IN DUBAI, ABU
DHABI & THE UAE
Our VAT service in Dubai, Abu Dhabi, and the UAE is part of our tax consultancy services in Dubai, Abu Dhabi and the UAE.
Value Added Tax (VAT) is an indirect tax on the consumption or use of goods or services; it is applied across the stages of the supply chain, from when the manufacturer purchases raw materials until the retailer sells the goods to the consumer. Registrants for VAT will collect the VAT applicable to their taxable activities from their customers and pay the tax collected to the authorities. Download the free UAE VAT invoice template.
Any natural and legal person who carries on economic activity is subject to VAT and is required to register for VAT.
HOW IS VAT CALCULATED?
A retrospective test calculates the total value of supplies made by the taxable person at the end of a month inclusive of the previous 11 months.
While a prospective test calculates the total value of supplies expected to be made by the taxable person within the next 12 months.
However, it is the notion in the KSA, for example, that most taxpayers are expected to register on the basis of the retrospective test. Accordingly, the taxable person must apply to the authority within 30 days of the end of that month; and the registration will be effective from the start of the next month following the month in which the application is submitted.
CRITERIA FOR VAT REGISTRATION IN THE UAE
It is mandatory for all resident persons in the UAE to register for VAT if their annual taxable supplies and imports over a 12-month period exceed AED 375,000. It is also optional for resident persons whose supplies and imports exceed AED 187,500 per year. Foreign businesses also can file to recover the VAT they incur when visiting the UAE.
WHAT IS THE VAT RATE IN THE UAE?
VAT was introduced in the UAE on 1 January 2018; the VAT rate is 5%.
REGISTRATION FOR VAT
Taxable Persons are required to register for VAT through the platform of the Federal Tax Authority (“FTA”).
The taxable person needs to issue a tax invoice within 14 days from the date of supply in the UAE currency.
At the end of the tax period, the taxable person needs to file a VAT return electronically.
A VAT return is filed each month for taxable persons with annual revenues of AED 150 million or more; or quarterly for taxable persons with revenues below AED 150 million.
VAT registered businesses are regularly required to report the amount they charged for VAT and the amount they paid to the FTA; if the amount they charged is higher than the paid amount, then they must pay the difference to the authority. On the contrary, if the VAT amount they charged is lower than paid amount, then the VAT registered businesses can reclaim the difference from the FTA.
DOES VAT APPLY TO ALL BUSINESSES ACROSS THE UAE?
Yes, VAT is equally applied on all businesses registered in the mainland and free zone jurisdictions. Yet, the UAE Cabinet defines certain free zone as a ‘designated zone’ thus treated as being outside the State. Goods transferred across businesses within the designated zones are free of tax. There are 27 designated zones across the UAE.
List of Supplies on which 0% VAT is charged:
- Supply & import of medication and medical equipment registered with the Ministry of Health & Prevention under its permission or approval.
- Supplies made by government entities are excluded from VAT if the entity is the sole provider of the supply and has no competition within the private sector.
- Direct or Indirect exports of goods and services outside the GCC territory.
- International transportation of passengers & goods that start, end or pass through the territory of the state.
- Supply of goods and services related to the transfer of goods and passengers abroad via land, air or sea.
- Air passenger transport if it is international carriage.
- Supply of certain means of sea, air and land transportation for the purpose of passenger and goods transportation.
- Supply of aircrafts and vessels for rescue purposes by air or sea.
- Supply of certain healthcare services, & related goods and services.
- Supply of certain education services & related goods and services.
- Supply or import of investment precious metals (e.g. gold & silver of 99% purity).
- Supply of buildings to be used by charities.
- Supply of buildings converted from non-residential to residential.
- Supply of residential buildings within 3 years of its completion.
- Supply of crude oil & natural gas.
- Some financial services.
- Residential properties.
- Bare Land.
- Local passenger transport.
A Group of companies can register for VAT as a Tax Group. The following are the requisites to form a Tax Group:
- Each Legal Person must have a place of establishment in the State.
- The Legal Persons must be related parties.
- One or more of the Legal Persons should have ownership & control of the others.
Violation of VAT requirements as set by the Tax Law in the UAE range from the lowest AED 1,000 to a 300% cap.
VAT IN OTHER GCC COUNTRIES
VAT was introduced on 16th April 2021 and the standard VAT rate is 5%.
A 10% VAT rate applies in Bahrain with effect from 1st January 2022.
Due to inflation & oil price hikes, Kuwait has second thoughts on introducing a VAT at a rate of 5% in 2023; instead, it is exploring the possibility of imposing an excise or turnover tax on a limited range of supplies.
There is no VAT imposed in Qatar yet; however, it is expected to be effective during 2023 at a 5% rate.