Understanding VAT in the UAE: Registration, Exemptions, Deadlines, and Common Mistakes

This article has been researched and written by the Tax & Compliance Team at Creation Business Consultants. AI has not been used in generating this article.

WHAT IS VAT IN THE UAE?

Value Added Tax (VAT) in the UAE is a tax on goods and services introduced in the UAE on January 1, 2018. The regular rate of VAT is 5% applicable on most transactions, which makes it an important part of the financial process for businesses and consumers alike. Being compliant with VAT regulations is necessary for businesses. To avoid costly mistakes, being aware of registration guidelines, deadlines for filings, and penalties for non-compliance will ensure your business can run smoothly.

WHO NEEDS TO REGISTER FOR VAT?

Businesses operating in the UAE, more specifically conducting taxable activities, must determine if they require registration. The current registration limit is AED 375,000. Here’s a breakdown of entities that must register:

• Natural Persons: Individual taxpayer that has taxable turnover in excess of the threshold.
• UAE-based Business Entities: consists of Limited Liability Companies (LLC), Joint Stock Companies, Partnerships, and Sole Establishments
• Foreign Companies: A company with a Permanent Establishment (PE) operating in the UAE, undertaking taxable business activities.
• Free Zone Entities: Any business operating within UAE Free Zones that is in business for supply.

WHICH ENTITIES ARE EXEMPT FROM VAT REGISTRATION?

Some entities and sectors are exempt from VAT registration, meaning they are not required to collect or remit VAT. Key exemptions include:

1. Government Entities: As a rule, governments, the federal and state governments, are normally VAT-free.
2. Public Entities: Organisations that render public services funded by the government may be considered VAT-exempt.
3. Real Estate Sector: Transactions concerning residential real estate, including the selling or leasing of buildings for residential purposes.
4. Charities and Non-Profit Organisations: Registered charities or not-for-profit organisations qualifying for VAT exemption (certified not-for-profit) may be able to recover VAT costs or expenditures.

VAT Registration Deadlines

Getting VAT registration right will impact fine avoidance:

• Mandatory Registration: Where your taxable supplies exceed AED 375,000, the business must register for VAT no later than 20 working days after you reach this threshold.
• Voluntary Registration: Where your supplies are in the range of AED 187,500 – AED 375,000, you have the use, if you wish, to register voluntarily.

Filing VAT Returns and Payment Deadlines

VAT-registered businesses must submit their VAT returns on a quarterly or monthly basis, depending on the nature of the supplies:

• Filing Deadlines: VAT returns must be filed within 28 days of the end of your tax period.
• Payment Deadlines: Your payment obligations must also be resolved by this date.

TIPS TO AVOID VAT COMPLIANCE ISSUES

1. Issue Correct Tax Invoices: It is very important for tax invoices to meet legal requirements to indicate the correct details for VAT.
2. Seek Professional Tax Advice: Engaging with a UAE tax advisor should ensure you are up-to-date and compliant with the amount of regulation that applies.
3. Organise Your Records: Keep your records complete! Keep your invoices and receipts together, as it is important that your filing is as correct as possible.
4. Be Informed of Legislative Matters: Tax law is fluid; it is cost-effective to constantly attend workshops to legitimise compliance and update yourself.
5. Have Internal Controls: Operating financial checks and controls could assist.
6. Reconcile Accounts Regularly: Depending on the amount of work you experience, consider reconciling your accounts at least every month to expedite corrections to errors.

VAT compliance in the UAE is an area that requires understanding, patience, timely filing and being proactive to avoid penalties. If your business is looking for measures to remain compliant, Creation Business Consultants can assist you in all areas of VAT compliance, including registration, filing, and more.

Contact us today to learn more about how we can assist with VAT and other tax-related services:

• Email: [email protected]
• UAE: +971 4 878 6240
• Saudi Arabia: +966 56 865 2329