Guide to VAT’s effect for Restaurants in the UAE
Value added tax (VAT) is a consumption tax that is charged on each stage of supply of goods and services. VAT is applicable for restaurant services as well in the UAE.
In the UAE, VAT is likely to be introduced from 1st January 2018 and the rate is expected to be 5% for restaurant activity also. There are many small restaurants and cafeterias established in different parts of the UAE. Many of them are not maintaining proper books of accounts and records of transactions. However, the VAT in the UAE will be applicable even for SMEs which are having an annual turnover of AED 375,000/. In other words, restaurants and cafeterias which are making a daily sale of AED 1,000/- on an average will be coming under the VAT threshold. In short, almost all the restaurants and cafeterias operating in the UAE have to register for VAT.
One of the issues that the restaurants and cafeterias will face is whether tax invoice is to be issued and filed for each sales or delivery of services or not.
If the restaurants need to comply the VAT regulations then they should issue the tax invoices for each supply. As per the latest information from the authority either detailed invoice or summary invoice can be used. So far, the format of the same is not released. Majority of the restaurant customers will be end users and hence B2B invoices will not be required for many restaurants.
Restaurants need to collect the tax from its customers on each supply and can avail input credit on the VAT paid on the expenses incurred for the business. Following are the general input tax credit that can avail in the restaurant business in the normal scenario *
- Purchase of Food items
- Packing Materials
- Restaurant Rent
- Delivery Vehicles
- Furniture and Fixtures
- Kitchen Equipment’s
- Office equipment’s
(*Exact items for which the Input Credit can be availed in the UAE can be confirmed only once the relevant regulations are released).
Documentation: as per the provisions of the law, businesses should maintain proper supporting documents for a period of 5 years.
We have to wait, if the government may bring an alternative scheme for small businesses like compounding scheme in which the business need to pay tax on the gross value of sales in a special rate without availing input credit. Such options are available in other countries.