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Everything You Need to Know About VAT Implementation in UAE

The introduction of VAT (Value Added Tax) in 2018 was a significant reform for the United Arab Emirates. VAT is a consumption tax levied on goods and services, and its implementation has been an important milestone for the UAE government in increasing the country’s revenue sources. Understanding VAT and its implications is crucial if your business operations are in the UAE. This article will help you with all the information regarding VAT Implementation in the UAE.

What is VAT?

A tax imposed on goods and services at every stage of the supply chain is called VAT or Value Added Tax, as it is a tax on value-added. The ultimate burden of VAT falls on the end-consumer of products and services, and the VAT collected at each stage of the supply chain is paid to the government. VAT has been successfully implemented in the UAE since 2018, though it is a standard tax system worldwide.

Benefits of VAT Implementation in UAE

The VAT implementation in the UAE has several benefits, including:

Increased Revenue Sources: Implementing VAT in the UAE has helped increase the government’s revenue sources, providing more public services and infrastructure development funds.

Improved Transparency: VAT helps to enhance transparency in the economy as businesses are required to keep detailed records of their VAT transactions. That can help to reduce tax evasion and improve the accuracy of tax collection.

Promotes Fair Competition: VAT promotes fair competition in the marketplace as all businesses, regardless of size, must register for VAT and charge VAT on their sales.

VAT Obligations for Businesses in the UAE

Businesses in the UAE must comply with a range of obligations related to VAT, including:

VAT Registration: All businesses operating in the UAE must register for VAT if their taxable supplies exceed the mandatory registration threshold of AED 375,000.

VAT Return Filing: Businesses must file VAT returns regularly, usually monthly or quarterly, to report the VAT they have collected and the VAT they have paid.

Keeping Records: Businesses must keep detailed records of their VAT transactions, including invoices, receipts, and other documentation.

How to be Compliant with VAT Requirements in the UAE

VAT requirement compliance can be challenging, and businesses may find the process to be complex, and to ensure compliance, companies can take the steps listed below:

Hire a VAT Expert: To help you to guide your business process of VAT implementation in UAE and ensure that your business is compliant, it is highly recommended to hire a VAT Expert. That can be done internally, or you can outsource as well.

Implement VAT-Compliant Systems: Your business should implement VAT-compliant systems, such as accounting software, to help keep track of VAT transactions and simplify the VAT return filing process.

Employee Education and Awareness: Ensuring everyone in the organization is on the same page and aware of the VAT requirements so that they take necessary steps to comply, it is crucial to educate your employees and enable them with resources about VAT and its implications for your business.

Get Your Business VAT Registered in UAE

VAT was introduced in the United Arab Emirates on the 1st of January 2018. Value Added Tax or VAT is an indirect tax charged on the supply of goods and services in UAE. VAT is charged at every step of the supply chain. In order to be compliant with the laws and regulations of the country to avoid any penalties, it is necessary for businesses operating in UAE to get their businesses VAT registered if they meet the minimum threshold requirement.

Based on the nature of supplies, VAT is divided into three categories:

Taxable VAT – includes all supplies that are subject to 5% VAT
Exempted VAT – includes all goods and services where VAT is not at all applied, or not charged at all
Zero-rated VAT – includes all goods and services that are VAT taxable, but at a rate of 0%.

This guide aims to provide a step-by-step approach for businesses to get themselves VAT registered and fulfill their obligations as a taxpayer.

Introduction to VAT in UAE

The UAE economy had been heavily dependent on the petroleum industry, and in order to diversify the revenue streams of the country, VAT was implemented ensuring that the burden of taxation was shared equitably across all sectors of the economy. VAT implementation led the government to contribute to the continued provision of high-quality public services, which are paid for by the government budgets.

The Federal Tax Authority (FTA) is the regulatory body responsible for overseeing VAT in the UAE. Businesses are required to register for VAT if they meet the annual taxable supplies threshold of AED 375,000. Businesses can register for VAT voluntarily as well if the supplies and imports are less than the mandatory threshold but exceed the minimum taxable supplies threshold of AED 187,500. Companies that fail to comply could face heavy fines and avoidable penalties from the government.

Requirements for VAT Registration in UAE

Following are the requirements that would have to be fulfilled in order to get your business VAT registered in UAE:

Trade License
Passport & Emirates ID of Manager, owner, & senior management
Partnership Agreement, Articles of Association/Certification of Incorporation
Bank account details
Turnover of last 12 months along with the documentary proof of the same and expected turnover of the next 30 days
Custom details
Authorized signatory documents
Expenses subject to VAT paid for the last 12 months & expected in the next 30 days
Evidence of supplies including contracts, invoices and supporting documents

Step-by-Step Guide to Getting Your Business VAT Registered in UAE

Here is a comprehensive guide to help you get your VAT registered in UAE:

Determine your VAT liability: The first step to getting VAT registered in UAE is to determine if you meet the minimum taxable supplies threshold of AED 187,500 for voluntary disclosure and AED 375,000 for mandatory.
Complete the VAT registration form: The next step would be to complete the VAT registration form, which can be found on the FTA’s website. You will need to provide details such as your trade license number, commercial registration certificate, details of taxable supplies, and information about registered partners/directors.
Submit the VAT registration form: Once the VAT registration form is completed, you will need to submit it to the FTA for approval. This can be done online through the FTA’s e-services portal.
Receive VAT registration certificate: After your VAT registration form has been approved, you will receive a VAT registration certificate, this certificate confirms that you are now a registered VAT taxpayer in the UAE.
Start charging VAT: You are now ready to start charging VAT on your taxable supplies. It is necessary to keep accurate records of all VAT transactions and ensure that you submit your VAT returns on time to avoid any delays and avoidable penalties.

FAQ’s

Who is responsible for overseeing VAT in UAE?

The Federal Tax Authority (FTA) is responsible for overseeing VAT in UAE. It is the government entity responsible for administering, collecting as well as enforcing federal taxes.

What are the requirements for VAT registration in UAE?

The requirements for VAT registration in UAE include having a valid trade license and commercial registration certificate, providing details of all taxable supplies made in the previous year (12 months), having a tax registration number (TRN), and providing details of all registered partners/directors.