After remaining tax-free for decades, UAE implemented Value Added Tax (VAT) in 2018 for businesses and common people alike. The purpose of this initiative was to reduce reliance on oil and petroleum exports. Most of the businesses in mainland areas and free zones are affected by VAT in UAE.
Businesses need to understand the procedure and importance of submitting VAT on their products and services. This is mandatory in order to avoid any fines or other penalties. Information about important points is necessary to better understand the working of VAT for businesses in Dubai and UAE
Businesses that must register for VAT
VAT registration is not necessary for all businesses. Registration for VAT is mandatory for those businesses whose value of supplies and taxable goods exceeds AED 375,000. Apart from this mandatory registration, optional VAT registration is also available for businesses. Businesses whose taxable goods and supplies’ worth less than AED 375,000 but above 187,000 can optionally register for VAT.
Collection of VAT
The collection and documentation of applicable VAT is mandatory for all relevant businesses. The responsibilities of all these businesses include:
- Charging 5% VAT for goods and services from their customers
- Businesses are also required to pay VAT on goods and services that they receive from suppliers. They will document both these amounts (VAT they pay to suppliers and receive from customers). Later, they will pay or reclaim the actual VAT amount to government, accordingly.
Period to file VAT return
According to the official tax website of FTA, it is mandatory for registered businesses to file tax returns with authorities at the end of the tax period. There is a total of 28 days in this period and businesses must file VAT returns regularly at the end of each period. All registered businesses can use online services to file their returns.
Records to maintain for businesses
The UAE VAT laws make it necessary for taxable businesses to maintain books of accounts. Apart from that, the authorities can also demand other relevant records for checking purposes. These include: VAT ledger, general ledger, annual accounts, debit notes, invoices issued, invoices received credit notes, purchase day book etc. It is mandatory for businesses to calculate and maintain these records correctly.
The UAE VAT law also obligates businesses to maintain all these tax records for at least 5 years.
Procedure to file VAT Returns
UAE has made it mandatory for businesses to file their returns through online process. Now, the authorities are not accepting manual returns. For this purpose, registered businesses can use the web portal of FTA. Here, you can submit your returns through the e-services section.
The filing of VAT returns in UAE should be made on a quarterly or monthly basis according to the type of business. Delaying this period can result in hefty fines or other penalties by authorities.
Penalties for not following VAT Return rules
As said above, businesses will face hefty fines and other penalties if they fail to obey rules regarding VAT registration and returns. Following are important acts that will come under disobeying VAT rules.
- Evading VAT by any means
- Failure for VAT registration by businesses with taxable income
- Failing to pay VAT entirely on payment of VAT after allotted period
- Not maintaining all the necessary records as required under tax legislation
Relation between VAT and Custom Duty
In case of goods imported to UAE from another country, custom duty is usually applicable. In this case, VAT in UAE will be calculated on gross price (inclusion of both custom duty and purchase value of product). The importer will pay VAT after import of a product.
These are few of the most important points concerning VAT registration for businesses. If you want to register and compel for VAT in UAE, then you can contact RIZ & MONA Consultancy for this purpose via our WhatsApp # 971-54-5821012.