The United Arab Emirates (UAE) introduced Value Added Tax (VAT) on January 1, 2018, making it mandatory for businesses to comply with VAT registration and filing requirements. Business owners operating in the UAE must ensure accurate VAT collection, reporting, and payment to the Federal Tax Authority (FTA).
This article provides a step-by-step guide to understanding VAT in the UAE, covering essential topics like VAT registration, return filing, liability, and required documentation.
Value Added Tax (VAT) is an indirect tax applied at every stage of the supply chain on the exchange of goods and services. The UAE government has set a standard VAT rate of 5%. Certain sectors, including healthcare, education, and specific food items, are exempt from VAT.
VAT registration is a process where businesses are recognized by the government as authorized to collect VAT from customers and remit it to the FTA. Depending on your annual turnover, VAT registration can be mandatory, voluntary, or exempt:
Exclusive from VAT Registration: Businesses with a turnover below AED 187,500.
Voluntary VAT Registration: Businesses with a turnover between AED 187,500 and AED 375,000.
Mandatory VAT Registration: Businesses with a turnover exceeding AED 375,000.
Once approved, a unique Tax Registration Number (TRN) is issued. The TRN must be included on all VAT invoices.
Designated Zones and VAT
Businesses in UAE mainland and free zones are subject to VAT. However, specific "designated zones," as identified by the UAE Cabinet, are treated as outside the UAE VAT scope. Transactions within these zones are generally exempt from VAT.
Registered businesses are required to file VAT returns with the FTA, summarizing taxable supplies and purchases. These filings determine the VAT liability and must be submitted online through the official FTA website.
Key Filing Deadlines
Monthly Filing: For businesses with annual revenues exceeding AED 150 million.
Quarterly Filing: For businesses with annual revenues below AED 150 million.
VAT returns must be filed within 28 days of the end of the tax period to avoid penalties.
VAT liability refers to the difference between output tax (VAT collected on sales) and input tax (VAT paid on purchases).
Output Tax > Input Tax: The excess amount must be paid to the FTA.
Input Tax > Output Tax: The excess can be recovered and applied to future tax periods.
VAT liability does not constitute business revenue but represents a legal obligation to the government.
To complete UAE VAT registration, businesses must provide the following documents:
Certificate of incorporation or registration
Trade license
Passport, visa, or Emirates ID of the director/manager
Memorandum of association or partnership agreement
Company director’s profile
Bank account details
Contact details and physical office address
List of business partners or directories for the past five years
Additionally, the FTA requires details such as:
Estimated and actual financial transaction values
Business activities and expected revenue
Previous 12 months’ turnover (with supporting documents)
Import/export details
Customs registration information
Anticipated exempt supplies
Businesses must maintain accurate records to comply with VAT regulations. Key documents include:
Tax invoices and credit notes
Records of goods and services acquired, sold, or disposed of
Import and export documentation
Adjustments or corrections to tax invoices
Tax recovery records for imports and supplies
These records should be detailed enough to capture taxes recoverable, adjustments, and liabilities for each tax period.
Follow these steps to complete the VAT registration process:
Create an e-Services Account: Register on the FTA’s official website.
Submit the VAT Registration Form: Fill in all required details and upload supporting documents.
Await Approval: Registration typically takes 3-5 working days.
The standard VAT rate in the UAE is 5%. However, there are two additional categories:
Zero-Rated VAT: Applies to specific products and services such as exports, residential buildings, and certain education and healthcare services. These transactions are taxable but at a 0% rate.
Exempt VAT: Applies to sectors like financial services and bare land. No VAT is charged, and businesses cannot recover input VAT on exempt supplies.
Complying with VAT regulations in the UAE is essential for businesses to avoid penalties and maintain smooth operations. By understanding VAT registration requirements, filing obligations, and maintaining proper records, businesses can ensure compliance and focus on growth. For more information and resources, visit the official FTA website at https://www.tax.gov.ae/.