How Businesses Can Claim VAT Refund in the UAE
Since the introduction of Value Added Tax (VAT) in the UAE on 1st January 2018, economists have tried predicting its impact on businesses and the residents’ finances. As a general consumption tax, VAT applies to the majority of transactions in goods and services at a rate of 5 percent.
The UAE government introduced VAT with the aim of reducing its dependence on oil and other hydrocarbons as the main source of revenue. The objective of VAT is to generate supplementary revenues that would contribute 1-2 % of total GDP.
Here are some of the important implications of VAT in the UAE economy:
Impact On Consumer
Consumer confidence tracking surveys focused on the first quarter of 2019 revealed that 21 percent of the respondents are now more confident about their finances than they did a year ago as compared to the 22 percent in Q4 and the 14 percent in Q3 of 2018. This indicates that concerns regarding VAT appear to lessen. This lead to a lot more people getting comfortable with their current financial situations.
One of the primary reasons for this change is the VAT refund laws. Businesses and tourists are now claiming VAT refund for their purchases, which ensure stability to the cash flow in the current economy. The decrease in retail spending and services are also now balanced due to the macroeconomic changes brought in by VAT refund.
VAT Refund Procedure
Presently, all registered businesses must file a VAT return, which provides the details of sales and input/output VAT paid during the time of the tax. The money collected on the sales is the output VAT while the money paid to the supplier that adds to the expenses is the input VAT of a business.
If the input VAT is lesser than the output VAT amount for a business, the difference or VAT payable must be paid to the FTA. On the other hand, if the input VAT is higher than the output VAT amount, then the extra amount is the VAT refundable, that can be claimed by the business owner. Any taxpayer in the UAE can claim a VAT refund. If not reclaimed, the excess input VAT is carried forth towards subsequent tax periods to be used as an offset against payable tax.
Taxpayers can directly register their business with the official website of Federal Tax Authority(FTA). After the online submission of the details, the FTA will process the refund and send you email notifications accordingly.
Businesses are entitled to a refund only on registering their business under VAT and charge the 5% VAT reasonably. Any amount of inappropriate VAT charged on goods and services are not refundable, which will ensure that the end customers only pay tax on what is required.
Additionally, the FTA passed the Tourist VAT refund rule on the 18th of November 2019, allowing foreigners making purchases while on vacation in the UAE to start claiming back the VAT charged on their purchases. Tourists can claim refunds at Abu Dhabi, Dubai, and Sharjah International Airports. Each traveler is entitled to cash backs worth up to Dh10,000 daily, with a 15 percent administrative fee and 4.8 percent tag fee per claim.
For more details on the VAT refund rules and compliances, feel free to reach out to us at Senat MEA DMCC.