VAT Registration in UAE and its Implications for Businesses
Contributed by Aurion
23 June, 2020
It's been two years since the VAT is implemented in the UAE. VAT implementation is progressing in the right direction, with more companies registering for VAT, indicating a positive market scenario.
The Federal Tax Authority (FTA) has stated that the number of businesses registered for VAT in the UAE has increased to 312,000 since 2018.
An overall increase of 5.4 percent was seen in 2019 for new VAT registrations indicating a positive outlook.
VAT Implementation in the UAE
VAT is implemented in the UAE as part of the Economic Agreement between all the GCC States to find newer income sources for the Government.
The countries in the GCC region have collectively stepped up efforts to work out on new economic governance and public policies to support the economy of the region.
The aim is to diversify the Arab region from Oil & Gas production to other income sources for long-term sustainability.
VAT for Businesses in the UAE
Criteria for the Registration for VAT
- If the company's taxable supplies and imports exceed AED 375,000 per annum
- Also, a business may choose to register for VAT voluntarily if their supplies and imports are in the range of AED 187,500 per annum
Also, start-ups and businesses can voluntarily register for VAT for future purposes.
VAT-related Responsibilities for Businesses in the UAE
Businesses must record financial transactions and ensure financial records are accurate and up to date.
The VAT-Registered business has to ensure that they follow:
- Must charge VAT on taxable goods or services they supply
- May reclaim any VAT they've paid on business-related goods or services
- Keep a set of business records that will allow the government to review
VAT Statement Submission
There will be a formal submission of VAT Statements where the reporting will include the amount of VAT charged and the amount you have paid to the government regularly.
Hence, managing the company financials are a very important area for businesses to avoid any penalties.
VAT on Real Estate
The VAT treatment of Real Estate depends on whether it is commercial or residential property.
- Supplies (Sales/Leases) of commercial properties are taxable at the standard VAT rate (5%)
- Supplies of residential properties are generally exempt from VAT. (Supplied for the first time in the first three years of the construction)
Zero-rated Sectors in VAT Calculation
VAT will be charged at 0% in respect of the following main categories of supplies:
- Export of goods and services to outside the GCC
- International transportation, and related supplies
- Supplies of aircraft and ships for transportation
- Certain investment in precious metals
- Newly Constructed residential properties, (supplied for the first time in the first three years of the construction)
- Supply of financial services
- Supply of certain education services and local passenger Transport
Documents Required for VAT Registration in Dubai
- Company Trade license copy
- Passport copy of the owner or partner of the company mentioned on the trade license
- Emirates ID of the owner/partner of the company as per trade license
- Memorandum of Association (MOA)
- Company address and physical location
- Company Secretary/representative Contact. (Point-of-contact from the company with email, number, profile)
Additional Documents Required for VAT Registration in UAE
- Company Bank Details
- Details of other commercial establishments of the partners (if any)
- Income statement for the last 12 months (Signed & Stamped by Company owner/manager)
- Expected revenue, turnover, the expense for the next 30 days after VAT implementation
- Details of export or import activities carried out by the company (if any)
- Custom Code along with the Dubai Custom code certificate copy
- Details of GCC Company relations and business links
- Detailed profile of the company's business operation in the last 5 years.
The investor has the provision to specify the requirement to be registered as a tax group for all the entities or as separate tax numbers for each of the entities.
To Which Businesses Does VAT Apply?
VAT applies equally to all tax-registered businesses managed on the UAE mainland and in the Freezones.
However, there are designated Freezones that are outside the scope of VAT.
The transfer of goods between designated zones are tax-free, but any transaction outside of the Freezones will be subjected to the normal VAT rate.
Filing a Return for VAT
VAT registered businesses must file the VAT return at the end of each tax period. to the Federal Tax Authority (FTA).
A VAT return is a summary of the company's VAT liabilities. The VAT filing report indicates the value of supplies and purchases the company had initiated during the tax period.
When Should the Business File a VAT Return?
Taxable business must file for VAT with FTA on regular intervals usually within 28 days of the end of the tax period defined of each business.
The standard tax period is:
- Quarterly or businesses with an annual turnover below AED 150 million
- Monthly for business with an annual turnover of AED 150 million
The Implications of VAT for Businesses
Businesses have to document the income, cost, and associated VAT charges, as part of VAT reporting.
The registered business will charge VAT to all their customers at the prevailing VAT (5%) on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
For further assistance on VAT registration, VAT filing, and VAT Audits, reach out to our expert team today!
Contact: Aurion Business Consultants
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