Vat Impact on Restaurants

Value Added Tax (VAT) is actually a consumption tax that is levied on the supply of goods and services. It is to note that restaurants are also included under this tax regime.

According to latest reports, VAT is expected to hit the UAE market on 1st January, 2018 and restaurants are likely to pay 5 % VAT. It is also true that there are both big and small restaurants and cafeterias operate in the UAE region and many of them might not upkeep proper accounting records. However, the VAT in the UAE will be applicable even for SMEs with annual turnover of AED 375,000/. As per experts, words, restaurants and cafeterias making a daily sale of AED 1,000/- on an average will be covered under the VAT range. In other words, almost all the restaurants and cafeterias operating in the UAE have to register for VAT.

One big concern of these cafeterias and restaurants is related to the issuance and filing of tax invoice against each transaction.

If the restaurants need to comply with the VAT regulations, it is mandatory for them to issue the tax invoices for each service delivery. As per the latest update by the authority, either comprehensive invoice or summary invoice can be employed for this purpose. Till date, there is no update on the format of the same. Most of customers will be end users and therefore B2B invoices will not be needed for majority of restaurants.

Restaurants are required to collect the tax from its customers on each supply and can choose to get input credit on the VAT paid on the expenses sustained for the business. Below is the general input tax credit that can be fetched in the restaurant activities generally:

  • Purchase of Food items
  • Packing Materials
  • Restaurant Rent
  • Delivery Vehicles
  • Furniture and Fixtures
  • Kitchen Equipment’s
  • Office equipment’s
  • Stationary

As per the updated documents, it is mandatory for businesses to furnish supportive documents for a period of 5 years.

However, it the government plans to introduce an alternative system for small businesses such as compounding scheme, they need to wait. This system enables businesses to deposit tax on the gross sales value at a special rate without opting for input credit. It is to note that such systems are available in other countries.