VAT is all set to be rolled out by Jan 2018. VAT applicability for Traders Under GCC VAT Law is different depending on different scenarios. We will discuss in detail about them in this article.
Businesses and especially traders are eager to know the impact of VAT on their business. Activities of trading business are different from general business activities.
Trading is basically a concept of the buying and selling of ready(not manufacturing) goods or services for further selling to your customers.
In other words, you as a trader do not produce any goods. You are buying ready goods from a supplier and sell it to your customers nationally as well as internationally.
A trader works either sells directly to customers or works as a medium between buyers and sellers.
To download GCC VAT Agreement click on the link below:
We will understand the impact of VAT applicability on traders under GCC VAT Law in different scenarios.
Scenarios of VAT Applicability on Traders Under GCC VAT Law
Let us discuss in detail all 3 below-mentioned scenarios for trading activity and applicability of VAT on them.
- The traders who will buy and sell in the same country where they are registered.
- Traders who will import goods from other country and sell in the country where they are registered.
- Traders who will buy and sell outside the country where they are registered.
1. The traders who will buy and sell in the same country where they are registered.
A trader in this scenario will purchases goods locally and sells them locally. VAT is applicable to both purchase and sales here.
At the time of purchase, the trader will pay VAT on the purchase and is entitled to the recoverable input of VAT paid.
When the trader will sell the goods in the local market he will collect VAT from his customers.
Thus, he will pay the difference of Input and VAT collected to the government.
To easily calculate VAT payable, use our VAT Payable Calculator.
2. Traders who will import goods from other country and sell them in the country where they are registered.
In this scenario, the trader will imports goods from countries including GCC countries. Here, the trader will have to pay VAT on the reverse charge basis and will be entitled to the recoverable input of VAT.
Similar to the first case, the trader will collect VAT from his customers and pay the difference to the government.
3. Traders who will buy and sell outside the country where they are registered.
The third scenario is where a trader will buy and sell outside the country (except GCC countries) where he is registered.
Buying goods from countries other than GCC and supplying to customers in GCC countries, the local laws of VAT will be applicable.
Which means that your customer buying in another GCC country will pay VAT under reverse charge mechanism.
As goods do not enter your country of registration, either while buying or selling the goods VAT applicability on such transactions will be 0%.
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Hi Fahim,
Your articles are very helpful especially on UAE VAT.
Need some clarifications though for scenario 3. Traders who will buy and sell outside the country where they are registered.
1. What is the meaning of 0% in your article, is it zero rated or out of scope? These two although produce the same result as no tax is charged, but it’s different on legal (vat law) perspective.
2. For Designated Zone w/c is treated as out of scope for UAE vat law purposes,
2.1 What is the treatment of sale of goods to KSA, goods from Designated zone exported to KSA?
2.2 What is the treatment of sale of goods to KSA, goods from Mainland UAE exported to KSA?
2.3 What is the treatment of sale of goods to KSA, goods from Outside GCC directly to KSA? Billing of invoice is done in designated zone or mainland UAE.
2.4 What is the treatment of sale of goods to KSA, goods from other GCC directly to KSA?
Appreciate if your could help me clarify these matters.
Thanks,
Shiela
Hi Sheila,
Thanks for the compliments. Happy to know that our articles are helpful and informatory.
Sorry for delay response but was sort of busy.
1. Zero-rated and out of scope has a thin line between them even though the effect is same. Input on Goods exported under zero-rated can be claimed. But for out of scope it cannot be claimed.
For answering you point 2 will need clarification, w/c means with customs or without customs.
2.1 If no custom or vat is paid it will be out of scope and the buyer will pay vat in Saudi under Reverse Charge Mechanism. If you have paid customs and vat it will be claimable.
2.2 As it is an export to KSA and implementing state, VAT is not applicable. My understanding came from the UAE VAT Return format. As Goods sold to Kingdom of Saudi Arabia have N/A Option.
2.3
1) goods are not touching the UAE borders,
2) NO Customs and No VAT paid so out of scope.
3) Billing is Same in both cases Designated zone or mainland.
2.4 If you have paid VAT while buying from GCC Supplier then Tax Invoice will be issued. and Input Claimable. But the supplying GCC country is a non-implementing state then transaction is out of scope.
The answers are to the best of my knowledge. You can consult a tax adviser for further in-depth details.
Thanks
Hi Fahim,
Very informative, really appreciate your time in replying and giving detailed information to my queries.
Thank you and more power!
Best Regards,
Shiela
Hi Fahim,
Thanks for publishing valuable information on website.
Need clarity on Services. Ours is the Co incorporated in the designated zone (UAE)
A} Importing service from non GCC and reselling to 1)GCC mainland 2) Designated zone and 3) Export .
Kindly explain on VAT applicability.
B} If we are making any payment like rent,marketing expenses,Employees benefits, visa expenses etc within GCC and Non GCC , Explain us on VAT applicability.
Hi Vasant,
Click on the link below to get detailed information on your queries:
https://www.tax.gov.ae/awareness_session_material.aspx
Thanks and Regards