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Frequently Asked Questions on VAT

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How will business owners calculate their VAT?

Businesses should keep track of their sales purchase and expenses including the tax paid on the same. The tax payable by for a particular taxpayer is equal to tax collected on output (sales) - tax paid on input (purchases).

Let’s look at an example of how to calculate output and input VAT.

Suppose you own a coffee shop and spend 100,000 AED towards obtaining raw materials. The input tax rate is 5%, so the input tax you pay is 5% of 100,000 AED = 5,000 AED.

Now after selling coffee using the purchased raw materials, you make sales of 200,000 AED. Supposing 5% is the output tax, the output tax you pay is 10,000 AED.

So, final (net) VAT payable by you will be  10,000 AED - 5,000 AED = 5,000 AED.

In the VAT settlement, you deduct input VAT from output VAT. The resulting amount must be reported to your regional tax office. As you can see, you only pay tax to the state on the value your enterprise has added to the goods. (If your purchases exceed your sales in any one period, the difference will be negative, and the difference will be refunded).

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