In the United Arab Emirates (UAE), VAT payment refers to the process of VAT-registered businesses remitting the tax they’ve collected to the government. Starting from January 1, 2018, UAE businesses registered for VAT are obligated to apply a 5% VAT on the taxable supply of goods and services. Similarly, when these businesses purchase goods or services from their suppliers, they must pay a 5% VAT.
It’s commonly understood that VAT collected by registered businesses must be forwarded to the government, but the exact procedure can raise questions. Do businesses need to pay the full amount of VAT collected on their sales? Is there a method for determining the VAT owed to the government?
Don’t worry; we will address these questions in detail.
Before we delve into these questions, let’s grasp the concepts of ‘Output VAT’ and ‘Input VAT,’ which will help us ascertain the VAT payment to the government.
Output VAT is the amount collected by businesses when they make taxable sales. Conversely, Input VAT is the amount businesses pay when they make taxable purchases from their suppliers. The Input VAT amount paid by a business is ultimately remitted to the government by the supplier. Consequently, the government allows the recipient or buyer to benefit from the Input VAT and permits them to offset it against the Output VAT, only paying the remaining balance. To learn more about this, you can refer to ‘How the VAT System works.’
While this may seem advantageous, there are specific conditions and restrictions for claiming input tax.
By now, most of your questions regarding VAT payment have been answered. However, for clarity, let’s discuss this in more detail.
Method for Determining VAT Payment in UAE
The formula for calculating VAT payment in the UAE is straightforward. Simply add up your total Output VAT collected during the tax period and your total eligible Input VAT for recovery. After determining these figures, apply the following formula:
Sure, here’s a rewritten version of the equation:
Value Added Tax Payment = Sales Tax Collected – Tax Paid on Purchases
For example, let’s consider Rose General Stores, with the following figures for Output VAT and Input VAT:
Output VAT: AED 300,000
Input VAT: AED 200,000
The VAT payment for Rose General Stores is calculated by deducting Input VAT from Output VAT, as shown below:
Output VAT (AED 300,000) – Input VAT (AED 200,000) = VAT payable, which amounts to AED 100,000 to be remitted to the government. This process makes it simple to determine the VAT payment.
Now, what happens if Input VAT exceeds Output VAT?
That’s a valid question. In certain scenarios, a business’s Input VAT might surpass its Output VAT. In such cases, the excess Input VAT becomes refundable and can be carried forward to the next return period, where it can be utilized to offset future VAT liabilities.
You can also register VAT Registration in our website: