We are living for world-class public services and look to the government for them. But because the road to hell is paved with good intentions, the government in most countries takes the lion’s share of their people’s income in the form of taxes.
But UAE is surely not one of them because VAT in UAE is at a bare minimum.
Sitting on silly grains of sands and callous salty water, the nation still is able to provide a high-quality life and state-of-the-art amenities to its public, whether they are tourists, residents or citizens.
Thanks to the endless petroleum and natural gas reserves and abundant jaw-dropping tourist attractions!
Talking business, ease of doing business, myriad investment incentives, open economy, availability of skillful talent and labour, social, political & economic stability and variety of business premises, there are plenty of features that make the UAE an ideal investment destination, but it’s the country’s liberal tax regime that takes the cake.
Infamous for being a tax haven, the UAE still cuts an alluring figure on the world map for investors and business persons worldwide despite implementing the VAT system.
What is VAT?
Dubai VAT (Value-added Tax) is a general consumption tax that is charged on a product/service constantly at every point of sale where value has been added. In the words of one syllable, value-added tax (called VAT for convenience) is nothing but a general consumption tax.
Consider the following example:
A potato farmer gets VAT from chip manufacturing plants in exchange for selling potatoes. The manufacturing company then collects VAT from the retail chain. Customers pay VAT to shops.
When a farmer sells raw material to a factory, the tax is charged.
- When a farmer sells raw materials to a factory,
- The factory sells the final product to a wholesaler.
- The wholesaler sells it to a store, and finally,
- The shop sells it to the customer who will use it, and the tax is collected.
VAT Assessment in the UAE
- VAT is a tax that you have to assess all by yourself.
- To determine your eligibility for VAT registration, you have to self-assess the amount of tax payable and recoverable input tax based on the supplies done in the last 12 months (tax period).
- If your yearly turnover exceeds AED 375,000, you are required to register for UAE VAT.
- Of course, you may take professional help in UAE VAT assessment assistance if self-assessment is not your thing.
- Our proficient Dubai VAT experts are happy to assess your invoices, quotations, contracts and purchase orders to help you find out whether your business falls under the category of mandatory VAT registration, voluntary VAT registration or not-yet-eligible for VAT registration.
Ultimately, it is the retail consumer who bears the VAT. The buyer in each earlier stage of the supply chain is repaid for the VAT by the subsequent buyer.
What is VAT in UAE?
Almost every country has implemented VAT taxes, which vary from country to country. Here is an explanation of VAT in the UAE.
- Until 1st January 2018, the UAE was VAT-free for all the businesses operating at the federal level.
- Afterward, the country imposed VAT at the rate of 5% on the supply of most goods and services in the State.
- The businesses registered under UAE VAT are subject to levy VAT @ 5%, collect it and remit it to the government.
- Value Added Tax in the UAE, without a doubt, is a bitter remedy to reduce the country’s revenue dependence just on hydrocarbons and tourism, but the 5% (the rate at which is being charged) sugars the pill.
The VAT Rate Structure in the UAE
The Federal Tax Authority (FTA) declared a full VAT rate list in the UAE, according to which four types of VAT were implemented across all 7 emirates in line with the business type.
On most of the goods or services in the UAE, a VAT rate of 5% has been imposed, while certain types of supplies and specified goods or services have been classified as exempt supplies or zero-rated supplies.
Below are the four categories of supplies classified to levy VAT in the UAE in a fair and square way:
- Exempt Supplies: Nil VAT on the supply of some financial services (clarified in VAT legislation), residential properties, bare land and local passenger transport.
- Partially Exemption: Where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered entity may not recover the input tax paid.
- Zero-Rated Supplies: 0% applicable on all exports of goods and services in the UAE in addition to education services, healthcare services, residential buildings for human occupation, etc.
- Standard Rate: 5% on the taxable supply of goods or services in the state, including imports. The standard rate of 5% is uniform across all the GCC member states.
Refer to the table below for more details on what businesses are subject to what rate of VAT in the UAE:
Which sectors are subject to VAT?
This must be noted that a standard rate of 5% will be imposed on all. The amount of VAT to be levied is calculated on the taxable value, which the registered entity can figure out in accordance with the provisions of the Act or Regulation. Usually, the taxable value is the sale value.
