VAT registration in the UAE

On 1 January 2018, the UAE government implemented value added tax (VAT) in the country at a standard rate of 5%. The tax is levied at point of sale and businesses are expected to collect and account for the tax on behalf of the government. The introduction of VAT in the UAE is a response to the reduction in oil prices in recent years and is intended to help the government reduce its dependency on oil and hydrocarbons revenue and generate a new income source that can be directed to public services and contribute to the long-term sustainability of the country’s infrastructure.

The GCC member states have collectively agreed to establish unified framework agreements on the implementation of VAT and excise taxes, with each state individually determining their own criteria around how the law will be applied.

The 5% VAT rate is applicable to most goods and services. However, some will be subject to a 0% rate and others will remain outside the scope of the tax and therefore be exempt. Any supplier of goods and services which are deemed zero rated or exempt must still register this as such with the Federal Tax Authority (FTA).

Which goods and services will be subject to a 0% VAT rate?

The 0% VAT rate applies to any goods or services that are exported outside the VAT implementing GCC member states, any goods or services destined for international transportation, supplies of certain land, air and sea means of transportation, investment-grade precious metals, newly-constructed residential properties and certain education services and healthcare services.

The 0% rate is also applicable to anyone that is in the UAE for a period of less than a month and whose presence in the country is not related to the supply. This is deemed as ‘outside the state’ and therefore fall under the zero-rating export of services.

While effectively not subject to VAT, any companies that produce goods and services with zero-rated tax must still register for a VAT account and file tax returns.

Which goods and services are VAT exempt?

Goods and service suppliers that are deemed exempt from VAT are not required to register for VAT in the UAE or file tax returns. These are:

• Financial services

• Residential building (aside from those which are categorised as zero-rated)

• Undeveloped land

• Local passenger transport

• Goods that are bought by tourists and taken outside the country (VAT will be charged on any products that are consumed/used during their stay in the UAE)

• Certain goods transactions between companies registered in freezones classified as ‘designated zones’ (these are considered as outside the UAE for tax purposes)

The VAT registration threshold

The mandatory VAT threshold applies to all businesses whose taxable supplies and imports exceed AED 375,000 per annum. Business may also voluntarily register for VAT if their taxable supplies and imports exceed AED 187,500.

For any non-resident businesses making supplies on which the UAE VAT is required to be charged, no registration threshold applies.

What are VAT taxable supplies?

Taxable supplies refer to the goods and services that your company sells and on which VAT must be applied.

There are two types of supplies in the UAE, these are known as exempted supplies and taxable supplies. Taxable supplies can then further be subdivided into those which are classified as zero rated and those which are standard/full rated.

Zero rated supplies are those on which the VAT rate applied is 0%. Generally, all exports of goods and services in the UAE are considered as zero rated, though there are conditions established by the UAE executive regulations which must be met in order to charge 0% VAT.

Standard rated (taxable) supplies are those on which a 5% VAT rate must be added. For standard rate supplies, input VAT can be deducted since there is 5% VAT.

For all taxable supplies, the 5% rate must be factored in and added to the cost of the goods or services provided to your customer, therefore if you provide goods or services to your customer for a value of AED 100, you must then add AED 5 to account for the VAT, resulting in a total cost of AED 105.

How to register for VAT in the UAE

Anyone that is required to register for VAT must submit an application to the Federal Tax Authority (FTA) online via the Emara Tax portal within 30 days of reaching the mandatory threshold.

The service is free of charge and application takes approximately 45 minutes to complete. It is generally processed in 20 days from its receipt in the system. However, in some circumstances, the FTA may request additional information which must then be re-submitted with the allowance of a further 20 business days for approval.

When calculating your business’ taxable turnover figure, you must include the following:

• Taxable supplies

• Standard rated supplies

• Zero-rated supplies

• Deemed supplies

• Imported goods and services

What documents are required to be submitted for UAE VAT registration?

To register for VAT, the following documentation will be required:

1. Valid trade licence

2. Passport/Emirates ID of the authorised signatory/signatories

3. Proof of authorisation for the authorised signatory/signatories

4. Contact information

5. Bank letter validating the bank account details of the applicant

In some cases, further documentation will be required. This may include, but is not limited to:

• Audit report or non-audited financial statement

• Calculation sheet with details of taxable/zero-rated supplies based on financial records

• Evidenced revenue forecast

• Monthly turnover declaration

• Certificate of incorporation

• Articles of Association

• Power of Attorney documents (if applicable)

• Any other documentation with pertinent information about your business, its size and its activities

How can PRO Partner Group help?

PRO Partner Group and their locally based tax and audit specialists can advise you on the implications of VAT on your business and how you can best plan to ensure that your company has the right structure and systems in place to manage your VAT and tax obligations going forward and not be subject to unnecessary tax burden.

If you need assistance with any issues pertaining to value added tax in the UAE, or for any other related company setup, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or KSA, then please do get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at info@propartnergroup.com or complete the contact form below and we will be delighted to assist you.