The value added tax (VAT) has been launched in Saudi Arabia and the UAE on January 1, 2018. VAT is a consumption tax that is levied by businesses at each phase in the supply chain. Businesses providing restaurant services are required to charge VAT at 5% to its customers. As per the VAT law the value added tax will be levied on all types of food services including Arabic, Asian, Continental, Chinese, fast food chains and other restaurants in.
VAT is applicable on businesses in the UAE having annual turnover of AED 375,000 or more. Many of the restaurant businesses in the UAE are still in the process of figuring out the likely impacts of VAT on the products/ services they provide to their customers. Many of the restaurants in the UAE are not in the process of maintaining proper books of accounts and records of transactions. As per the threshold prescribed to register for VAT, cafeterias and restaurants that are selling goods or providing services of AED 1,000/- on an average will be the ones falling under the category of businesses that will be required to register for VAT in the UAE. In other words, almost all the cafeterias and restaurants conducting business in the UAE will be required to register for VAT.
In UAE, the VAT registered restaurants are required to issue VAT invoices to its customers so that to comply with the VAT laws. As per the VAT regulations, restaurants will be required to issue a simple VAT invoice when goods and services provided are less than AED 10,000 and a detailed tax invoice will be issued by the restaurant when goods and services provided are more than AED 10,000.
VAT registered restaurants in the UAE are required to collect VAT from its customers on each supply as they are authorised by the tax authority to do so on their behalf. Restaurant businesses can claim input credit on the VAT paid on expenses incurred for business purposes. Following are the general cases where restaurants are allowed to claim input tax credit in the normal scenario:
• Purchase of Food items
• Restaurant Rent
• Packing Materials
• Delivery Vehicles
• Equipment used in Kitchen for cooking
• Furniture and Fixtures
• Office equipment’s
Restaurants as well as most of the other businesses in the UAE are required to maintain all the business records and documents for a period of 5 years.
We still have to wait regarding whether the government will introduce an alternative scheme to incorporate small businesses in to the tax bracket in the UAE. Some of the countries where VAT is applicable there are alternative options available for small businesses like compounding scheme as per which a business pays tax on the gross value of sales using a special rate without claiming input tax credit.