Expert Tips to Simplify Your VAT Calculations in Dubai
Staying compliant with tax obligations is crucial for every business operating in Dubai. As a business owner, it’s natural to wonder how is VAT calculated in Dubai? To help you calculate your tax obligations transparently, we have demonstrated the process of calculating VAT. This should enable you to fulfil your tax obligations efficiently.
Value-added tax is charged on goods and services at every point where some value is added to the supply chain. So, it starts from production and is levied to the point of sales. Therefore, VAT is levied as a sales tax on chargeable products.
Being one of the esteemed VAT Consultants in Dubai, we can help you with your VAT calculation.
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How is VAT calculated in Dubai?
If your organization is already registered for VAT, maintaining accurate financial records becomes imperative. Being a registered business, you need to charge 5% VAT on the value of invoices from all your customers. Besides, you must pay 5% VAT on the goods and services purchased from retailers or dealers.
VAT is calculated at a rate of 5% based on the transaction value. This includes the sales amount, transportation charges, or freight charges during transactions. Since the government of the UAE doesn’t collect the tax directly, businesses need to charge VAT from their customers. The difference between the VAT amount charged and the amount paid is paid to the tax authorities, or is refunded. This is the exact amount you need to pay as VAT.
To calculate VAT accurately, use the following formula.
- VAT= Output Tax– Input Tax
- Output tax refers to the tax that you collect from your customers on your sales or services
- Input tax refers to the tax you pay to retailers or dealers on your purchases.
Now, if the VAT paid out by your business exceeds what you pay in, you need to pay the difference as VAT to the government. On the other hand, if the VAT paid in is greater than the one paid out, you will receive a refund. In this case, you won’t have any VAT due.
Since we specialize in VAT Advisory in Dubai, we can help you calculate the right VAT amount.
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VAT Calculations in Dubai - FAQs
The standard rate of VAT in Dubai is 5% on the value of the invoice. For instance, if the price of a product is AED 1000, the input VAT would be AED 50.00 (1000 x 5%).
All businesses in Dubai that have registered for tax need to pay VAT to the government. As a VAT-registered business, you need to collect the tax from the end users on behalf of the government.
Typically, businesses need to pay the VAT while purchasing goods from dealers and apply for a refund. To qualify for a VAT refund, your need to purchase items over a minimum amount.
If you have been thinking about how VAT is calculated in Dubai, you should be able to calculate the amount now. At IMC Group, our dedicated team helps clients calculate the correct VAT amount and assists with filing returns.
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