VAT Implementation in the UAE

With businesses growing in the United Arab Emirates (UAE), it is essential to consider certain factors like licensing procedures, visa applications, and legal regulations. The UAE government also implemented Value Added Tax (VAT) in 2018 with a standard rate of 5 percent as it helps contribute to the economy, increase Gross Domestic Product (GDP), and diversify its revenue streams. 

VAT implementation in the UAE reduces the country's dependence on the oil and gas sector. It also puts focus on other business sectors of the country. Let us cover the key aspects of VAT filing in the UAE and explore its implications for businesses and the economy.

Eligibility Criteria for VAT Registration in the UAE 

In the UAE, a business is eligible to register for VAT only if the tax supplies and imports exceed the registration threshold of AED 3,75,000. Moreover, businesses are allowed to voluntarily register if the total value of taxable expenses exceeds AED 1,87,500. 

For a non-UAE-based business, taxes must be paid regardless of their value, whereas a local business remits taxes collected from its customers to the government.

How is VAT Collected in the UAE?

VAT is applied at every stage of the value chain process. It begins with the manufacturer selling respective products to the wholesaler, who sells them to the retailer by availing a profit. Once the product reaches the retailer, the selling price is increased to earn profits and sold to the customer.

The registered business collects the amount on behalf of the government. They bear the value-added tax in terms of a 5 percent increase in the cost of taxable goods and services they purchase.

What are the Benefits of VAT Implementation in the UAE?

There are certain benefits which businesses enjoy after the implementation of VAT in the UAE. Let us look at them -

• Implementation of VAT in the UAE mandates diligent maintenance of accounting records and submitting regular VAT returns. 
• Filing VAT returns in the UAE helps your company fulfil the legal requirements and avoid major legal consequences and huge penalties.
• Regular reporting and filing of VAT returns in the UAE provides clarity on business operations.
• Following VAT regulations enable you to expand outside of the UAE, as it is easier to conduct cross-border transactions.
• VAT certification in Dubai helps increase trust among the clients and offers credibility to your business.
   

How to File VAT in the UAE?

There is a step-by-step guide for VAT filing in the UAE. Let us learn about it -

Step 1 - Log in to the Federal Tax Authority (FTA) e-services portal using the registered username and password and use Return Form 201.

Step 2 - Select the VAT option from the navigation menu, click VAT 201, and then on VAT Return. To begin the VAT return filing procedure, click on VAT 201 New Return to begin the VAT return filing procedure.

Step 3 -Enter ‘Tax Registration Number’ (TRN) details., Name and address will be filled in automatically.

Step 4 - Next, details like the VAT return period, the tax year-end return period reference number and the VAT return due date will be auto-populated.

Step 5 - You will need to enter details of standard rate taxable supplies at the Emirates level, zero rate supplies, exempt supplies, supplies subject to reverse charge mechanism, among others

Step 6 - Provide details of purchases or expenses for which you must pay VAT at a 5 percent rate.

Step 7 - The VAT payable for the VAT return period is displayed on the screen.

Step 8 - The total value of recoverable tax for the period, i.e., the total value of input tax, is displayed. 

Step 9 - Provide the required signatory details and check the declaration box on the portal before submitting the VAT return.

Following the above-mentioned steps ensures the completion of VAT registration in the UAE. 

Documents Required for VAT Implementation in the UAE

Some of the documents needed for VAT filing in the UAE are listed below -

• Bank details.
• Copy of the trade license.
• Applicant’s contact details.
• Memorandum of Association (MoA).
• Contact details of the company.
• Turnover declaration for the last 12 months.
• List of Import and Export activities the company engages in.
• Passport copy of the owner/members of the company.
• VAT registration letter if the business is engaged with the customs department.
• Copy of the Emirates ID of the owner/members of the company.

The implementation of VAT in the UAE plays a crucial role in enhancing the country's economy and sustainability. It helps reduce its dependence on the oil sector and allows the government to focus on investing in infrastructure, public services, and development projects. Accurate VAT filing in the UAE helps your business ensure compliance and avoid legal action and penalties.

Business consultants of Commitbiz are well equipped to help you with all related activities for business incorporation. Reach out to us today to learn more.