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 for those of you who had this difficulty. And decided that your knowledge, it is the basis of understanding your future business and finances.
– А supply refers to goods or services that are exchanged for consideration. This exchange happens through transactions between two persons. 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 we use to calculate the tax:
- PLACE (supply happens in or outside UAE for VAT purposes),
- VALUE (taxable value and its amount of tax),
- 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: The tax is at 0%.
- VAT-exempt supply: the VAT implementation does not affect the supplies
- Out-of-scope supply: if the supplier is overseas or non-registered, the transaction is out-of-scope for VAT in the UAE.
- Deemed supply: these are goods or services that you buy for business purposes but that you use later for private use, or as gifts or samples
- Composite supply: A composite supply occurs when you sell two or more goods or services together as a set.
Reverse charge mechanism
Normally the taxable person providing supplies to customers is responsible for charging VAT. He or she is 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. In a reverse charge, the buyer the goods or services has the responsibility of it, not the seller.
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,
- Procurement of refined oil by a registered supplier to a registered recipient in the UAE,
- Provision 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.
For more information, contact us !