The moment when you are VAT registered seems like conquering the top of a mountain, and like everyone else you think you’re finally done with the well-known nightmare – VAT registration. Then suddenly one by one, the question arises: “What’s next? What is reverse charge? What is a supply under VAT?” The continuation of this text is intended for those of you who have encountered this difficulty and decided that your knowledge, whether you want to admit it or not – It is the basis of understanding your future business and finances.
– А supply refers to goods or services that are exchanged for consideration, through transactions between two persons of which at least one is a registered taxpayer. Buying, selling, and stock transfers are all supplies, even if there is no exchange of money. This means, whenever goods or services are supplied by a registered person, 5% VAT needs to be charged if its not zero rated supply or exempt.
A supply under VAT has three attributes that are used to calculate the tax owed for the transaction: PLACE (supply is made in or outside UAE for VAT purposes), VALUE (taxable value and the amount of tax that has to be paid for it), and TIME (VAT period the transaction falls under).
When we talk about types of supply under VAT, we can find several different divisions:
- Standard rated supply – The standard VAT rate of 5%
- Zero rated supply – Zero rated supplies are taxed at 0%.
- VAT-exempt supply – Supplies which are unaffected by the VAT implementation
- Out-of-scope supply – overseas supplier or a non-registered, that will be considered out-of-scope for VAT in the UAE.
- Deemed supply – goods or services bought for business purposes but are later used for private use, or used as gifts or samples
- Composite supply – A composite supply occurs when two or more goods or services are sold together as a set.
Reverse charge mechanism – Normally the taxable person providing supplies to customers is responsible for charging VAT and also liable to pay the VAT charged to the tax authority. Under the reverse charge mechanism, the buyer or end customer pays the tax directly to the government. The main difference between a reverse and forward charge is the change in responsibility with regards to paying VAT as in a reverse charge the responsibility is shifted from supplier of the goods or service to the buyer of it.
You can apply for reverse charge in these circumstances: Import of goods/services from other GCC and non-GCC countries, Supply of hydrocarbons for resale by a registered supplier to a registered recipient in the UAE, Supply of refined oil by a registered supplier to a registered recipient in the UAE, Supply of processed/unprocessed natural gas by a registered supplier to a registered recipient in the UAE , Production and distribution of any form of energy supplied by a registered supplier to a registered recipient in the UAE.