GENERAL PRINCIPLES OF VAT

Value Added Tax (VAT) is an indirect tax. It is a type of general consumption tax that is collected
incrementally, based on the value added, at each stage of production or distribution/sales. It is usually
implemented as a destination-based tax. It is also known as goods and services tax (GST) in some
countries.

VAT, a general consumption tax, will apply to most transactions in goods and services. There are only a
few items exempted from VAT in the UAE. A couple of items are zero-rated and the rest of the items are
full rated or standard rated. The criteria for VAT registration will be on the annual turnover of the
business entity. The government has tentatively decided to introduce VAT in the UAE by 01 January
2018. The proposed rate of VAT in the UAE is 5%.

INPUT VAT

Input VAT is the value added tax added to the price when goods are purchased or services are rendered.
If the buyer is registered in the VAT Register, the buyer can deduct the amount of VAT paid from his/her
settlement with the tax authorities.

OUTPUT VAT

Output VAT is the value added tax calculated and charged on the sales of goods and services.

EXEMPT SUPPLY

An exempt supply is a supply on which VAT is not charged and for which the related input VAT is not
deductible..

For example: bare land, local transport, the sale of residential property (second sale onwards) lease of
the residential property and certain financial services..

ZERO-RATED SUPPLY

A zero-rated supply is a taxable supply on which VAT is charged at 0% and for which the related input
VAT is deductible..

For example exports, healthcare, education, international transport of passengers and goods, the first
sale of residential property, medicine, and medical equipment, investment in gold, silver and platinum,
crude oil & natural gas etc..

STANDARD RATE SUPPLY

A taxable supply at the Standard Rate is a supply on which VAT is charged at 5% and for which the
related input VAT is deductible. All items which are not coming under both exempted category, as well
as zero-rated category, are coming under standard rated supplies.

Tax Description

Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax
Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income,
by the Tax Code, as amended, or other special laws.

Who are Required to File Income Tax Returns?

Individuals

Resident citizens receiving income from sources within or outside the Philippines
Employees deriving purely compensation income from two or more employers, concurrently or
successively at any time during the taxable year

Employees deriving purely compensation income regardless of the amount, whether from a single or
several employers during the calendar year, the income tax of which has not been withheld correctly
(i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return

Self-employed individuals receiving income from the conduct of trade or business and/or practice of
profession

Individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or
business and/or practice of profession

Individuals deriving other non-business, non-professional related income in addition to compensation

income not otherwise subject to a final tax

Individuals receiving purely compensation income from a single employer, although the income of which
has been correctly withheld, but whose spouse is not entitled to substituted filing

Non-resident citizens receiving income from sources within the Philippines

Aliens, whether resident or not, receiving income from sources within the Philippines

Non-Individuals

Corporations including partnerships, no matter how created or organized.

Domestic corporations receiving income from sources within and outside the Philippines

Foreign corporations receiving income from sources within the Philippines

Estates and trusts engaged in trade or business

The corporate income tax rate both for domestic and resident foreign corporations is 30% based on net
taxable income. Excluded from the income tax are dividends received from domestic corporations;
interest on Philippine currency bank deposit and yield from trust funds.

Dividends from a domestic corporation or the share of an individual partner in a partnership subject to
tax received by citizens and residents are subject to income tax at 10 percent and 25 percent if the
recipient is a non-resident alien not engaged in trade or business.