Value Added Tax (VAT) has become a critical component of the UAE's business landscape since its introduction in 2018. At 5 percent, this consumption tax affects every business transaction in the country, requiring proper registration, documentation, and quarterly filing.
Whether you are establishing a new business or ensuring your existing operation remains compliant, understanding the VAT requirements is essential for avoiding penalties and operating successfully in this market. Read this article to gain a detailed understanding of VAT in UAE.
How Does VAT Work in UAE?
VAT in UAE is added to goods and services at every step along the way, from the manufacturer to the final sale. Businesses collect VAT from customers when they sell something, as well as pay VAT when they buy things for their own business, like materials, equipment, or rent. Companies can subtract the VAT they have already paid from the amount they have collected, and then just pay the difference to the government.
What is the Importance of VAT Registration in UAE?
VAT implementation in UAE marked a major step towards building a more sustainable and diversified economy. Any business registered for VAT in UAE with the Federal Tax Authority (FTA) is acknowledged as an authorised supplier of goods and services.
Value Added Tax in UAE is imposed on non-essential consumer goods. Anything apart from basic food and essential commodities would fall in this taxable bracket. It includes automobiles, electronics, jewellery, restaurant services, and entertainment.
Should All Businesses Register for VAT in UAE?
There are two types of VAT registration in UAE, namely mandatory and voluntary registration for VAT in UAE. The registration depends on the earnings made by the business setup in UAE. While some businesses fall under voluntary VAT registration parameters, some get exceptions from VAT. Let us understand the details of voluntary and mandatory VAT registration in UAE.
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Mandatory Registration
You will be required to register if you are a business that is resident in the UAE, and you are making taxable supplies and imports of goods or services in the UAE, and either:
- Your turnover was more than AED 375,000 in the last 12 months, or
- You expect your turnover to be more than AED 375,000 in the next 30 days.
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Voluntary Registration
You can opt for voluntary registration in scenarios where:
- Either your total value of taxable supplies and imports or taxable expenses (which were subject to VAT) were more than AED 187,500 in the last 12 months, or
- You expect either your turnover or expenses, which were subject to VAT, to be more than AED 187,500 in the next 30 days.
Categories of Supplies Under UAE VAT Law
There are four categories of supplies that are identified under UAE VAT law. Let us have a look at them:
- Taxable supplies - These are goods and services that are charged VAT at the standard rate.
- Zero-rated supplies - VAT is imposed at zero rate on these supplies.
- Exempt supplies - VAT exempted supplies.
- Out of Scope supplies - These are supplies that fall completely outside the VAT system.
How to Register for VAT in UAE?
Registering a business for taxes can seem like a daunting task, but with the assistance of Commitbiz business setup consultants, the process is made simpler. Let us have a look at the steps:
Step 1 - It is essential to create an account on the FTA portal. Our team will handle this right from the initial registration process, ensuring all the necessary business details are accurately entered and verified in the system.
Step 2 - Provide the required documents to our tax consultants to ensure that the business can be registered for VAT. Some of the documentation needed includes a copy of the Emirates ID, passport, trade license, and financial statements.
Step 3 - After our team has submitted the application form and documentation, the authorities will review the application thoroughly to ensure all requirements are met. Once approved, the Tax Registration Number (TRN) and the VAT certificate will be provided.
Can Businesses make Amendments to VAT Registration in UAE?
Yes, businesses can make amendments within 20 working days if there is any change in the business that requires an update for the purpose of tax records. Our team can help you submit amendment requests through the FTA portal, ensuring all modifications are properly documented and approved by the tax authorities. Let us look at what VAT amendments can be made:
- Addition/removal of branches.
- Changes in the legal and ownership structure.
- Changes in the Emirates ID/passport of the authorised signatory.
- Changes in details related to the bank account and import-export.
- Changes in Memorandum of Association (MoA) or Articles of Association (AoA).
- Amendments in the Emirates ID/Passport of the directors, partners, owners, and more.
