An introduction to value added tax (VAT) in the UAE in 2023
- On 1st January 2018, the UAE Government introduced the Value Added Tax (VAT) that will apply to most supplies of goods and services at a standard rate of 5%. Some selected goods and services will however be exempt or zero-rated;
- All companies based in UAE whether mainland or free zone entities must register for VAT if their taxable supplies and imports equals or exceeds AED 375,000 (approx. US$100,000) per annum;
- It is however optional for those companies whose taxable supplies and imports exceed AED187,500 (Approx. US$50,000) but are below AED375,000. These companies may voluntarily choose to register for VAT;
- Upon registration for tax, a company is issued by Tax Registration Number and a VAT certificate. All tax invoices issued by such company must mention i) the tax registration number ii) the rate of the applicable VAT and iii) the total amount of VAT charged by the company;
- Businesses can either register for VAT through the UAE Federal Tax Authority (FTA) website by creating an online account and submitting the relevant documentation required by the FTA or through a corporate services provider. Healy Consultants Group PLC assists our Clients to timely register for VAT with the FTA.
- The VAT will apply equally to VAT-registered business within the UAE mainland and those within the UAE Free Zones. However, the UAE Government has classified some free zones as Designated Zones that are treated as non-residents for tax purposes. Some of these free zones include:
- The transfer of goods between these Designated Zones is tax exempt. The Federal Decree-Law No. (8) of 2017 on Value Added Tax (VAT) provides the full list of UAE Free Zones under this regime;
- The transactions designated as exempt or zero rated by the Federal Decree Law on VAT include i) margin based financial services ii) life insurance iii) specified education and health services iv) residential rentals v) local and international transport and vi) specified oil and gas products;
- Subject to certain conditions, UAE businesses will be able to recover VAT incurred on purchases of goods and services provided those purchases are utilized by the company for business purposes. The input tax can only be recovered if it relates to a 5% taxable or zero-rated supply;
- Because the UAE VAT law is not conclusive, it is also anticipated that VAT incurred within the UAE by non-resident business doing business in UAE but not registered for VAT will be refunded to such businesses.
- Companies with an annual turnover not exceeding AED150 million (Approx. US$40million) must submit their tax returns quarterly. Companies with turnovers exceeding AED150million must however file their returns monthly. The FTA may assign different tax periods for companies depending on business activity sector;
- All companies must file their VAT returns within 28 days following the end of the taxable period prescribed by the UAE Government based on the company’s annual turnover;
- The Cabinet Resolution No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE outlines the fines payable to the UAE Government by those companies that may fail to comply with the stated timeframes for tax return filing;
- Companies can file their quarterly or monthly tax returns electronically through the FTA website following these four simple steps as outlined by the FTA;