Value Added Tax (VAT) in the UAE

June 6, 2022

Introduction to VAT in the UAE

For every business owner, the applicable tax rates for your supply of goods and services are important in the day-to-day operations of your business. For every business setup in Dubai and the UAE, VAT is an important topic which needs to be addressed and clarified from the start.

VAT was introduced in the UAE on 1 January 2018 at a rate of 5 percent.

It remains one of the main taxes levied within the UAE that affects all walks of life, whilst providing an additional revenue stream to the country which does not collect any form of corporate and income tax against much of the population.

A consumption tax levied on goods and services and charged across the entire supply chain as well as the final sale process, VAT is one of the more efficient forms of a consumption tax regime.

VAT in the UAE has remained at 5 percent since its implementation, and there are no current plans to increase it; unlike when neighbouring Saudi Arabia increased it to 15 percent in mid-2020.

Who is applicable for VAT Registration and Filing?

VAT registration and filing is applicable for all onshore resident (mainland and free zone companies) businesses incorporated in the UAE, to collect and remit the taxes on behalf of the government.

This means that offshore entities are outside the scope of VAT in the UAE.

This is important for business owners to be prepared for VAT obligations as part of the process for a business setup in Dubai and the UAE.

And the Registration Criteria for VAT is?

Resident corporate entities are obliged to register for VAT if their taxable supplies and or imports exceed the mandatory threshold of AED 375.000 per annum.

Companies can voluntarily register for VAT when their annual taxable threshold exceeds AED 187.500 but is lower than the mandatory threshold.

What should I do before registering for VAT?

The below questions generally serve as guide as to whether one should voluntarily, or mandatorily register for VAT.

• Are you a resident business in the UAE?

• Are you supplying goods and services from within the UAE?

• Are your supplies categorized within the scope of VAT in the UAE?

• Are your clients and or suppliers based in the UAE?

• Has your business’ turnover for taxable goods and services reach AED 375.000 in the previous 12 months?

• Do you expect your business’ turnover to exceed AED 375.000 in the next 30 days?

• Has your business’ turnover reach AED 187.500 in the previous 12 months?

• Do you expect your business’ turnover to exceed AED 187.500 in the next 30 days?

What do I get when I register for VAT in the UAE?

Upon a successful registration, clients receive a unique 15-digit Tax Registration Number specific to the applicant company, and a Certificate of Registration for Value Added Tax in the UAE.

Are all goods and services taxed at 5 percent under VAT Regulations?

There are three main categories of VAT rates in the UAE.

• Standard Rate
Most supply of goods and services are charged a standard rate of 5 percent VAT.

• Zero-Rated Supplies
Certain goods and services are deemed zero-rated, meaning 0 percent of VAT is levied.
A non-exhaustive list includes certain healthcare services, government-funded education services, passenger transportation services, export of goods and services outside the GCC.

• Exempted Supplies

Domestic passenger transportation services, certain financial services are considered exempt from VAT levies.

What are my responsibilities as a VAT-registered entity?

If you are a VAT-registered business, you generally need to,

• Ensure adequate monitoring and correct identification of your VAT-taxable supply of goods and services

• Adhere to the prescribed format for VAT-related information and data, such as Tax Invoices

• Charge VAT on your supply of taxable goods and services

• Reclaim any VAT paid on your business-related goods and services

• Prepare and retain business records on VAT-related matters

• Conduct regular VAT-related tax returns filings

Do you need someone to further clarify and consult on your potential VAT obligations?

Do you need someone to assist with the registration and filing of VAT returns per FTA guidelines?

Do you need someone to advise on any VAT-related matters?

Do you need someone to manage your VAT responsibilities?

INCORPORTAS is a licensed Corporate Service Provider, with in-house experience as well as a strong network of qualified VAT professionals to assist you with your VAT needs, obligations and ensuring your workflow is compliant with FTA regulations and guidelines.