UAE Federal Decree-Law No. (8) of 2017 on Value Added Tax provides that the standard Value Added Tax rate in the United Arab Emirates is 5%, applied to every taxable supply or import, subject to the exceptions set out in the provisions on the zero rate and exemptions contained in the same Decree-Law.
Scope of the Tax
The Decree-Law defines the scope of the tax by stating that it is imposed on every taxable supply and deemed supply made by a taxable person, and on the import of concerned goods, except as specified by the Executive Regulation of the Decree-Law. The scope therefore covers both the supply stage and the import stage, not domestic supply alone.
- Taxable supply: a supply of goods or services for consideration in the course of conducting business within the State.
- Deemed supply: cases treated as a taxable supply under the situations specified in the Decree-Law, even in the absence of an actual supply for consideration.
- Import of concerned goods: imported goods that would not be exempt from tax had they been supplied within the State.
The Standard Tax Rate
Article (3) of the Decree-Law provides that, subject to the provisions on the zero rate and exemptions, the tax is imposed at a standard rate of 5% on any supply or import, calculated on the value of the supply or import determined in accordance with the Decree-Law. This rate is the general rule applied to most supplies in the State unless the Decree-Law expressly provides otherwise.
How the Tax on a Supply Is Calculated
The tax is calculated by applying the standard rate to the value of the supply or import determined under the Decree-Law, that is, to the consideration agreed between the parties to the supply after excluding the tax itself, so that the tax amount is added on top of the net value of the good or service rather than being deducted from its quoted price unless otherwise agreed or provided.
Cases Not Subject to the Standard Rate
Not every supply is subject to the standard 5% rate without exception; some supplies are subject to the zero rate in the cases specified exclusively in the Decree-Law, such as exports outside the Implementing States, while others are wholly exempt from tax under specific conditions. A registrant may also, in specified cases, calculate the tax on the profit margin realized rather than on the full value of the supply, in accordance with the conditions set by the Executive Regulation.
Illustrative Example
Illustrative example: where a registrant makes a taxable supply, the tax due on that supply is calculated at the standard rate of 5% of the value of the supply determined in accordance with the Decree-Law, unless the zero rate or an exemption under the Decree-Law applies to that supply.
Legal References
- Federal Decree-Law No. (8) of 2017 on Value Added Tax — Article (2) and Article (3)
For questions about your specific situation, you can ask the UAE Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.