Get in line with VAT in the U.A.E

The Federal Tax Authority (FTA) was established in 2016 by the President of the UAE, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, through Federal Decree-Law no. 13 of 2016.

Value-added tax (VAT) is an indirect tax and is occasionally also referred to as a type of general consumption tax that is collected and paid gradually based on the value-added at each phase of production and sale of products and services.

Did you know that?

Goods that are stolen from a shop are not subject to
VAT, though stolen cash is…

VAT is the most common consumption tax found in the world. It is a sales tax that is levied on most goods and services and is charged at each step of the “supply chain.” The VAT expense is usually borne by the final consumer, while businesses collect and account for the tax by playing the role of a tax collector on behalf of the government.

A business pays the government the tax it receives from consumers, and it may obtain a refund from the government on the tax it pays to its suppliers. As a result, tax revenue to the government reflects the “value add” across the supply chain. The following is a clear, illustrative example of how VAT works:

Implementation of VAT in the U.A.E:

On January 1, 2018, the UAE implemented Value Added Tax (VAT). The VAT was set at a 5% rate and was introduced to provide a new stream of revenue for the UAE, which will be used to continue to provide high-quality public services. It will also assist the government in achieving its goal of reducing reliance on oil and other hydrocarbons as a revenue source.

Threshold limit for registering for VAT in the U.A.E:

Penalties and fine in the U.A.E are no less than 500 Dhs and no more triple the value of the tax in question!

A business must register for VAT If their taxable supplies and imports surpass the required registration threshold of AED 375,000. Moreover, if a company’s supplies and imports are less than the mandatory registration threshold but surpass the voluntary registration threshold of AED 187,500, it can opt to register for VAT voluntarily.

Likewise, if a business’s costs meet the voluntary registration threshold, it should register voluntarily. This latter option for voluntary registration is intended to allow small businesses with no revenue to register for VAT. However, these small business must maintain their financial records in an event where they are too register.

What businesses are subject to VAT?

Tax-registered businesses that run on the UAE landmass and in free zones are all subject to VAT. However, if the UAE Cabinet designates a free zone as a “designated zone,” it must be taxed as if it were outside the UAE. It is tax-free to move products between defined areas.

VAT-registered businesses generally:

  • Must charge VAT on taxable goods or services they supply
  • May reclaim any VAT they have paid on business-related goods or services
  • Keep a range of business records which will allow the government to check that they have got things right.

Registered Businesses must disclose the amount of VAT they have charged and paid to the government on a regular basis. The application will be formal, and the reporting will be done online.

If businesses have paid more VAT than they have charged they are entitled to be reclaim the difference and if they charged more VAT than they have paid they are required to pay the difference to the government?

In conclusion VAT has played a big role in bringing upon an exemplary shift in the country’s economic drive and it should be noted that it is extremely important for business (who are eligible) to register and follow up thoroughly and habitually to avoid an unwanted fine.

How ZBS can help!

ZBS accounting and booking can help ease the process of tax registration and deregistration and help your business keep a professional and well organized financial records so as to avoid any penalties that are unnecessary for your business.

Feel free to contact us for any support regarding VAT!

Information and images used in this blog post were acquired from the official websites of the Federal Tax Authority, The Ministry of Finance and the United Arab Emirates Government portal.


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