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VAT & What you need to Know

Value Added Tax (VAT) was introduced in the UAE from January 1, 2018. I you are new to UAE or did not register your company in FTA (Federal Tax Authority); Here is what you need to know.

Value Added Tax or VAT is a tax on the consumption or use of goods and services levied at each point of sale. VAT is a form of indirect tax and is levied in more than 180 countries around the world. The end-consumer ultimately bears the cost. Businesses collect and account for the tax on behalf of the government. The rate of VAT is 5 per cent. VAT will provide the UAE with a new source of income. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

VAT tax does not apply on businesses which can reclaim the VAT they may have incurred during the transactions from producer to end user. End consumers generally bear the VAT cost while registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the Federal Tax Authority (FTA).

FTA is responsible for implementing VAT. The authority provides guidance, collects VAT and conducts audits.

There are three categories of items under VAT:

• 5% Value Added Tax

• Zero-rated supplies

• Exempt supplies

Below is a diagram which shoes how it works as explained by FTA:

VAT Registration

A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum. It is optional for businesses whose supplies and imports exceed AED 187,500 per annum. A business house pays the government, the tax that it collects from its customers. At the same time, it receives a refund from the government on tax that it has paid to its suppliers.While foreign businesses may also recover the VAT they incur when visiting the UAE.

Filing VAT Return

Taxable businesses must file VAT returns with FTA on a regular basis and usually within 28 days of the end of the ‘tax period’ as defined for each type of business. A ‘tax period’ is a specific period of time for which the payable tax shall be calculated and paid. The standard tax period is:

  • quarterly for businesses with an annual turnover below AED150 million

  • monthly for businesses with an annual turnover of AED150 million or more.

The FTA may, at its choice, assign a different tax period for certain type of businesses. Failure to file a tax return within the specified time frame will make the violator liable for fines as per the provisions of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.

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.

VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis. It will be a formal submission and reporting will be done online.

If they have charged more VAT than they have paid, they have to pay the difference to the government. If they have paid more VAT than they have charged, they can reclaim the difference.

We at HAB Consultants provide all VAT related services such as VAT Registration Service in UAE, VAT Deregistration Service in UAE, VAT Return Filing Service and VAT Refund Claim. Please feel free to contact us for any queries or assistants related to VAT.

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