Guide for VAT Registration in the UAE
VAT was introduced in the United Arab Emirates (UAE) on 1 January 2018.VAT is a tax levied based on the consumption or usage of services by the end consumer. VAT is paid by the end customer, there is always a supply chain involved in this. VAT is a mandatory requirement to be registered as per VAT law introduced by the Federal Tax Authority (FTA).
✅ Taxable supplies:
Refers to goods and services that are subject to VAT, the supply can be standard-rated or zero-rated.
✅ Place of supply of UAE:
The place of supply can be within UAE or outside UAE depending on where the movement of goods is happening and where the service is being rendered, it can be within UAE if the service is being rendered within UAE VAT rate applicable would be standard rated @5% or zero rated or exempted. if its export of service will be considered as zero-rated, service rendered outside can also be out of the scope of VAT as well depending upon where the service is being rendered and certain special cases of services.
If the Place of supply is outside the UAE:
VAT applicability is out of scope in case the goods are located outside the UAE at the time of supply. In the case of services, the default place of supply is the place of residence of the service provider whereas, in certain special cases, the default rule changes. If the place of supply of services is outside UAE, then UAE VAT is not applicable.
Requirements to be registered for VAT
➡️ Mandatory threshold:-
AED375000/*-Any business whose taxable supplies and import exceeds a threshold of AED375000/*- in the last 12 months or is expected to be exceeded in the coming 30 days, is mandatory to register for VAT within 20 business days. If not done with the timeline there will be an administrative penalty of AED10,000/*- along with variable penalties in terms of late VAT filings as well penalties on VAT payable.
➡️ Voluntary threshold: -
Businesses whose taxable supplies and import value are below AED375000* but over AED187500/*- in the last 12 months can voluntarily register for VAT.
Please note that a registration threshold is applicable for residents only. In case the goods delivered or services provided by a non-resident in UAE (to the consumer), the non-resident shall register from the first supply.
VAT return filing
Once a company is registered for VAT, and they have received the TRN approved by FTA They will be required to do VAT return filing every quarter, 4 times a year, from the date of the effective date of VAT, as there will be a date mention in certificate.
There will be a deadline to submit the VAT return every quarter within 28 days from the end of the tax quarter, in general, and it can vary depending on the holidays which may fall on the 28th day.
VAT payment is the difference between what is collected and what is spent. If excess, it can be either adjusted in future quarters or applied for a refund.
✔️ Late filing penalties
The businesses that are registered for VAT should do their VAT return filing within the timeline stipulated as per UAE VAT law.
If the same is not done within the timeline there will be penalties as below:-
✔️ Late VAT return filling:-
If businesses miss filing their VAT return by the deadline there will be an administrative penalty of AED1000/*- if the same is repeated within 24 months the penalty increases to AED2000/*- for the upcoming month till they file the VAT return.
✔️ Penalty on VAT is payable:-
If there is a VAT to be paid once we file the return same payment needs to be made before the 28th of the tax period, if any business misses doing that there will be a penalty of 2% for the first month if same is not cleared within first-month penalty will be increased to 4% from the second month onwards. The month can be a full month or part of the month.
VAT tax rates in UAE
✅ Standard rate
The default VAT rate applied locally on goods and services is 5 % Examples can be the sale and purchase of goods locally in the UAE, consultancy services are provided locally, the event was conducted locally in the UAE, commercial properties, and short-term residential properties on rent.
✅ Zero rated:-0%
There are a few services where VAT is charged at 0 rated, such as export of services, export of goods, and consultancy provided from UAE to a non-resident who is the beneficial recipient of the service and the recipient is not present in UAE at the time of service being rendered. Below are few examples;
- International transportation of passengers and goods.
- Certain educational services are based on the approved curriculum.
- Certain supplies of goods and services in the medical field are 0 rated as they are prescribed by the approved medical practitioner.
Please keep in mind that Input VAT can be claimed in the case of zero-rated supply as well.
Exempt supply
An exempt supply is a supply where there is no VAT charged or paid examples can be:-
- Bare land
- local passenger transport
- Financial services
- Residential accommodations – First supply is 0%
Any exempt supply provided to a non-resident is considered zero-rated.
Based on exempt supply, the supplier cannot register for VAT. However once registered based on other eligibility criteria, while filing the VAT return, the exempt supply is required to be VAT return. At the time of VAT return filing, any input VAT related to the exempt supply is required to be disregarded.
Conclusions
Registration for VAT is mandatory once the taxable supply or export exceeds, or if they are expecting the same to be achieved in the upcoming 30 days it's mandatory to register for VAT, to avoid an administrative penalty of AED10,000/*-. After reading the above blog we are sure about when to register for VAT, why Is it mandatory what penalties we can avoid if we follow the UAE VAT law. We have explained about taxable supplies when we need to charge standard rated when the supply will be out of scope and when the supply would be zero-rated.
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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.