Value-Added Tax – VAT, is a type of consumption tax imposed on products at every stage of the sale, in which value is added to the product. The value-added tax starts at the beginning of the production, from the purchase of raw materials to the end, the retail purchase. The buyer at the initial stages of production obtains back the VAT paid from charging the consumers at the end.
Value-added tax is usually expressed as the percentage of the total cost of the good or service. For instance, if a product costs $100 with a 15% VAT imposed on it, the consumer will have to pay $115 to the merchant. VAT differs from the national sales tax in many ways, as the sales tax is only paid at the endpoint of purchase by the consumer. While VAT is charged at every stage of purchase made amidst an item’s production.
VAT collection came in effect in the UAE from the start of 2018. Which is applied to the non-essential consumer goods at the rate of 5%. Businesses all across UAE were given the timeline to apply for the registration of VAT three months prior to the given date, which was October 1st, 2017. The Federal Tax Authority (FDA) is the assigned regulatory body for VAT in the UAE.
Here is everything you could possibly want to know about VAT registration in Dubai.
Why VAT Is Beneficial To UAE Government?
People who talk in favor of VAT like to put it in a way that is beneficial to the government of a state. First off, the imposition of VAT encourages businesses to pay taxes regularly and eliminates ways that could keep businesses from paying them. Charging taxes at every stage of production under the VAT system enables tax compliance and keeps businesses from operating in the black market. The suppliers and manufacturers are paid back the Value Added Tax, which is charged from them at the start of production, at the end of sales from the services or goods they are selling to the consumer. Retail businesses collect back the paid VAT from their end consumers, which was paid in buying their goods wholesale. The VAT is a better alternative to the hidden taxes.
As VAT is typically imposed at the same percentage on different products and services, a VAT is said to have less of an impact on the decisions of the economy compared to an income tax. Nevertheless, VAT has the ability to register on a company’s economy. With the ability to improve the efficiency of tax collection, a VAT is also considered as an effective way of improving the growth of a nation’s GDP, eliminate government budget deficits and raise tax revenues.
Which Business Is Eligible For VAT in UAE?
Not every business in the UAE needs to register for VAT, but after strict implementation of the VAT system in the state, every small or big business is expected to keep the accurate record of their financial transaction up-to-date. Businesses in the UAE which are providing goods or services and fall under the taxable category are expected to register for VAT. While companies that hold the yearly value below AED 370,000 but above AED 187,500 of their supplies and imports, VAT registration is optional or voluntary. Companies registering for VAT in the UAE must regularly submit the report of the VAT that they have charged and paid to the government in a formal way.
The businesses must also:
- Charge VAT on taxable services and goods they supply
- Reclaim any additional VAT they have paid for goods or services related to the business
- Keep their business records up-to-date which will allow the government to check the business’s credibility
The government means to safeguard small to medium businesses in case they fail to meet the minimum turnover requirement. Such businesses are not required to register for VAT but they are expected to maintain their records which can be shown as proof of their turnover.
VAT Registration In The UAE
Companies can register for VAT on the online portal of the Federal Tax Authority, FDA. It is required of the businesses to set up an online account on the site and fill-up the form of VAT registration. It only takes 15-20 minutes for VAT registration, provided you have all the documents in place.
Documents Required For VAT Registration
For online VAT registration, you will need the following documents:
- Trade or business license
- Passport or in the case of UAE residents Emirates ID of the owner or the manager
- Passport or Emirates ID of the authorized signatory, provided if any
- Proof of authorized signatory, for example, AOA or attested by notary Power of Attorney
- Statement showing the turnover in the last 12 months
The certificate that is given to government authorities, private sector companies or individuals for exemption of Value-Added Tax around the world is known as VAT certificate.
Penalty Of Non-Registration Of VAT
In case the business misses the due date of VAT registration or fails to register their company, a penalty fee is imposed on the business. AED 20,000 is the administrative penalty for late VAT registration on every taxable person. Every legal company owner who is mandatorily required to register under VAT and exceeds the threshold is considered a taxable person. So, it is better to know about all the requirements of VAT registration for your company and apply for registration before it gets late and you have to pay extra fees.
How Does VAT Work?
Once the procedure is completed for VAT registration in Dubai and you get the VAT certificate for your company, you can start charging VAT on the supplies you make and pay the government accordingly as well. Also, you must maintain an up-to-date record of the VAT imposed on selling and purchasing. If all the invoices of paid VAT are maintained, you can reclaim the same amount from selling your goods and services to the end consumer. You can only register your company for VAT if you exceed the threshold or are listed as a taxable company.
How Is VAT Collected?
The amount collected by the VAT registered companies are on the behalf of the government. The consumers bear the value-added tax in the form of a 5% increase in the cost of taxable services and goods they purchase in the UAE. The tax-registered business bares the VAT at the rate of 5% at the taxable supply of goods and services at each step of the supply chain by the UAE government. Tourists visiting UAE have to pay the VAT at any purchase they make as well. Which the UAE government is taking steps to pay them back at the time of their departure from the country. This way, the UAE will be upgraded to a premier global tourist destination.
Step-By-Step Guide Of Obtaining VAT Registration Certificate
- Send an Email to FTA Certificate Department
In order to obtain a VAT registration certificate, you will be required to send an email on email@example.com, along with your tax registration number (TRN) with a request to issue a tax copy’s hard copy in the company’s favor.
Make sure that:
- Your tax registration number is mentioned in the email
- The sender is one of the authorized signatories of the company
The request for a certificate will be entertained only after the FTA has matched the details and found them correct.
- Collecting Request Number
Once you have filed an application on the site, FTA will give you a request number in response. Later into the process of VAT registration, the same request number is used to make payments of the fees on the FTA portal. Make sure that you don’t skip the request number by any chance and record it once you are provided with it, as it will be of important use later into the procedure.
- Sending Payment Reference Number to FTA
Along with the request number for the certificate application, you will be provided an email address as well. You will then be required to send the payment reference number on the provided email address.
- Collect the hard copy of Tax Registration Certificate
Once the entire procedure is completed and FTA receives your payment reference number and accepts your application form, you will be sent a hard copy of the tax registration certificate on the address you have provided in the registration process.
Filing A Return For VAT
Taxable persons or VAT registered businesses are required to submit a VAT Return to the FTA (Federal Tax Authority), at the end of every tax period. A VAT return is a summary of the value of the purchases and supplies that have been made by a taxable company or person during the tax period and reflects the VAT liability of a taxable company or person.
By VAT liability, it means the between the output tax payable (VAT charged on the supplies) for the provided tax period and the input tax (VAT paid on purchases) recoverable for the same tax period. If the amount of output tax exceeds the input tax, the difference is required to be paid to the FTA. Whereas, if the input tax exceeds the output tax, the taxable company or person will be reimbursed with the excess input tax. The taxable person will be entitled to set this off against subsequent payment because of FTA.
How to file for VAT Return
The tax return must be filed online on the portal of FTA; eservices.tax.gov.ae. Please make sure you have met all the requirements for tax return before you head on to file the VAT return form on the FAT portal.
When should a business file for VAT Return?
Each type of taxable business should file the VAT return with the FTA on a daily basis, and normally in the time period of 28 days of the end of the tax period. A certain period of time for which the payable tax shall be calculated and paid is known as the tax period. An average tax period is:
- quarterly for the businesses that have an annual turnover below the amount of AED 150 million
- monthly for the businesses that have an annual turnover of the amount AED 150 million or more
However, sometimes the FTA may assign a changed tax period for a specific type of business, completely on their own will. If a taxable person or company fails to meet the filing for a tax return in the due timeline, the violator will be charged with a penalty fee. Which is 5% to 25% of your unpaid taxes for each month your tax return is late. The penalty fee is charged from the next day of the tax deadline. If you fail to file for VAT return for 60 days, you will be provisioned to pay a minimum of $135 or 100% of the taxes which you owe to the Federal Tax Authority (FTA).
VAT Rates Applicable On Each Major Sector In The UAE
|Supply||Taxable at 5%||Taxable at 0%||Exempt||Out of scope|
|Private and public school education (excluding higher education) and related goods and services provided by educational institutions||✔|
|Higher education provided by institutions owned by the Government or 50% funded by the Government, and related goods and services||✔|
|Education provided by private higher educational institutions, and related goods and services||✔|
|Nursery education and pre-school education||✔|
|Electronic equipment (Tablets, laptops, etc.)||✔|
|Renting of school grounds for events||✔|
|After school activities for extra fees||✔|
|After school activities supplied by teachers and not for an extra charge||✔|
|School trips where the purpose is educational and within the curriculum||✔|
|School trips for recreation or not within the curriculum||✔|
|Preventive healthcare service including vaccinations||✔|
|Healthcare services aimed at treatment of humans including medical services and dental services||✔|
|Other healthcare services that are not for treatment and are not preventive (e.g. eclectic medicine, cosmetic surgery, etc.)||✔|
|Medicines and medical equipment as listed in Cabinet Decision||✔|
|Medicines and medical equipment not listed in Cabinet Decision||✔|
|Other medical supplies||✔|
|Oil And Gas|
|Crude oil and natural gas||✔|
|Other oil and gas products including petrol at the pump||✔|
|Domestic passenger transportation (including flights within UAE)||✔|
|International transportation of passengers and goods (including intra-GCC)||✔|
|Supply of a means of transport (air, sea, and land) for the commercial transportation of goods and passengers (over 10 people)||✔|
|Supply of goods and services relating to the supply of these means of transport and to the transportation of goods and passengers||✔|
|Sale and rent of commercial buildings||✔|
|First sale/rent of residential building after completion of construction or conversion||✔|
|The first sale of a charitable building||✔|
|Sale/rent of residential buildings subsequent to the first supply||✔|
|Hotels, motels, and serviced accommodation||✔|
|Land (Not bare land)||✔|
|UAE citizen building own home||✔|
|Margin based products (products not having an explicit fee, commission, rebate, discount or similar)||✔|
|Products with an explicit fee, commission, rebate, discount or similar||✔|
|Interest on forms of lending (including loans, credit cards, finance leasing)||✔|
|Issue, allotment or transfer of equity or debt security||✔|
|Investment Gold, Silver And Platinum Jewellery|
|More than 99% pure and tradable in global markets||✔|
|Less than 99% pure||✔|
|Insurance And Reinsurance|
|Insurance and reinsurance (including health, motor, property, etc.)||✔|
|Life insurance and life reinsurance||✔|
|Food And Beverages|
|Food and beverages||✔|
|Telecommunication And Electronic Services|
|Wired and wireless telecommunications and electronic services||✔|
|Sovereign activities which are not in competition with the private sector undertaken by designated Government bodies||✔|
|Activities that are not sovereign or are in competition with the private sector||VAT rate depends on goods and services supplied|
|Not for profit organizations|
|Activities of foreign Governments, international organizations, diplomatic bodies and missions acting as such (if not in business in UAE)||✔|
|Charitable activities are undertaken by societies and associations of public welfare which are listed by Cabinet Decision||✔|
|Activities of other not for profit organizations (not listed in Cabinet Decision) which are not business activities||✔|
|Business activities are undertaken by the above organizations||VAT depends on goods and services supplied|
|Supplies of goods between businesses in designated zones||✔|
|Supplies of services between businesses in designated zones||VAT depends on goods and services supplied|
|Supplies of goods and services in non-designated zones||VAT depends on goods and services supplied|
|Supplies of goods and services from the mainland to designated zones or designated zones to mainland||VAT depends on goods and services supplied|
|Export of goods and services to outside the GCC VAT implementation States||✔|
|Activities are undertaken by employees in the course of their employment, including salaries||✔|
|Supplies between members of a single tax group||✔|
|Any supplies of services or goods not mentioned above (includes any items sold in UAE or service provided)
Second-hand goods (e.g. Used cars sold by retailers), antiques and collectors’ items
|VAT depends on goods and services supplied|
Vat Registration Fees, Cost, And Penalties
Registring for VAT is entirely free of cost as it is done electronically in the FTA portal, however, a fee of Dhs 500 is required to be made by the applicant to request an attested registration certificate. As well as, there are penalties on tax violation including some listed down below:
- Non-registration fees – Dhs 20,000
- Late filing of tax return – Dhs 1,000 on the first offense, and Dhs 20,000 on second offense in the period of 24 months
- Non-disclosur of tax on imports – 50% of the total unpaid tax
- Submission of incorrect return – Dhs 3,000 on the first offense, and Dhs 5,000 on a repeated offense
- Non-maintenance of proper tax records – Dhs 10,000 on the first offense and Dhs 50,000 on repeated offense
Irrespective of the size of business operations, it is required from registered businesses to maintain up-to-date and accurate records of their assets, income, liabilities, expenses and the VAT charged on goods or services made.
Why Is VAT Consultation A Good Idea?
Since VAT came into effect in the UAE, a lot of firms are still not familiar with the VAT regulations, repayment procedure and policies which help in determining VAT. Companies getting into the process of VAT registration are on the look for VAT consultation in the UAE for the best advice. Consulting with a VAT expert is a lot better than fighting with wrong estimation, complex formulas, and complex numbers. Some factors which speak in the favor of VAT consultation are as follows:
- Superior Expertise
VAT specialists that are well-versed with the laws and regulation of VAT around the region can help you with numerous VAT prices, as well as, the proper way of payment calculation.
Someone who has been in the VAT business and is well-versed with all the VAT laws can keep you from making common mistakes that are made throughout the submitting procedure and VAT return in the UAE.
- Time Conserving
Another reason for hiring a VAT expert is that he/she can minimize the usual time that is needed for assessments, analysis, as well as, the threats that are associated with the company.
- Reduced Risk
VAT consults have through and careful market experience to handle any kind of risk in a company. A VAT expert can eliminate any possible danger that could be caused to the firm.
- Audit All Set Documents
In addition to the befits mentioned above. VAT consultants also aid in developing the date of a company and preserve the records properly and keep them up-to-date, which always keeps the taxable person or company well-prepared for the VAT audit.
We at Riz & Mona Consultancy can provide you best VAT consultancy service in UAE. Contact us today for further information!