- Amendment in the company's trade name, license, registered address, business activities, and contact details
What is VAT Refund in UAE?
VAT refund in UAE is a mechanism through which businesses can recover excess VAT paid on purchases (input tax) when it exceeds VAT collected on sales (output tax). However, during this process, you must provide certain documents showing proof of your claim. Our team can help you prepare and submit accurate refund applications, including submitting documentation such as tax invoices, financial records, and more.
Why Should Companies Opt for VAT Services in UAE?
Understanding the tax landscape in UAE can be complicated, which is why availing expert services is essential. Tax experts can help with the following:
- Optimised VAT recovery to minimise costs.
- Assistance with VAT audits and dispute resolution with the FTA.
- Avoidance of penalties due to late filings, incorrect submissions, or missed registrations.
Which Value Added Tax Services Does Commitbiz Provide?
Managing VAT can be complex, but partnering with experienced VAT service providers can provide significant advantages. Check out VAT services in UAE provided by Commitbiz:
- Assistance with VAT-related disputes and communication with the FTA.
- VAT registration and deregistration.
- VAT consultancy and audit support.
- VAT return filing and compliance.
- VAT refund processing.
How Can Commitbiz Help?
With the introduction of VAT in UAE, there are considerations that businesses would have to take care of with regard to tax consulting. This includes keeping up with changing requirements, maintaining accurate financial records, and meeting deadlines set by the authorities. At Commitbiz, we support businesses in navigating these obligations, helping them stay on track with their VAT responsibilities and avoid potential penalties. We also help with accounting and bookkeeping, VAT compliance, and other tax-related services. Contact us in case of any queries.
What are the penalties for VAT non-compliance?
Businesses that fail to register for VAT within the set timeframe are subject to a fine of AED 10,000. However, those who do not submit or provide incorrect VAT returns are charged between AED 1000 to AED 50,000.
What are the penalties for not updating tax records with the FTA?
If a business does not update its tax records with the Federal Tax Authority (FTA) on time, it will be fined AED 5,000 the first time. If this happens again, the fine will increase to AED 10,000.
What goods and services are exempt from VAT in UAE?
Common VAT-exempt items include residential property leases, local passenger transport, and financial services.
What are zero-rated supplies under VAT in UAE?
As per the UAE VAT rules, some zero-rated supplies in the country are goods and services that are subject to VAT, but at a rate of 0%. To put it simply, you don’t collect any VAT from customers on these supplies. It needs to be mentioned here that you can claim the input tax credit for any VAT you paid on expenses related to those supplies.
Are there any VAT exemptions for foreign businesses?
Foreign businesses must comply with UAE VAT rules if they are doing business in the country. However, certain exported goods and services may be zero-rated or exempted.
How and when are VAT returns filed?
VAT returns are generally filed quarterly, or as specified by the FTA. Returns must be submitted within 28 days after the end of the tax period.
Are non-residents required to register for VAT?
Yes. Non-residents who make taxable supplies (such as sales of goods or services) in the UAE must register for VAT. The registered non-residents are responsible for accounting for VAT on their taxable supplies and ensuring they comply with the UAE VAT regulations set by the FTA.
Do tourists in the UAE pay VAT?
Yes, tourists pay VAT on purchases, but they can claim refunds on eligible goods via the "Tax Refund for Tourists Scheme" at approved retailers and airports.
Do branches require separate VAT registration?
No. All UAE branches of a company are covered under a single VAT registration of the parent entity.
What records should be maintained and for how long?
Businesses must keep records like tax invoices, accounting books, balance sheets, and VAT returns for 5 years (general rule) and 15 years for real estate-related records.
When should you deregister from VAT?
You must apply for VAT deregistration if you stop making taxable supplies, or your taxable turnover drops below AED 187,500, or if there is a change in the legal entity. Businesses must apply for deregistration within 20 business days of eligibility to avoid fines.
How can Commitbiz help with VAT compliance?
We handle end-to-end VAT support, including registration, return filing, advisory, compliance checks, and liaising with the FTA to ensure smooth operations.