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What Is The Difference Between Sales Tax and VAT?

If you are in the UAE, you must be well aware of the VAT regulations and rules there. As VAT is implemented in collaboration with other GCC countries, UAE should also follow the rule of being one of the parts of the GCC. However, although accounting service include several services, there are many people who get confused among the two terms: Tax and VAT.

Today in this guide, let’s look into the definition and major differences between the two.

What Do You Mean By Tax?

Tax can be described as the means by which governments collect revenue to pay for all the public facilities and services. To be more precise, Taxes collected for Government revenues are used to cover maintenance and amenities like schools, universities, public hospitals, infrastructure, defense, and all the other essential aspects of daily life.

Generally, there are two types of taxes: direct tax and indirect tax.

What Do You Mean By VAT (Value Added Tax)?

To begin with this, Value Added Tax (VAT) is an indirect tax. Usually, it may be defined as a general type of consumption tax. A country that has a VAT system has a great GDP too. VAT is generally imposed on supplies of goods, items, and services that are sold and bought.

Taking the entire world into the picture, VAT is one of the most preferred and common types of consumption tax found. More than 150 countries around the world have adopted the finest accounting services including the VAT, its equivalent, or Goods and services system. To name a few, these countries include European Union (EU) members, New Zealand, Singapore, Canada, Australia, and Malaysia.

VAT is charged at every step of the supply chain. The end consumers usually accept and pay the VAT cost. However, businesses collect and account for the tax where it acts as a tax collector on the behalf of the government.

Generally, businesses pay those taxes to the government that it gathers from their customers. Meanwhile, businesses can get a VAT refund from the government levied on the tax that it has paid to its suppliers.

What Is The Distinction Between Sales Tax and VAT?

To begin with the distinction, let’s clear the concept that similar to VAT, a sales tax is a sort of consumption tax as well. Although the public might see no visible differences regarding how the taxes work, there are some major differences among them.

In most countries, sales tax is imposed on transactions and dealings that involve goods. Moreover, sales tax is imposed on the final sale to the end-users. However, VAT is imposed on both goods and services. Also, it is charged throughout the process of the supply chain along with the final sale process.

Moreover, VAT is also levied on goods and services imports for ensuring that a level playing field is managed for domestic providers of the same services and goods.

An Interesting fact is that many countries opt for accounting services that include VAT instead of sales tax for a bunch of reasons. Significantly, VAT is a better and more sophisticated take over taxation. This is because it tends to make businesses act as tax collectors on behalf of the government. This even eliminates the misreporting and tax evasion on a good note.

Which Businesses Should Go For Registering VAT?

To speak about who needs VAT registration, below is a list of businesses.

  • A business should opt for VAT registration in case the taxable imports and supplies cross the necessary registration threshold of AED 375,000.
  • Businesses can also opt for a bar registration if their imports and supplies are lower than the essential registration threshold but cross the voluntary threshold of AED 187,500.
  • Businesses can register voluntarily if their expenditures get over the voluntary registration threshold. This is initiated for businesses that are Startups and have zero turnovers for VAT registration.


That said, this was a guide that discussed the chief differences between sales tax and VAT. However, if you wish to know more about accounting services, reach out to the experts at SA Consultants UAE. The team is well equipped with all the necessary expertise required to help you with a proper VAT guide and VAT refund in the UAE.

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