Last Updated on July 10, 2023 by bhakti
Although it’s been a year since VAT was introduced to the UAE, implementing VAT might still be a new concept to some of you out there. Here is everything you need to know about VAT in the UAE.
With a standard value of 5 percent, VAT is a form of an indirect tax which came into effect on the 1st of January 2018 in the UAE. The government decided to introduce VAT with the aim to reduce the country’s dependence on oil while creating a stable source of income in return. Businesses in the UAE are currently required to carefully document their income, costs and associated VAT charges in order to have an accurate database and efficient process while submitting their dues to the government.
Consumers essentially bear the VAT in the form of a 5 percent increase in the cost of taxable goods and services they purchase in the UAE while businesses collect it on behalf of the government. VAT applies to both residents of the UAE as well to any tourists visiting the country. VAT is applied across all tax-registered businesses operating in the UAE which include free zones.
Who is required to register for VAT?
· Mandatory VAT Registration: A business based in UAE must register for VAT if its taxable supplies and imports exceed AED 375,000. Businesses who anticipate that the total value of supplies and imports will exceed the mandatory threshold of AED 375,000 will also have to register for VAT in the UAE. Those Businesses who do not hold a place of residence in the UAE are required by law to register for VAT irrespective of the mandatory threshold.
· Voluntary VAT Registration: A business based in UAE can voluntarily register for VAT in the UAE if it’s taxable supplies and expenses crosses the voluntary threshold of AED 175,000 but is below the mandatory threshold.
· Exempt from VAT Registration: A Business whose value of taxable supplies and imports is below the voluntary threshold is not allowed to apply for VAT in the UAE. Also, A business who is engaged in making zero-rated supplies can register for VAT exemptions.
How do you get your business registered?
You can register for VAT using the e-service section on the FTA website. One important point to remember is to create an account on the FTA website first before registering for VAT. After creating an account and successfully logging in, simply click on the “Register for VAT” button and continue.
Are there any tax-free areas in the UAE?
The government of UAE defines certain free zones as ‘Designated Zones’. The transfer of goods between these zones is tax-free. You can view all the designated Zones in the UAE here.
What are VAT Returns?
A VAT return calculates how much VAT should be paid to the Federal Tax Authority. A business with an annual turnover of AED 375,000 or more will need to register for VAT and file VAT returns every quarter or month depending upon its annual turnover. The FTA might assign a different tax period for your business under certain special circumstances. Fines will be imposed upon those who fail to file tax returns under the agreed timeframe. Here is a quick tutorial by the FTA on how to file a VAT return.
When are you eligible for a TAX refund?
All businesses registered for VAT are required to file a VAT return detailing the Input VAT paid to suppliers and the output VAT received by purchases from consumers.
If the output VAT is higher than the Input VAT, you will have to pay the balance to the Federal Tax Authority of UAE. If the Output VAT is lesser than the Input VAT, businesses are eligible to apply for a VAT refund.
Ever since VAT was implemented in early 2018, the government has made significant efforts to streamline the process to register for VAT By creating an online portal on the FTA website, making it more convenient for businesses to keep track of their VAT compulsions.