VAT Exception Number vs. Tax Registration Number
Have you heard about the VAT exception application? If yes, do you know what are the advantages and disadvantages? Do you know your business needs a VAT Exception or Tax Registration Number? Through this article, let us make the concepts clear and make a wise decision for your business.
As per Article 17 of UAE VAT Law, a taxable person (let us name a company for easy reference) who crosses the taxable sales and/ or import of goods to UAE exceeds AED 187,500/- or taxable expenses exceeds AED 187,500/- in the previous 12 months or expected to exceed the said threshold in coming 30 days, can apply for Tax Registration Number (TRN) voluntarily. At the same time, as per Article 13 of UAE VAT Law, if the sales and/ or import of goods to UAE exceeds AED375,000/- in the previous 12 months or is expected to cross the said threshold in the coming 30 days, the company shall apply for a Tax Registration Number under VAT Law within 30 calendar days. Failure to apply within the timeframe after crossing the mandatory threshold can be penalized for late registration AED 10,000/-
Zero-Rated Supplies
UAE VAT Law has classified certain supplies of goods or services as Zero-Rated Supplies. Below are some examples:-
- Export of goods or services from UAE
- Healthcare services and related products
- Educational services
- International Transportation
Any company that provides the above supply shall categorize this transaction as Zero-rated supply and charge 0% VAT to the customer in the invoice.
A company that provides only Zero-rated supplies under UAE VAT, will neither collect VAT from the customers nor pay to the Federal Tax Authority. In this context, the authority brought the concept of applying for a VAT exception. Let us read further to enlighten about the difference between VAT exception application and normal VAT registration;
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VAT registration |
VAT Exception |
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Can be applied once the threshold is crossed (Standard rated and Zero Rated)
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Can be applied only if the company has Zero-rated supplies
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Can be applied based on the taxable expenses
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Cannot be applied based on the taxable expenses.
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Can be applied on crossing the voluntary threshold or Mandatory threshold
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Can be applied only once crossed the mandatory VAT registration threshold (AED 375,000/-)
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Required to file VAT returns on a quarterly basis
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No need to file a Quarterly VAT return
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Can claim the refund of input VAT credit (VAT paid for expenses inside UAE), if available
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Since no VAT filing is required, input VAT credit or refund is not applicable.
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No need to do convert to Tax Exception under any circumstances, on a mandatory basis. |
Upon doing any standard-rated supplies, the VAT exception shall be converted to TRN.
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Gives discounted rate of fee while applying for Tax Residency Certificate
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While applying Tax Residency Certificate, no discount is applied on the government fee. |
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Shall follow the Tax Invoice format as prescribed by the Federal Tax Authority |
Not required to raise tax invoices. |
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A VAT registration certificate will be issued by FTA |
Only email confirmation will be received from the FTA |
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Tax Registration number ending with number “03” |
Tax Registration number ending with alphabets “XC” |
Let us discuss some case studies and advisory given by Flying Colour Tax Consultant:-
A UAE Free Zone company providing management consultancy to only foreign clients. The free zone company has exceeded AED 375,000/- sales revenue in the previous 12 months. The company has no taxable expenses inside the UAE. The Free Zone Company is planning to engage a management consultancy contract with a UAE company in another 3 months.
Advisory from Flying Colour Tax Consultant:-
Since the Free Zone Company has crossed the mandatory VAT registration threshold, the application shall be made within 30 days from the date exceeding the mandatory threshold. The company is providing management consultancy only to foreign clients from UAE which can be considered as Zero-rated supplies. This gives the free zone company the option to either apply for VAT exception or TRN.
We further analyzed that the Free Zone Company has no taxable expenses inside the UAE and no VAT to claim. Should we advise the client to go for a VAT exception to avoid the hassle of Quarterly VAT return filings? No, we concluded our advisory to the client that TRN application is recommended since the Free Zone Company planning to engage a contract with another Free Zone company which will be considered as Standard-rated for UAE VAT (5% VAT). Any company that obtained a VAT exception registration shall convert to TRN up on expecting any standard-rated supplies in the coming 30 days. In order to avoid this administrative work, we concluded our advisory to apply for VAT and get the Tax Registration Number (TRN)
To learn more about Difference between VAT Exception Number and TRN under UAE VAT LAW, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.