VALUE ADDED TAX (VAT)
Frequently Asked Questions
1) When should my business register for VAT?
Your business must register for VAT if it is registered in the UAE and your annual turnover exceeds AED 375,000.
This is based on your revenue activities over the last twelve months, or if you expect to exceed the limit in the next 30 days.
Registration in these circumstances is not optional. If you fail to register, you face being fined.
You can also register voluntarily under two different circumstances:
1) Your annual turnover is below AED 375,000 but above AED 187,500.
2) You have no turnover, but your expenses exceed the voluntary registration threshold of AED 187,500.
The second option is intended for new businesses that have begun incurring costs but have not yet started generating revenue.
2) What are the taxable supplies?
Taxable supplies are where your business sells goods and services on which VAT must be charged.
The general rate of VAT in the UAE is 5%, and this must be added to the cost of most goods and services. This means that for every AED 100 that you charge your customer, you must add AED 5 as VAT, making the total due AED 105.
There are some exceptions to this, which we discuss below.
3) What supplies are exempt from VAT ?
There are two categories of supply on which you do not add VAT. These are zero-rated transactions and exempt transactions.
Zero-rated transactions mean that VAT is charged, but the VAT rate is 0%. Supplies that fall into the zero-rated category include:
Export of goods and services outside the GCC (Gulf Cooperation Council) area.
International transportation and related supplies.
New build residential properties supplied within three years of construction.
Supply of certain education and healthcare goods and services.
Certain investment grade precious metals.
Exempt transactions include the supply of:
Certain financial services.
Residential properties and bare land.
Local passenger transport.
These lists are not exhaustive, and you should check on FTA website regarding the goods and services your business supplies.
4) Do zero- rated supplies count towards the VAT threshold?
Yes, they do.
While no VAT is charged on either zero-rated transactions or exempt transactions, the big difference between them is that the zero-rated revenue counts towards the VAT registration threshold.
5) Should I register for VAT when turnover is below the mandatory threshold?
There are benefits to registering for VAT once your turnover reaches the voluntary registration threshold of AED 187,500.
Registering for VAT allows you to start recovering the VAT that you have been charged by suppliers. However, it also means you must charge VAT on taxable supplies.
Whether or not this is beneficial for your business cash flow requires an assessment of your specific circumstances. If your customers are also businesses registered for VAT, they will be able to recover the VAT you charge them. But if they are small businesses or consumers, the VAT you charge is a cost to them.
6) Do I need to charge vat if I registered voluntarily but my turnover is below mandatory threshold?
You must charge VAT on taxable supplies once you registered . Voluntary or Mandatory.
7) Do I pay the full 5% VAT to the government?
The short answer is no, you don’t.
VAT is a tax on value that has been added through the supply chain and is ultimately a tax on consumers.
Your suppliers will, in general, charge you VAT on what you purchase from them. You can offset this VAT against the VAT you charge your customers, and you only pay the difference to the government.
Let’s say you buy AED 1,000 of supplies, on which you’re charged AED 50 in VAT, making the total charge AED 1,050.
You sell those supplies for AED 2,000, adding AED 100 in VAT, making the total charge AED 2,100.
You’re required to pay the AED 100 in VAT to the government. However, you can reclaim the AED 50 from the government – meaning your net payment is just AED 50.
VAT means you’re collecting tax from your customer, paying tax to your supplier, and paying the difference to the government.
8) When I need to file VAT return and make Payment to the government?
Once you have registered for VAT in the UAE, you are required to file your VAT return and make related VAT payments within 28 days from the end of each Tax period.
Start and end dates of your Tax periods are ascertained at the time of your VAT Registration by FTA and mentioned on your VAT Registration Certificate along with first VAT Return period and due date.
9) Do i need to register for VAT if my business is registered in a Free-Zone?
Free Zones are not normally considered VAT-Free, and are subject to normal VAT for supplies of goods and services unless they fulfil the criteria to be treated as a Designated Zone. Designated Zone businesses are considered to be established ‘onshore’ in the UAE for VAT purposes. This means that they have the same obligations as non-Designated Zone businesses and have to register, report and account for VAT under the normal rules.
9A) What are designated zones?
Designated zones are areas that are specified by the UAE cabinet to be outside of the state for VAT purposes. These territories are designated to offer incentives to businesses in these areas. A list of conditions should be met for this to happen:
Designated zones should be fenced off: When these territories are fenced off geographically, safety measures and customs controls are implemented to screen the entry and exit of people and products to and from the zone.
Designated zones should have an internal goods processing policy: An internal policy and methodology for storage and the process of goods.
Designated zones should be tax compliant: The admin of the designated zone should comply with the procedures set by the Federal Tax Authority.
9B) What are the designated zones in the UAE?
Dubai
Free Zone Area in Al Qusais Free Zone Area in al Quoz Jebel Ali Free Zone Dubai Aviation City Dubai Textile City Dubai Cars and Automotive Zone Dubai Airport Free Zone
Abu Dhabi
Abu Dhabi Airport Free Zone Free Trade Zone of Khalifa Port Khalifa Industrial Zone
Sharjah
Sharjah Airport International Free Zone Hamriyah Free Zone
Fujairah
Fujairah Free Zone Fujairah Oil Industry Zone
Umm Al Quwain
Umm Al Quwain Free Trade Umm Al Quwain Free Trade Zone on Sheikh Mohammed bin Zayed Road
Ras Al Khaimah
Ras Al Khaimah Airport Free Zone Ras Al Khaimah Maritime City Free Zone Ras Al Khaimah Free Trade Zone
9C) How is VAT applicable in designated zones for goods?
VAT won’t be applicable to sales and purchases of goods that are transported within UAE designated zones. However, these goods will be under VAT when they are exported or used in the manufacturing of taxable supplies.
The supply of goods between designated zones won’t be under VAT when:
The goods are not used during the transfer between the designated zones.
The goods are not released during the transfer between the designated zones.
The transfer of goods happens under the rules of the GCC common customs law.
The owner of the goods provides proof of monetary guarantee to the Authority if the conditions of the transfer of the goods are not met.
The supply of goods from and into the UAE mainland: A 5% VAT is mandatory for both the transfer of goods from the UAE mainland and into a designated zone or the transfer of goods from a designated zone and into the UAE mainland.
9D) How is VAT applicable in designated zones for services?
If the place of supply is within a designated zone, the place of supply of this service will be considered to be within the UAE. This means that services that are supplied from the mainland to a designated zone in the UAE or within the designated zone are under a 5% VAT.