities exempted: money or currency changes, Salary, salary advances, loans, etc. But commission and service charges on these transactions are not exempted. The normal rate of 5% will apply to those service charges. Shares-related transactions are also exempted.
Bare land purchased for building residence or other constructions is exempted.
All Medicines including lifesaving ones, its equipment is exempted if they are channeled through the Ministry of Health in UAE. Private purchases and imports are taxable at 5%.
Telephone cards are exempted. But usage of its value is taxable. The usage of credit balance in the card will be taxable.
In transport services, not all transport services are exempted. Rent A Car service charges are taxable at a normal rate. But using a transport service with driver is exempted. Eg: Uber or Ola taxis.
Life insurance and reinsurance activities are exempted from VAT,
There are also ZERO TAX segment. Items in Zero Tax segment in the UAE are as follows:
- Goods and Services exported out of GCC countries
- Transportation of International destination
- Some Air and Sea Transportation Services
- Gold, Silver, Diamond and some similar precious metal trade
- Items sold to Agent from a Free Zone, but items sold to individuals are not zero tax ones.
Please note that in the Transportation segment, zero rates is only for Cars and Transportation services with a driver. Like in the case of Dubai Transport and Sharjah Transport cars, UBER & OLA services Etc.
A Car taken from a car rental company will have VAT when we pay the rental due.
Complicated VAT Calculation Products in UAE