When is the best time to register for VAT in the UAE?
The first and foremost requirement to pay the UAE VAT, an entity has to meet is to register on the VAT system in the UAE. However, voluntary registration is possible even if they are not meeting the set threshold. Upon analysing those records, if the company finds that the taxable supplies/imports are exceeding the threshold of AED 375,000, then it is mandatory for it to register for VAT.
How to register for VAT in the UAE?
The Federal Tax Authority (FTA) is in charge of VAT registration. Businesses can register their business for VAT through the e-Services section of the FTA’s website. You may also connect with a qualified VAT consultant in Dubai such as Adam Global for assistance in VAT-related matters.
Statistics of VAT Registrations in UAE
Taxable firms in the UAE can cancel their VAT registration and suspend their Tax Registration Number through VAT deregistration (TRN).
Statistics of VAT Deregistrations In UAE
How is VAT Collected?
UAE charges tax-registered businesses 5% VAT on their taxable supplies at each step of the supply chain. The government authorises VAT-registered businesses to collect the amount on their behalf; the final purchaser of the goods or services pays the VAT in the form of a 5% increase in the cost of taxable supplies in the UAE. Even tourists in the UAE have to pay VAT at the point of sale.
VAT-related Responsibilities of Businesses
Typically, VAT-registered businesses must:
- Charge VAT on taxable goods/services they deliver
- Reclaim VAT they paid on business-related goods/services
- Periodically report the VAT they have charged versus the total amount of VAT paid
There are a multitude of exclusions when it comes to who is responsible for VAT, as we shall describe below.
VAT Registration Fee in the UAE
- There are no charges or fees applicable on tax registration services and the issuance of an electronic tax registration certificate.
- For tax agents, the registration fee is AED 3,000 for three years.
- An accounting software provider has to cough up AED 10,000 as a registration and renewal fee for one year.
- The yearly registration in a designated zone will cost them AED 2,000.
- Furthermore, registering a warehouse keeper or granting an electronic warehouse keeper registration certificate doesn’t cost a single dime, however, for an official printed certificate, one has to fork out AED 500.
VAT Return Filing in the UAE
- VAT filing in Dubai is mandatory for VAT registered businesses or the ‘taxable persons’ to submit a ‘VAT return’ to the Federal Tax Authority (FTA) at the end of each tax period.
- The VAT return can be filed electronically through the FTA portal: eservices.tax.gov.ae.
- Businesses must ensure they have met all tax return requirements before filing the VAT return form on the portal.
- VAT filing in UAE – A VAT return details the value of the supplies and purchases a taxable person has made during the tax period and shows the taxable person’s VAT liability.
The difference between the output tax payable and the input tax recovered (VAT incurred on purchases) for a certain tax period is known as the VAT obligation.
While calculating the VAT liability, there might be two possibilities.
Either the output tax exceeds the input tax amount, or the input tax exceeds the output tax.
In the former situation, the difference must be paid to FTA and in the latter case, it must be set off against subsequent payment due to FTA.
VAT Return Filing Deadlines
Tax-registered businesses in the UAE must file VAT returns with FTA on a regular basis and usually within 28 days of the end of the ‘tax period’ as defined for each type of business. A ‘tax period’ is a certain period of time for which the applicable tax must be computed and paid. The usual tax period is –
- Quarterly for enterprises with an annual turnover of less than AED 150 million.
- Monthly for companies with an annual revenue of AED 150 million or more.
Be informed that the FTA may choose to assign a different tax period for specific types of businesses. VAT-registered businesses, by law, are required to file a tax return within the specified time frame, failing which will attract fines.
Consequences of VAT non-compliance in the UAE
- Although the 5% rate of VAT in the UAE is relatively low in comparison with most countries around the world, the penalties that VAT non-compliance attracts are some of the highest in the world.
- The UAE Council of Ministers has embraced Cabinet Decision No.39 of 2017 on Fees for Services Provided by the Federal Tax Authority (FTA) and Cabinet Resolution No.40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE, according to which the fines for VAT non-compliance would be ranging between AED 500 – 3X (where “X” is the amount of tax due).
