VAT and Tax

The Value Added Tax (VAT) regulations in the UAE are as follows:

• VAT Registration Threshold: Businesses with an annual turnover exceeding AED 375,000 must register for VAT. However, businesses with an annual turnover between AED 187,500 and AED 375,000 have the option to register voluntarily.
• VAT Rate: The standard VAT rate in the UAE is 5%. This rate applies to most goods and services unless they are specifically exempt or zero-rated.
• Exempt Supplies: Certain goods and services are exempt from VAT, meaning no VAT is charged on their supply (residential properties -except for the first supply within three years, local passenger transport, bare land, and certain financial services)
• Zero-rated Supplies: Zero-rated supplies are goods and services that are subject to VAT at a rate of 0%, but businesses can still recover input VAT (exports of goods and services, international transportation, and certain healthcare and educational services)
• Input Tax Credit: Businesses registered for VAT can claim an input tax credit on the VAT paid on their purchases and expenses, offsetting it against the VAT collected on their sales. This mechanism helps prevent double taxation and ensures that VAT is applied only to the value added at each stage of the supply chain.
• VAT Returns: Registered businesses are required to submit regular VAT returns to the Federal Tax Authority (FTA) in the UAE. The frequency of VAT return filing depends on the size and turnover of the business. VAT returns typically include details of sales, purchases, input tax, output tax, and the net VAT payable or refundable.
• Record-Keeping: Businesses must maintain proper accounting records, including invoices, records of supplies, purchases, expenses, and VAT records. These records should be retained for a specific period as per the UAE VAT regulations.

To register for Value Added Tax (VAT) in the UAE, you can contact us or you can apply by yourself following a set of steps:

• Determine the Registration Threshold
• Gather Required Documentation. This typically includes the Trade License and Commercial Registration Certificate of the business;  identification documents of the owner(s) and authorized signatories; Emirates ID or passport copies of the owner(s) and authorized signatories; proof of residency of the owner(s) and authorized signatories; details of business activities and the goods or services offered; bank account details of the business.
• Create an e-Services Account
• Access the VAT Registration Portal
• Submit the Registration Application
• Await Registration Confirmation
• Compliance and Ongoing Obligations

The tax filing deadlines in the UAE for Value Added Tax (VAT) are as follows:

• Quarterly Filing: If the business has an annual turnover below AED 150 million, it falls under the quarterly filing category. The deadline for filing VAT returns is on the 28th day following the end of the tax period.
• Monthly Filing: If the business has an annual turnover of AED 150 million or more, it falls under the monthly filing category. The deadline for filing VAT returns is on the 28th day following the end of the tax period.
• VAT Return Filing: The frequency of VAT return filing depends on the size and turnover of the business:
• Payment of VAT: Along with filing VAT returns, businesses are required to make the payment of VAT due to the Federal Tax Authority (FTA) within the specified deadline. The payment due date is generally aligned with the VAT return filing deadline. Businesses need to ensure that the VAT liability is settled by the due date to avoid penalties and interest charges.

• Administrative Penalties: These penalties are applied for general non-compliance with VAT regulations and can range from AED 500 to AED 50,000. The FTA may impose administrative penalties for actions such as late filing of VAT returns, late payment of VAT liabilities, failure to issue a tax invoice or tax credit note, failure to maintain proper records, and other similar violations.
• Late Payment Penalty: If a business fails to pay the VAT liability by the due date, a penalty of 2% of the unpaid tax amount is imposed immediately. An additional penalty of 1% per month or part thereof may be applied for each month of delay.
• Tax Evasion Penalties: Engaging in intentional tax evasion or fraudulent activities to evade VAT obligations can lead to severe penalties, including hefty fines and potential imprisonment. The penalties for tax evasion can be significant and may include fines up to three times the amount of tax evaded, along with potential criminal charges.
• Penalties for Non-Registration: If a business is required to register for VAT but fails to do so within the specified timeframe, penalties may be imposed. The penalty for non-registration can range from AED 20,000 to AED 30,000.
• Penalties for Incorrect Tax Returns: Submitting incorrect or inaccurate VAT returns may result in penalties. The FTA has the authority to impose penalties up to AED 50,000 for each incorrect return submitted.

The following are the key requirements for VAT invoicing:

Mandatory Information: VAT invoices must include the following mandatory information:

• The word “Tax Invoice” is clearly displayed.
• A unique invoice number.
• Date of issuance.
• Name, address, and VAT registration number of the supplier.
• Name, address, and VAT registration number of the recipient (if they are registered for VAT).
• Description of the goods or services supplied.
• Quantity or volume of goods or services supplied.
• Total consideration for the supply, excluding VAT.
• VAT amount charged, expressed in UAE dirhams.

VAT Amount and Rate: The VAT amount charged on the supply must be clearly stated on the invoice. The VAT rate applicable to the supply should also be specified, which is generally 5% for most taxable supplies in the UAE.

Currency: The currency used on the invoice should be the UAE dirham (AED) unless the transaction is in a foreign currency, in which case the foreign currency amount should be converted into AED.

Sequential Numbering: Invoices should be sequentially numbered to ensure a proper record of transactions. Each invoice should have a unique number that follows a consecutive order.

Retention Period: Invoices, along with other accounting records, should be retained for a period of at least five years. This retention period allows for proper documentation and facilitates VAT audits or inspections by the Federal Tax Authority (FTA).

Electronic Invoicing: Electronic invoices (e-invoices) are permissible in the UAE, subject to compliance with specific requirements and approval from the FTA. Electronic invoicing systems must meet the FTA’s technical specifications and ensure the authenticity, integrity, and legibility of the electronic invoices.