VAT in UAE

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VAT and VAT Registration in UAE

VAT is an abbreviation for Value Added Tax.

It is a percentage (%) of the sale price. VAT is a type of tax that is added to the price of goods or services at every stage of production or distribution. When a business sells a product or service, they add VAT to the price and collect it from the customer. The business then pays th is collected VAT to the government ’ s arm, Federal Tax Authority [“ FTA ”] , after adjusting for VAT paid on its eligible purchases/expenses .

In UAE, VAT was introduced from January 1, 2018, with a standard rate of 5% on all residual items . There are four (4) defined goods/services categories which are Exempt from VAT and fourteen (14) other defi ned items/categories chargeable @0%.

VAT is chargeable in UAE only if the Place of Supply is UAE. There are separate rules for Goods and another set of rules for Services.

VAT R egistration in UAE is the process by which businesses register with the Federa l Tax Authority (FTA) to obtain a VAT number and become eligible to charge, collect, and remit VAT on their taxable supplies. It is mandatory for businesses that meet certain criteria to become eligible for VAT Registration in UAE.

Who needs to registe r for VAT in UAE

In the UAE, the businesses or individuals that are covered by the below criteria are required for register for VAT. Based on their turnover the VAT Registration can be under any of the below two categories:

1. Mandatory Registration: This registration type is mandatory for businesses that meet the following criteria: o

Businesses with an annual turnover (over the previous 12 consecutive month s ) exceeding AED 375,000 ^1 [USD 100,000 equiv.]
Businesses that expect to exceed th is threshold within the next 30 days [ Article 7(2) of The Executive Regulation of the Federal Decree – Law No. 8 of 2017 on Value Added Tax ]
Businesses that provide taxable supplies or imports (goods and/or services)
Non – resident businesses that make taxable supplies in the UAE and their customer is not obligated to account for VAT in UAE

2.Voluntary Registration: This registration type is optional for businesses that do not meet the mandatory registration criteria but wish to register for VAT voluntarily. Businesses that register voluntarily can benefit from being able to reclaim the VAT they pay on their business purchases/ expenses. The Voluntary Registration t hreshold shall be AED 187,500 [USD 50,000 equiv.], whether on the basis of supplies (turnover) or purchases/expenses.

It is important for businesses to determine which type of registration they need to apply for based on their business activities and turnover .

Once registered, businesses must comply with VAT regulations, mainta in proper records, issue tax invoices, and submit periodic VAT R eturns ( generally Quarterly, not necessarily calendar quarter ) to the FTA. Failure to comply with VAT regulations can result in penalties and fines.

Calculating the Tax Registration Thresh old

To determine whether a Person has exceeded the Mandatory Registration Threshold and the Voluntary Registration Threshold, the total of the following shall be calculated:

The value of taxable Goods and Services.
The value of Concerned Goods and Concerned Services received by the Person unless covered by Clause 1 of thisArticle.
The value of the whole or relevant part of Taxable Supplies that belong to a Person if he has, wholly or partly,acquired a Business from another Person who made the supplies.
The value of Taxable Supplies made by Related Parties pursuant to the cases stated in the Executive Regulation ofthis Decree-Law.

What is the penalty for delay in VAT Registration

Failure by a Taxable Person to submit a registration application within the timeframe specified is AED 10,000 [USD 2,725 equiv.] . [ As per Table 1 of Cabinet Decision No. 49 of 2021 on Amending some Provisions of Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violation of Tax Laws in the UAE

Exception from VAT Registration

A Taxable Person that wants to apply for an exception from Tax Registration on the basis thatall of his supplies are zero rated, shall apply to theFTAin a manner and by means specified by theAuthority.
TheAuthority shall review the exception from registration application and either accept theexception from Tax Registration or notify the Taxable Person that his application is rejected.
A Person excepted from Tax Registration must notify the Authority ifhe makes any supplies orImports of Goods or Services that are subject to Tax at the standard rate.
A Person shall give the notice referred to in Clause 3 of this Article within not more than 10business days of making the supply or import which is taxable at the standard rate.
Where the Person ceases to satisfy the requirement of being excepted from Tax Registration,he shall be required to register for Tax.

Source:

i.Federal Decree-Law No. 8 of 2017 and its amendment effective 1 Jan 2023 on Value Added Tax

ii.Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (Cabinet DecisionNo. 52 of 2017 and its amendments)

iii.Cabinet Decision No. 49 of 2021 on Amending some Provisions of Cabinet Decision No.40 of 2017 onthe Administrative Penalties for Violation of Tax Laws in the UAE

VAT in UAE

VAT and VAT Registration in UAE

Who needs to registe r for VAT in UAE

Calculating the Tax Registration Thresh old

What is the penalty for delay in VAT Registration

Exception from VAT Registration

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