VAT SERVICES
IN DUBAI, ABU
DHABI & THE UAE

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 and import of medication and medical equipment registered with the Ministry of Health and 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 and 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, and related goods and services.
• Supply of certain education services and related goods and services.
• Supply or import of investment precious metals (e.g. gold and 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 and natural gas.

VAT-EXEMPT SECTORS

• Some financial services.
• Residential properties.
• Bare Land.
• Local passenger transport.

TAX GROUP

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 and control of the others.

VAT PENALTIES

Violation of VAT requirements as set by the Tax Law in the UAE range from the lowest AED 1,000 to a 300% cap.

WHAT ARE THE RISKS RELATED TO VAT SERVICES IN THE UAE?

Through careful planning and professional advice, the minimal risks connected to Taxes in the UAE can be reduced. You can handle the Tax legislations and procedures easily with the assistance of professional consultants, ensuring adherence to legislations and reducing potential risks.

For an expert consultation, contact Creation Business Consultants via email [email protected] or call +971 4 878 6240 today.