Getting Ready For VAT

 

It is important to understand any potential obligations you or your business may have under the UAE VAT Law. The FTA is committed to providing extensive support and guidance to assist with this, however the responsibility lies with the business to make sure that any required compliance obligations are fulfilled. The FTA does have the power to conduct audits on taxable persons and subsequently impose penal measures on those that are not compliant with the law.

To fully comply with the UAE VAT law, businesses may need to make some changes to their core operations, financial management and book-keeping, technology, and perhaps even their human resources.

It is essential that businesses try to understand the implications of the new taxes and make every effort to align their business model to government reporting and compliance requirements.

In the UAE, VAT will be levied at a rate of 5% on most goods and services, although there will be some exceptions.

End-consumers generally bear the VAT cost in the form of a 5% increase of most goods and services they purchase in the UAE, while VAT registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

VAT will be charged at 0% in respect of the following main categories of supplies:

 

  • Exports of goods and services to outside the GCC States that implement VAT
  • International transportation, and related supplies
  • Supplies of certain sea, air and land means of transportation (such as aircrafts and ships)
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity)
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction
  • Supply of certain education services, and supply of relevant goods and services
  • Supply of certain Healthcare services, and supply of relevant goods and services

 

The following categories of supplies will be exempt from VAT:

  • the supply of some financial services
  • Residential properties
  • Bare land
  • Local passenger transport

Registering for VAT

When to register

    

Any business which exceeds mandatory or voluntary registration thresholds may be required or may be able to register for VAT.

The definition of business embraces most forms of activity and includes any activity conducted regularly or on an ongoing basis, e.g. industrial, commercial, professional, trade, etc.


Mandatory Registration


A business must register if:

The total value of their taxable supplies made within the UAE exceeds the mandatory registration threshold over the previous 12 month period, or

They anticipate making taxable supplies with a value exceeding the mandatory registration threshold in the next 30 days.

The mandatory registration threshold will be AED 375,000.


Voluntary Registration


A business may apply to register if they do not meet the mandatory registration criteria and:

The total value of their taxable supplies or taxable expenditure in the previous 12 months exceeds the voluntary registration threshold, or

They anticipate that the total value of their taxable supplies or taxable expenditure will exceed the voluntary registration threshold in the next 30 days.

The voluntary registration threshold will be AED 187,500.


Taxable supply definition:


For the purposes of understanding whether a registration obligation exists, a taxable supply refers to a supply of goods or services made by a business in the UAE that may be taxed at a rate of either 5% or 0%. Imports are also taken into consideration for this purpose, if a supply of such goods or services would be taxable if made within the UAE.