All about Value Added Tax (VAT) in United Arab Emirates

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We are all aware that the UAE imposed the VAT from January 1, 2018, on the taxable supply of goods and services in the UAE. This has made a complex change in the business environment. Following are the key details about the VAT Law in UAE:

1. VAT Registration:
Any individual/ companies can apply for VAT registration. However, it is not mandatory to obtain VAT registration until the taxable supplies and imports exceed AED 375,000 per annum. Also, it is optional for businesses whose taxable supplies and imports exceed AED 187,500 per annum.

2. How to Register:
VAT Registration is done on the website of the Federal Tax Authority (FTA). It is an online process and following information is required for VAT Registration of a company in UAE:

  • Copy of Trade license
  • Memorandum of Association
  • Certificate of Incorporation, if available.
  • Proof of Authorized Signatory (Like POA) or MOA if name of Authorized Signatory in MOA.
  • Emirates ID and Passport copy of All the Shareholders, Manager and Authorized Signatory.
  • Contact Information of Authorized Signatory (Email id and phone number).
  • Details of the partners, shareholders, and directors if same partner, shareholder and director is already partner, shareholder, and directors in any other company.
  • Custom Registration number if available (with an existing bill of entry).
  • Whether you have a transaction with other GCC countries.
  • Bank Details: – (Account Number, Branch Name, bank IBAN no, Swift Code).
  • Turnover in the last 12 months along with proof of turnover, if any
  • Turnover expected in the next 30 days and proof of expected turnover (if available like a copy of the contract).
  • Expenses in last 12 month along with proof of expenses.
  • Expenses expected in the next 30 days.

3. Rate of VAT:
In UAE, VAT is charged at 5%. However, those specified goods and services which are either exempt from tax or classified under zero-rated sales are not considered as Vatable sales.

4. Which companies are not liable to VAT:
VAT is applicable to all registered entities except those which are registered in designated zones as specified by the UAE cabinet. VAT treatment of transfer of goods between designated zones is explained below:

             Origin   Destination     VAT treatment                Notes
Designated Zone 1 Designated Zone 1 Outside the scope of VAT Only if goods are not used for consumption.
Designated Zone 1 Designated Zone 2 Outside the scope of VAT Only if goods are not used for consumption.
Designated Zone 1 Designated Zone 1 Subject to normal VAT rules Only if Goods are used for resale.
Designated Zone 1 Designated Zone 2 Subject to normal VAT rules Only if Goods are used for resale.
UAE mainland Designated Zone Subject to normal VAT rules
Designated Zone UAE mainland Subject to normal VAT rules for imports. Treated as an import – importer pays VAT either via its VAT return (if registered) or at the time of import (if unregistered).
Outside UAE Designated Zone Outside the scope of VAT Will be considered as an Import.
Designated Zone Outside UAE Outside the scope of VAT

 

A Compliance Plan Shows you have a system of checks in place!

– Bruce Blehart

5. VAT Return:
VAT return is required to be filed at the end of each tax period, usually a quarter of the year for businesses with an annual turnover below AED 150 Million and monthly for businesses having the annual turnover above AED 150 Million. However, FTA may define a different Tax period for specific businesses at its discretion.

Such return is required to be submitted to the Federal Tax Authority via an online portal. This return contains the information about the purchases and sales made by the registered person during the tax period and the calculation of the tax liability of such person.

Failure to submit the VAT return on time brings heavy penalties for the business.

6. How is VAT Charged:

The above show that the ultimate impact of the VAT charged is on the end user of the products and services. Therefore, the cost of living is increased as the products have become slightly expensive after the implementation of VAT.

7. Implications on the Businesses:

  • A registered business must charge VAT on the sales to its customers
  • They may claim the credit of the VAT paid on the purchases made
  • Also, they must maintain proper records of the VAT sales and purchases and maintain its books of accounts with due care

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