Did you know that the UAE is the 20th largest importer in the world? The top imports of the UAE are diamonds, precious metals (mostly gold), jewellery, and cars.
And yes, imports are indeed taxable under UAE VAT law.
But VAT for imports works a little differently than regular transactions between buyers and suppliers within the country.
Wondering how to deal with VAT when you import products into the UAE?
Keep reading or visit our YouTube channel to check out our vlog on the topic.
But first, let’s review how a common in-country purchase transaction works
For a regular in-country purchase, the supplier is responsible for levying the VAT on the product, collecting it from the buyer, and paying it to the FTA.
Essentially, under UAE VAT law, a registered supplier is supposed to charge 5% VAT to the buyer and pay it to the FTA.
This is called “Forward Charge Mechanism” as the supplier adds 5% VAT on the taxable supply and charges it forward to the buyer.
Here’s a quick example to help you grasp the concept.
If Sterling Parts Ltd sells AED 50,000 worth of spare auto parts to Beautiful Autocars Ltd, they are supposed to charge 5% of the total amount as VAT (AED 2,500).
Beautiful Autocars Ltd. then pays AED 50,000 + 5% VAT to Sterling Parts Ltd.
Next, Sterling Parts Ltd should take that AED 2,500 and pay it to the FTA.
Now that you have an idea of how VAT works for regular in-country transactions, let’s uncover what makes VAT on imported products different.
How to deal with VAT when importing products
Apart from the linear supplier-buyer-VAT-collection workflow, UAE VAT Law and Executive Regulations have created another situation where the VAT on certain types of supplies is charged differently.
Here the caveat was defining a process for collecting VAT when the supplier isn’t eligible for VAT payment to the FTA. That is, suppliers who are not legal UAE entities.
So in such cases, who is responsible for paying VAT for imported goods to the FTA?
Yes, you guessed it – the buyer or the importer. And this method of collecting VAT is called “Reverse Charge Mechanism.”
Let’s illustrate this with another simple example.
Sterling Parts Ltd, a registered dealer in spare auto parts and accessories in Dubai, imports spare auto parts worth AED 2500 from China-based Beautiful Autocars Ltd.
Since Beautiful Autocars Ltd is located in China, they are not responsible for VAT payment to the FTA.
But Sterling Parts Ltd, a registered UAE importer, is responsible. And they are required to pay VAT @ 5% on that AED 2500, that is, AED 125 as VAT to the FTA.
Do you have an import business?
Here’s how you can pay VAT on your imports:
Step 1: Link your FTA account with your customs account
Step 2: Check how much VAT is due when you receive a shipment by logging into your account
Step 3: Pay your VAT online or settle it when you file for tax
I hope I was able to clear up some doubts you had about paying VAT on your imported products.
If you have any other specific questions or need 1:1 guidance for tackling VAT for your import business, please feel free to reach out to us.
And, if you found this article helpful, do share it with your friends, family, or colleagues.