VAT refers to Value Added Tax. It was introduced in the UAE in 2018. Here’s all you need to know about it.
VAT is the consumption tax applied on a good as its value increases at each stage of its production or distribution. It's an indirect tax related to a taxpayer’s consumption and not their income. The VAT is applicable in more than 160 countries.
When did the Value-Added Tax in the UAE come into effect?
UAE and other GCC countries had 5% VAT from 1 January 2018. Businesses started registering for VAT 3 months before the launch (1 October 2017).
What will get taxed?
A VAT would be applicable to non-essential consumer goods. Anything apart from basic food and essential commodities would fall in this taxable bracket. This would include automobiles, electronics, jewellery, restaurant services, and entertainment.
What will be exempt from VAT in UAE?
The UAE government stated that items in about 100 categories, like food, education, health, bicycle, fuel, etc., will be exempted from VAT.
Importance of VAT in UAE
A company registered under the UAE VAT is acknowledged as an authorised supplier of goods and services. Businesses need to be VAT-registered to do the following activities:
- Apply VAT charge on taxable supply of goods and services.
- Tax credit claim on VAT paid on the purchases of goods.
- VAT payment to the government.
- VAT return filing.
All VAT-registered businesses should align and maintain their business reporting structure in line with the requirements of the UAE government, such as updated accounts books, Tax invoices, credit & debit notes, and records to all inward & outward supplies.
Hence, it is important to understand the fundamentals of VAT to do VAT registration in UAE. Read this write-up to know more about VAT;
Who Should Register under Value Added Tax in UAE?
Should all businesses register for VAT in the UAE?
The answer is No.
Only the businesses crossing the threshold are liable to register VAT in UAE. Based on the threshold for some businesses, it's mandatory to register for the UAE VAT. Some businesses fall under voluntary VAT registration parameters. And some will get exceptions from VAT.
The three classifications of tax registration are:
- Exemption from VAT Registration
- Mandatory VAT Registration
- Voluntary VAT Registration
Who gets Taxed?
Read the table below to understand who has to pay:
Businesses providing goods or services falling in the taxable category, with an annual revenue of over AED 375,000, would be required to register for VAT. It is optional for companies with annual supplies and imports less than AED 375,000 but over AED 187,500. Here, companies providing health or education services may reclaim the VAT from the government.
Anyone purchasing a non-essential item is liable to pay VAT. Realtors: Any sale or renting of property for commercial purposes would attract VAT.
Learn more about who should do VAT registration in UAE.
Free Zones Exempt from VAT in UAE
On January 10, 2018, the FTA announced that 20 free zones in the UAE would be exempt from VAT. These are being referred to as ‘designated zones’. The areas are fenced freezones with special controls on goods, rather than areas such as Dubai Media City or those dealing in financial services.
Also, goods may be transferred between designated zones without being subject to tax if the goods are not used or altered during the transfer process and the transfer is undertaken under the rules for customs suspension per Gulf Cooperation Council (GCC) Common Customs Law.
There is, however, an exception to this VAT exemption in the designated zones: a fee charged for services would be VAT-taxed. So, for instance, a business incorporation service availed in a designated zone would still be levied with VAT.
Here is the list of the designated zones:
- Dubai Cars and Automotive Zone (DUCAMZ)
- Dubai Airport Free Zone (DAFZA)
- Jebel Ali Free Zone (JAFZA)
- Free Zone Area in Al Qusais
- Free Zone Area in Al Quoz
- Dubai Aviation City
- Dubai Textile City
Umm Al Quwain
- Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
- Umm Al Quwain Free Trade Zone on Sheikh Mohammed bin Zayed Road
Ras Al Khaimah
- Fujairah Free Zone
- Fujairah Oil Industry Zone (FOIZ)
Opt for Our Exceptional Service
With the introduction of VAT in UAE, there are considerations that businesses would have to take care of with regard to tax consulting. We at Commitbiz have our team of experts to help you with company formation, registration, and counselling. For any queries on VAT Certification in Dubai for companies in the UAE, feel free to reach out.
What is the purpose of implementing Value Added Tax in UAE?
Explore the foundational reasons behind the UAE's embrace of VAT. And understand how it contributes to the economic landscape.
How does Value Added Tax impact businesses and consumers in the UAE?
Uncover VAT's ripple effects on businesses and consumers, unravelling its role in shaping financial transactions.
Are specific industries or goods exempt from Value Added Tax in UAE?
Navigate the intricate terrain of VAT exemptions, discovering which industries or products carve out exceptions in this dynamic fiscal framework.
What compliance measures must businesses follow to adhere to UAE's VAT regulations?
Dive into the compliance labyrinth as we explain the necessary steps and best practices for businesses to integrate VAT into their operations.
How can individuals and businesses optimise their strategies to leverage the benefits of Value Added Tax in the UAE?
Unlock the strategic playbook for turning VAT into a catalyst for growth, exploring ways to comply and thrive in this evolved financial landscape.