Vat on restaurants in UAE
With the implementation of Value Tax on Added Value (VAT) in the UAE on January 1st 2018. Restaurants, cafes, as well as other food service establishments were required to abide by the VAT rules of 5% that were set by the FTA.
Is VAT applicable to restaurants in the UAE?
Yes. All food and service providers within the UAE are subject to VAT of 5% on the majority of their goods and services, which includes:
- Takeaway and dine-in food as well as beverages
- Delivery and service charges
- Catering services
- Packaged foods
VAT registration requirements for restaurants
Restaurants are required to register for VAT if they:
The annual taxable turnover is more than AED 375,000 (mandatory registration)
Registration is offered voluntarily to companies with a turnover exceeding AED 187,500.
After registration, the restaurant has to:
- Add 5% VAT to all sales applicable
- Issue taxes invoices using Tax Registration Number
- Filing Tax returns (usually every quarter)
- Maintain accurate accounting records for a minimum of five years
How VAT Affects Restaurant Pricing
VAT is a tax based on consumption and must be collected from customers, not paid by the business. This is a reference to:
- Prices should either contain VAT or be clearly identified with the words “exclusive of VAT”
- Receipts should include an explanation of the VAT that was charged
- Incorrectly applying VAT could result in fines.
Input VAT Recovery
Restaurants can reclaim VAT paid on business related expenses, such as ingredients, equipment, and maintenance, provided that valid tax invoices are maintained.
However, VAT on business or personal expenses, such as entertainment or meals for employees, is not tax-deductible.
Compliance in free zones / designated zones
- Restaurants that operate within designated zones or free zones could be qualified to zero-rated VAT on supplies or exports to customers from outside the UAE.
- However, the typical retail supply to consumers in the UAE remains subject to the standard 5% VAT rate.
How does VAT apply to restaurants in the UAE?
There are specific rules for owners of restaurants as well as patrons.
Standard VAT Rate (5%)
Most food and drinks that are sold in cafes, restaurants, and bars are subject to the standard VAT of 5%. This includes dine in and takeaway services.
Exemptions
Products can be excluded from VAT. For example, simple food products or drinks that are not intended for immediate consumption. The exemptions depend on the type of food items and the specific guidelines established by the FTA for them.
Takeaway food
Tax is applied to food delivery the same way as it applies to food served in the restaurant. However, VAT is based on the price of sale, which also includes any other items (such as delivery and packaging).
Steps for restaurants to ensure VAT Compliance
Sign up to pay VAT
Every restaurant with annual tax exempt supplies exceeding AED 375,000 is required to register as a VAT.
Maintain proper records
Keep precise records of all purchases, sales, and expenditures. VAT is not only applicable to sales but also to the operating expenses of businesses and other business costs.
Issue VAT-Inclusive bills
Every bill and invoice sent to customers must include the VAT figure separately, so they can clearly understand the total amount.
Fill out the VAT return
Restaurants are required to prepare regular VAT returns using the FTA generally on a monthly, quarterly, and month-to-month basis, based on the status of their registration. It involves taking the amount of VAT paid and then submitting the corresponding amounts to the federal government.
Make sure staff training is completed.
Proper training for restaurant employees on VAT rules, billing, and customer communication will help prevent errors during the billing process.
VAT Exemptions and Special Considerations for Restaurants
Although VAT applies to the majority of items, there are a few specific considerations that are particularly relevant to the restaurant industry.
Non Standard Items
Certain items such as buffets, may have distinct tax rules. Meals served at a large gathering could be considered different for VAT calculations.
Tax on service charges
When the service charge is added to the invoice, it is essential to note that the charge itself is not subject to VAT unless it is included in the total price of the dining experience.
VAT for Delivery Services
Restaurants that offer food delivery must add VAT to both the meal and the delivery cost. VAT laws can differ depending on whether the delivery charge is included in the meal cost or is billed separately.
How Caviar Accounting Ensures Smooth VAT Compliance for Restaurants
Caviar Accounting and Bookkeeping Services can assist restaurants in the UAE in ensuring compliance with VAT by assisting in various ways.
1. Accurate VAT Registration:
They assist restaurants in registering for VAT through the FTA when the restaurant taxable supplies exceed the mandatory threshold.
2. Tracking and Recording VAT Transactions:
Caviar ensures that all purchases and sales are properly recorded and VAT is applied correctly to each transaction.
This involves tracking VAT for both products and services purchased by restaurants, such as equipment, food items, and other services.
3.VAT Refund Claims:
Businesses that are eligible to receive VAT refunds (such as those that export products or offer certain tax-free services) will be guided by Caviar through the process of filing VAT refunds.
4.Audit Support:
If an audit is required, Caviar provides support by giving all necessary documentation and records to demonstrate compliance with VAT regulations.
Other Services
FAQ
1. Are you aware of any VAT exemptions available to restaurant owners?
Although most restaurants will be subject to the standard VAT rate of 5%. Fundamental items such as milk and bread, could be tax free or exempt at a zero rate.
2. Do restaurants have to provide VAT bills?
Yes, Restaurants must create VAT compliant invoices for any taxable transaction. The invoices should include the VAT amount separately and clearly indicate the total amount.
