VAT stands for Value Added Tax, and is levied on the majority of goods and services in the GCC (Gulf Cooperation Council) countries, except essential commodities such as basic food and medication. It is being applied in the GCC countries to promote economic diversification and fiscal sustainability.
A business only needs to register for VAT if its annual revenue exceeds a particular threshold. This limit will vary depending on the GCC member state, but the general figure is USD 100,000. When you register for VAT, the FTA (Federal Tax Authority) will assign you a Tax Registration Number (TRN), which is a 15-digit unique identifier. You can configure your tax settings using this TRN number.
If your business is VAT registered, you need to have several responsibilities to stay compliant with FTA. You wil neeed to
- Charge the standard rate of 5% to all taxable goods and services.
- Produce VAT compliant invoices to your customers which must include VAT amount, tax registration number (TRN), and other required details.
- Pay the VAT collected from your customer to the FTA before the due date.
- File VAT returns on a regular basis (monthly, quarterly, or annually) as agreed upon with the FTA, presenting the collected VAT on sales and the paid VAT on purchases.
- Keep accurate records of all your revenues and expenditures from your orders, invoices, and purchases for at least five years. These records contribute to accurate VAT return filing, and may be required during an FTA audit.
In order to fulfill these responsibilities and avoid FTA penalties, fines, and other enforcement measures, you must configure your tax settings in Zakya. You cannot apply tax rates to your transactions until you configure your tax settings.
Setup your Taxes
- Navigate to Settings > Taxes > Tax Settings.
- Toggle Yes for the s your business registered for VAT?I option.
- Enter your Tax Registration Number (TRN) provided to you by FTA, and enter the VAT registered on date.
- Click Save.
Tax Rates
Once you enable the tax, the below tax rates that will be shown.
Standard Rate: 5%
This tax rate is applied in the vast majority of business transactions in the UAE.
Zero rate: 0%
Zero-rated supplies include:
- Exports of goods and services outside the GCC.
- International and intra-GCC transportation.
- Supplies for certain sea, air, and land modes of transportation (such as aircraft and ships).
- Provision of specific educational services, as well as other associated goods and services.
- Providing specific healthcare services, as well as related goods and services.
- The Financial and Economic Cooperation Committee will ratify a uniform list of eatables across the GCC.
- The oil sector and the oil and gas derivatives sector (at the discretion of each member country).
- Additionally, each member state can be zero rate or VAT-exempt: (the Educational sector, the Medical sector, the Real Estate sector, and the Local Transport sector).
Out of Scope
If the supply of any of your goods does not fall under the scope of VAT, then you can select this option while creating transactions for them in the Zakya web application.
Default Tax Rate
Standard Rate (5%) will be marked as default tax since this will be applied to the majority of the items as VAT guidelines defined by FTA. If the item doesn't have any tax rate defined, then the tax marked as default will be populated while creating the transactions.
Add tax rates to Items
Based on the tax treatments, you can set your tax rates for your goods and services. Once you set item tax rates, it will get auto populated once you create invoices for them.
- Navigate to the Inventory module and select Items.
- Click New + at the top of the page.
- Navigate to Taxes and select the tax applicable for the item.
- Click Save.
