In the UAE, VAT (Value Added Tax) was introduced in January 2018 at a rate of 5%. It applies to a wide range of products and services, such as consumer goods, hotels, restaurants, transport and telecommunications. Businesses must register with the Federal Tax Authority to be authorised to collect and declare VAT.
The VAT system in the UAE is similar to the system in France or Belgium for example with the principle of output VAT and deductible VAT.
The 4 different VAT systems in Dubai
In the United Arab Emirates there are 4 different VAT regimes.
Mandatory
Companies registered in the mainland or in the freezone are obliged to register for VAT if their sales for the past year or the next month exceed AED 375,000.
Please note! If you exceed the AED 375,000 limit, you must register for VAT within 20 days to avoid penalties.
Once registered, you will be able to reclaim the VAT on your purchases.
Note:
In Dubai, penalties for not registering for VAT can include financial penalties and legal action. Businesses that fail to register may be exposed to penalties such as administrative penalties, penalties for failure to file and penalties for failure to pay. Penalties may vary depending on the severity of the violation and the duration of the non-compliance.
Voluntary (Volontary)
The amount of your profit for the past year or the next month is between AED 187,500 and AED 375,000.
Voluntary VAT (Value Added Tax) registration in Dubai is a process where a business can choose to register with the Federal Tax Authority to be allowed to collect and declare VAT. This process is optional for companies with a turnover of between AED 187,500 and AED 375,000, who still wish to collect and declare VAT for business reasons.
Voluntarily registered businesses have the same VAT obligations as compulsorily registered businesses, such as keeping accurate financial records and submitting periodic VAT returns. Businesses are advised to consult a chartered accountant to determine whether voluntary VAT registration is an appropriate option for their business.
Exception
The registration exception applies to businesses that operate exclusively outside the UAE and outside the GCC countries, and do not intend to have any.
Please note! If the threshold of AED 375,000 is exceeded, the VAT registration must be done within 20 days. The company will not receive a VAT number, which will prevent it from reclaiming VAT on its purchases. It is not necessary to make a quarterly return in this case, but registration is mandatory if you wish to reclaim VAT. Only businesses operating in the service sector need to register to benefit from the exemption. Businesses engaged in import-export activities outside the UAE do not need to register to benefit from the exemption.
Exemption
VAT exemption in Dubai refers to the process by which a business can be exempted from collecting and paying VAT on certain goods and services it provides. Examples of goods and services that may be exempt from VAT include basic foodstuffs, medical supplies and educational services, oil and gas, real estate and transport. To qualify for VAT exemption, a business must apply to the FTA for VAT exemption and provide evidence to support the application
If your business meets the mandatory turnover threshold, then registration will be required (to be ticked on the registration form if you are concerned with VAT exemption).
Who needs to register for VAT in the UAE?
All businesses located in Dubai and other emirates that have generated a turnover of more than AED 375,000 in the last 12 months or plan to do so, must register for VAT within 20 days.
The VAT registration thresholds are as follows:
– Mandatory VAT registration threshold = More than AED 375,000
– Voluntary VAT registration threshold = Between AED 187,500 and AED 375,000
Non-Emirates based businesses can only apply for VAT exemption if they meet certain criteria.
VAT rates applicable to goods and services
0% VAT
- The shipment of goods and equipment to locations outside the UAE and other Gulf countries (therefore, invoicing a customer residing abroad in the Gulf countries will result in a 0% VAT rate);
- The supply of certain sea, air and land transport (e.g. aircraft and ships);
Supply of certain precious metals for investment (e.g. gold, silver, 99% excellence);
- Newly constructed residential properties that are initially offered within three years of construction;
- The provision of specified educational services and the supply of related goods and services;
- The provision of specified health services and the supply of related goods and services.
5% VAT
The 5% VAT introduced in the UAE is a comprehensive tax system that applies to the majority of goods and services supplied by businesses. This tax was first introduced in 2018 and has since been helping to improve the nation’s economy.
It not only affects businesses and consumers, but also offers better protection to both parties, as it ensures that all goods and services are provided at their real value and in full transparency. It is worth noting that the usual 5% value added tax rate applied in the UAE is suitable for many businesses selling their goods and services in the country. These items include:
- Entertainment;
- Electronics;
- Accommodation facilities;
- Food and drink;
- Payment for utilities;
- Private transport services;
- Educational facilities;
- Commercial rents;
- Cars;
- Jewelry;
- etc.
Our firm’s support
Benefit from the sound advice of a team of chartered accountants. We offer you assistance tailored to your needs and the specificities of your business. Ares Accounting has worked on a range of solutions designed to make it easier for you to manage your business with regard to VAT in Dubai. Whether you are a consultant, a real estate investor, a craftsman, a trader or a freelancer, Ares Accounting offers you the support you need.
For more information, please contact us at support@ares-accounting.ae.