Key Points:
VAT is an indirect tax levied on products at each stage of the supply chain where value is added, from production to final sale.
Businesses collect VAT on sales for the government and can claim credit for VAT paid on purchases, ensuring fair taxation based on value addition.
VAT registration in the UAE is crucial for legal compliance, financial management, and government benefits.
Importance of VAT Registration:
Legal Compliance:
VAT registration ensures compliance with UAE tax laws.
Failure to register within 30 days of surpassing the AED 375,000 supply threshold can lead to penalties.
Enhanced Financial Management:
Encourages meticulous financial record-keeping.
Maintaining accurate records of VAT-inclusive transactions aids in precise tax reporting, cash flow management, and transparency.
Government Benefits:
Positions businesses to access potential tax refunds and government incentives.
Businesses with input tax exceeding output tax may qualify for a VAT refund, benefiting their financial strategies.
VAT registration is a fundamental step for businesses in the UAE to ensure compliance with tax regulations, manage finances effectively, and leverage potential government benefits. By understanding the VAT system and registration process, businesses can navigate the UAE’s tax landscape with confidence.
Who is Required to Register for VAT in the UAE?
Local businesses and international corporations operating in the UAE are mandated to register for VAT within 30 days of their taxable supplies and imports crossing the mandatory registration threshold of AED 375,000. While enterprises falling below this threshold can also opt for voluntary registration.
- Mandatory Registration:
Criteria: Businesses must mandatorily register for VAT if their taxable supplies exceed AED 375,000 in the past 12 months or are expected to surpass this limit within the next 30 days.
Definition: Taxable supplies encompass all sales within the UAE, inclusive of VAT.
Consequences: Failure to complete VAT registration under these circumstances can result in penalties.
- Voluntary Registration:
Threshold: If the total value of taxable supplies and imports ranges from AED 187,500 to below AED 375,000, businesses have the option of voluntary registration.
Benefits: Voluntary registration allows startups and small businesses to claim input tax credits on purchases, providing them with financial advantages.
VAT exemption in the UAE
As per the UAE Federal Decree-Law No. (8) of 2017, certain sectors are exempt from VAT and are not required to register or file VAT returns in the UAE. These exemptions include:
Bare Land:
The supply of undeveloped plots or bare land is not subject to VAT.
Provision of Financial Services:
Financial services provided without explicit fees, discounts, commissions, rebates, or similar considerations are VAT exempt.
Local Passenger Transport:
Passenger transportation services within the UAE, such as buses, taxis, and metros, are VAT exempt.
Residential Properties:
Lease and sale of residential buildings, excluding specifically zero-rated properties, are exempt from VAT in the UAE.
VAT Penalties in the UAE:
Non-compliance with VAT laws in the UAE can lead to penalties to ensure adherence to tax regulations. Some of the key penalties include:
Delay in VAT Registration:
A delay in VAT registration can result in a penalty of up to AED 10,000.
Late Payment Penalties:
Failure to make VAT payments on time incurs penalties:
Immediate 2% penalty on the unpaid tax amount.
Monthly 4% penalty starting from one month after the payment due date.
How to register for VAT in the UAE for a new company?
Steps to Apply for VAT Registration in the UAE:
To initiate the VAT registration process in the UAE, follow these steps:
Eligibility Check:
Determine if your business qualifies for mandatory or voluntary VAT registration based on the annual taxable turnover as per UAE VAT regulations.
Document Preparation:
Gather the necessary documents and information required for VAT registration, including:
Valid copy of your trade license
Passport copies or Emirates IDs of authorized signatories
Proof of authorization for signatories (if applicable)
Business contact information, including address and PO Box
Bank letter verifying your company’s bank account details
Additional documents like Articles of Association or Partnership Agreement (if needed)
FTA Account Creation:
Create an e-Service account on the Federal Tax Authority’s web portal to access the VAT registration form and other services.
Form Completion:
Log in to your e-Service account and complete the online VAT registration form with details about your business activities, turnover, and bank information.
Application Submission:
Review the completed form for accuracy and then submit the VAT registration application through the online portal.
Payment:
Follow the FTA website’s instructions regarding the fee amount and available payment methods. Pay the VAT registration fee, if applicable.
Supporting Documentation:
Submit any required supporting documentation to the FTA to verify the information provided in your application.
Application Review:
The FTA will review your application. Upon approval, you will receive a Tax Registration Number (TRN) and a VAT Certificate, crucial for identifying your business for tax purposes. The VAT registration process typically takes about 30 days.
Documents Required for VAT Registration in the UAE:
- Trade license copy
- Passport copies or Emirates IDs of authorized signatories
- Proof of authorization for signatories
- Business contact details
- Bank letter confirming company bank account details
- Additional documents like Articles of Association or Partnership Agreement if necessary
How to maintain compliance post-registration?
Here are some best practices that businesses can follow to comply with post-VAT registration in the UAE:
Charge VAT as requited: As a VAT-registered business, you must charge VAT on your taxable supplies. This involves adding the standard VAT rate (currently 5%) to your sales price and clearly displaying it on your invoices.
Keep detailed records: You are required to maintain accurate records of your business income, costs, and associated VAT charges. These records help you calculate your VAT liability and are essential for completing your VAT returns. The FTA recommends keeping these records for a minimum of five years.
Submit timely returns: You must submit timely VAT returns to the Federal Tax Authority (FTA). These returns summarise your VAT charges and deductions for a specific tax period.
Issue VAT Invoices: You must issue VAT invoices for all taxable supplies. These invoices must include details like the date of issue, a unique identification number, your Tax Registration Number (TRN), and more.
Comply with FTA Regulations: You must comply with all FTA regulations. This includes rules about invoice formatting, record keeping, and VAT return submission.
Streamline your VAT calculations
Filing accurate VAT returns in the UAE is crucial for compliance with tax laws. This process also requires you to monitor different aspects of the VAT registration responsibly.
One way to ensure accurate VAT calculation and avoid any issues later is using a spend management platform like. applies the correct VAT rate to each purchase and calculates the VAT owed on each invoice with precision. This automation minimizes the risk of human error and ensures you have accurate data readily available for your VAT returns.
If you are a business looking to automate VAT calculations, consider trying. We will be happy to walk you through the process in detail.