- VAT law violators will face fines under the rules of Cabinet Resolution No.40 of 2017 on Administrative Penalties for Tax Law Violations in the UAE.
- Allow us to draw your attention to the figures that are large enough to make your heart skip a beat.
So many intricacies in the VAT law and stern periods for compliance can make VAT compliance difficult and challenging. It is therefore crucial for businesses to prepare in advance and to seek professional advice when preparing for VAT. For more information or any kind of assistance regarding VAT in the UAE, you may get in touch with our VAT experts in Dubai.
VAT Fines Payment
It must be borne in mind that fines are payable in addition to the tax that is due. The non-compliant taxable person, however, can file an appeal against any decisions associated with fines they owe. There is no harm in taking advice from one of the best VAT consultants in the UAE in this regard.
Meet your VAT Professional in the UAE
VAT compliant in the UAE is crucial for businesses not just to keep the hefty fines at bay but also to steer clear of putting a dent in the image that is etched in their consumers’ minds.
But as Margaret Mitchell said (in her world-renowned novel ‘Gone with the Wind’), “Death, taxes and childbirth! There’s never a good time for any of them,” you’ll never find a good moment for tax preparation.
We are not complaining, but rather understanding your situation. Being a business owner, you have to juggle a lot of things at the same time, and your business needs you day and night.
An experienced VAT consultant in the UAE such as Adam Global can seem like a godsend, as not only will we assist you in assessing your business for VAT registration, registering your company for VAT, filing your VAT returns, claiming VAT refund requests on your behalf and deregistering your business from VAT system but also provide VAT training to you and your in-house finance team dedicated to VAT-related tasks.
The celebrated Adam Global Dubai VAT advisors are au courant with all the aspects related to VAT services in UAE and any new updates regarding VAT laws in the UAE. Our hands-on experience and in-depth knowledge of UAE VAT Law can keep you and your business worry-free for the rest of your tax periods.
Click here to book your first-time free consultancy with our VAT specialists in Dubai to know more about our VAT compliance services in the UAE.
How to calculate VAT in UAE?
For this, apply the following formula:
Tax amount = taxable value * tax rate ÷ (100 + tax rate)
Let us now look at different possibilities for calculating profit margins and taxes
When products are acquired from an unregistered individual-
Example: Omar Used auto parts, a VAT-registered second-hand products trader, buys a used auto part from Mr. Ramiz, a customer. The purchasing price is AED 100. Omar sold the autopart to another customer, Mr. Manish, for AED 200.
Let us look at the tax that Omar Used auto parts will have to pay if they use the margin method for this supply.
The profit margin of Omar Used auto part on supply is:
AED 200 – AED 100 = AED 100 (Selling price- purchase price).
The profit margin includes tax. As a result, the tax due may be computed as follows: AED 100 (tax included)
Tax rate = 5%
Hence, tax amount = 100 * 5 / (100 + 5) = AED 4.76
How to get a VAT refund in the UAE?
Follow these procedures to make a refund claim:
- Visit the FTA’s e-Services portal.
- Navigate to the VAT tab, then to the VAT Refunds tab, and then to the VAT refund request form.
- Fill out the form. Some areas are pre-populated with information from your account. Check that the information you’ve entered is correct, then submit the form by clicking ‘Submit.’
- After you submit the form, the FTA will send you an email informing you of the outcome of your refund claim. The reimbursement will be handled within 5 business days once the claim is approved.
- You may confirm the refund amount by checking your balance on the e-Services portal’s My Payment tab under the Transaction History section.
What is the VAT delay in UAE?
The penalty for late VAT Dubai payment will be as follows:
- 2% of the outstanding tax is required right now.
- 4% is payable on the seventh day after the payment deadline.
- A 1% daily penalty will be applied to any sum that remains due one calendar month beyond the payment deadline, up to a maximum of 300 percent.
What is the VAT on gold purchase in UAE?
Gold and other precious metals are subject to a 0% VAT rate in the UAE. This means that you will not be charged VAT on the purchase price of gold, and you will not be able to claim any input tax credits for the VAT paid on gold purchases.
Is there VAT on commercial rentals in the UAE?
Yes, VAT is levied on business leases in the UAE. The standard rate of VAT is 5%.