UAE's implementation of VAT raised a lot of questions in the mind of the business community and the companies. However, what would be the treatment of VAT on Financial Services? remained a big question.

Under the new VAT Guideline, let us review the treatment of VAT on different financial services.

Exempted

Below mentioned are the financial service that is exempted from VAT.

Financing (e.g., interest spread)
Security trade profits including shares and trades
Forex spreads
Financial derivative margins
Life Insurance or Family Takaful

Standard Rated (5%)

On the following items, VAT is applied:

Arrangement Fees
Brokerage Fees
Custodian fees
Investment management fees
General insurance or General Takaful

Zero-rated (0%)

Items with Zero-rated VAT are:

Trade financing for exports including LC
Financing outside GCC including property that is located outside GCC

Out of scope (Nil)

Financing (Principal Amount)
Dividends
Buying or selling of underlying assets for the sake of Islamic transaction as well as penalty charges including the early settlement fees

Impact of VAT on Financial Services

Different financial services including that of Islamic finance products are totally exempted from VAT. Considerations received for the sake of bank services will be subject to the VAT rate of 5%. The margin-based services will be exempt from VAT but those of the fee-based services will be taxable. No fixed recovery rate will be adopted.

It is aimed to achieve neutrality between both Islamic as well as conventional products in order to treat both product types equally.

Pay Zero or No VAT on these types of Goods and Services in UAE

Domestic Taxable Supplies

A business registered under VAT in UAE is charged 5% VAT on all the local goods and supplies in UAE.

The VAT that is collected from the customers is called output tax. One thing that must be made sure regarding output tax is that is should get reported in the VAT return. The taxable rate, in this case, would be 5%.

Reverse charge

There are certain notified supplies on which the VAT registered businesses need to pay VAT. On Imports of goods and supplies from other countries, the standard rate of VAT will be applied. Such businesses that import goods and supplies from other countries can claim the VAT back as input tax or not claiming any extra tax. This is the reason why these supplies are called reverse charge supplies because they can be claimed back again as input tax for avoiding any extra tax.

If someone imports any sort of accessories in Dubai, like imports any spare parts from any other country, then 5% VAT will be applied to the registered importer. Such an importer can claim input tax so that there is no extra tax payable on the transaction.

The Difference Between Zero-Rated VAT and Exempted VAT

Zero-rated supplies

The VAT can be charged at zero rates on the supply of different goods and services including export goods and services. 0% VAT is implemented on such supplies.

If a dealer in Dubai exports goods and supplies to some other county, 0% VAT will be applied.

Exempted supplies

There are different goods and services including financial, residential, or other transportation services which are exempted under VAT in UAE. There is no VAT implemented on such services.

If a person deals with local passenger services, he will not come under VAT in UAE as local passenger services are exempted from VAT. Education and healthcare services are also exempted from VAT.

Intra-GCC Supplies - B2B

If the recipients are registered in any of the GCC implementing states, the supplier registered under VAT will not be required to charge such people with VAT in UAE. No VAT is implemented in such a case.

If a person in Dubai supplies spare parts in any other country like that of Saudi Arabia, the supplier will not be allowed to charge VAT ON the Saudi customers.

If a supplier who is registered under VAT supplies any goods to someone who is not registered in the implementing state, 5% VAT will be applicable.
If a registered supplier supplies goods to a person in the non-registered implementing state but the value of the exports exceeds the mandatory VAT registration threshold in UAE, no VAT will be applicable.

Vat Services in Dubai

There is so much about VAT and particularly VAT on financial services that one must need to know. You can get the best knowledge about VAT and its implementation on certain goods and supplies from the VAT Consultants, Farahat and Co. They present to you the finest VAT services you might not have any idea about. If you do not have a hold on VAT in UAE, FAR is here to help you in the best manner. They will evaluate everything for you without burdening you in one way or the other. This is not all. They help you make your business better every passing day so you do not get troubled by the changing rules and regulations. So, do not get feared if you face any issues regarding VAT. Contact us and take any information you need regarding VAT.