UAE Guide: VAT Registration
Value Added Tax or VAT was introduced in the UAE on 1 January 2018 as a tax at 5 per cent on the consumption or use of goods and services levied at each point of sale. It is a form of indirect tax and is levied in more than 180 countries around the world where the end-consumer ultimately bears the cost while Businesses collect and account on behalf of the government for the tax collected by them.
Criteria for registration of VAT in Dubai, Abu Dhabi, Sharjah, UAE
A business in UAE must register for VAT once its taxable supplies and imports exceed AED 375,000 per annum. However, for those businesses whose supplies and imports exceed AED 187,500 per annum, it is optional. VAT is also applicable for foreign businesses who may at a later stage recover the VAT they incurred when visiting the UAE.
How to collect VAT?
Businesses registered under VAT regime collect the amount in the form of a 5 per cent increase in the cost of taxable goods and services on behalf of the government and resultantly consumers bear the VAT on purchases in the UAE. Tourists are no exception to this in the UAE as they also need to pay VAT at the point of sale.
To which businesses does VAT apply?
VAT applies equally to both tax-registered businesses in the mainland and in the free zones managed on the UAE. However, once the UAE Cabinet defines a certain free zone as a ‘designated zone’, it is to be treated as business carried on outside the UAE for tax purposes. Therefore, the transfers of goods between these designated zones are tax-free.
The Designated Zones as decided by the UAE government for tax free purposes are subject to:
- strict control criteria;
- fulfilling the requirement of having high security procedures in place to control the movement of goods and people to and from the designated zone;
- having the required Customs procedures to control the movement of goods into and out of the designated zone;
- Being treated as outside the territory of the UAE for VAT purposes for certain supplies of goods.
Filing a return under VAT in Dubai, Abu Dhabi, Sharjah, UAE
At the end of every tax period, the registered businesses under VAT or the persons fulfilling the criteria mentioned under the definition of ‘taxable persons’ must submit a ‘VAT return’ to the Federal Tax Authority (FTA). This VAT return summarises the entire value of the supplies and purchases a taxable person has made during the relevant tax period, and indicates the taxable person’s VAT liability.
Calculation of Tax Liability in VAT regime
The Tax liability under VAT is the difference between the output tax payable (VAT charged on the supplies of goods and services) during the given tax period and the input tax recoverable (VAT incurred on purchases) for the same tax period.
If the output tax exceeds the input tax amount, the difference is the net tax payable and must be paid to FTA. However, if the input tax exceeds the output tax, the concerned taxable person can claim the excess input tax paid during the purchase of goods and services as refund and he will also be entitled to set this off against subsequent payment due to FTA.
For enquiries Phone (UAE): +971 567952590