IV: Understanding VAT in the UAE (10 things to know before setting up a business in the UAE)

Nitin Antony | 12 Jun 2023 | Middle East perspective

In 2018, the UAE implemented a Value Added Tax (VAT) system, marking a significant shift in its taxation landscape. Understanding VAT in the UAE is crucial for businesses and individuals alike. In this article, we will delve into the key aspects of VAT and provide you with a comprehensive guide to navigating taxation in the Emirates.

Here are some key details about VAT in the UAE:

VAT Rate

The standard VAT rate in the UAE is 5%. This applies to most goods and services, except for essential items such as healthcare, education, and certain food items. Some goods and services may be subject to a zero-rate or exempt from VAT altogether.

VAT Registration

Businesses operating in the UAE must register for VAT if their annual turnover exceeds the mandatory threshold of AED 375,000 (USD 102,00). However, voluntary registration is also possible for businesses with turnover below the threshold. The registration process involves creating an account on the Federal Tax Authority (FTA) website and submitting relevant documents, such as trade licence copies, financial statements, and company formation documents.

VAT Compliance and Record-Keeping

VAT compliance is essential to avoid penalties and fines. Registered businesses must maintain accurate VAT records, including invoices, accounting books, and relevant documentation. Proper record-keeping allows businesses to calculate input and output VAT accurately, facilitating the submission of VAT returns.

VAT Returns and Payments

Registered businesses are required to file VAT returns on a regular basis, typically on a quarterly basis. VAT returns summarize the VAT charged and paid during a specific period. Businesses must calculate the VAT liability accurately and make payments to the FTA within the designated time frame. Input tax credits can be claimed to offset the VAT liability.

VAT Impact on Imports and Exports

VAT applies to imports into the UAE, with the tax liability paid at the time of customs clearance. However, certain goods and services may be eligible for zero-rating or exemptions when it comes to exports, ensuring that the tax burden does not hinder international trade.

VAT and Tourist Refunds

The UAE offers a VAT refund scheme for tourists visiting the country. Eligible tourists can claim a refund on VAT paid for eligible purchases, subject to certain conditions. Dedicated tax refund centers at airports and other designated locations facilitate this process.

VAT Audits and Penalties

The FTA conducts regular audits to ensure VAT compliance. It is crucial for businesses to maintain accurate records and adhere to the VAT regulations. Non-compliance can result in penalties, fines, and potential reputational damage.

The introduction of VAT (the forerunner of the corporate income tax that has now arrived) in the UAE has transformed the country’s tax landscape and brought it in line with global taxation practices. Understanding VAT and its implications is vital for businesses and individuals operating in the Emirates. By familiarizing themselves with VAT registration, compliance, and record-keeping requirements, businesses can navigate the UAE’s taxation system successfully. Seeking professional guidance and staying up to date with any changes in VAT regulations is essential for maintaining compliance and optimizing financial management. Our team is on hand and can introduce you to professional advice and support services.