Value Added Tax (VAT) is more than just a tax; it is an essential aspect of doing business in the UAE. Introduced in January 2018, VAT is a way to diversify the UAE’s economy away from oil revenue. Comprehension of VAT is vital for any business, new or established, operating in the UAE.

The UAE government implemented VAT at a standard rate of 5%, one of the lowest VAT rates in the world. VAT is a consumption tax levied at each stage of the supply chain. 

This allows the government to collect revenue at various production and distribution levels. VAT revenue generated from 2018 to October 2021 amounted to over AED 95.4 billion, demonstrating the positive impact of VAT on the UAE’s economy.

Currently, in 2024, VAT in UAE is still at 5% for most goods and services. Certain items are exempt from VAT, including basic food, healthcare services, education, and transportation. 

Also, businesses registered for VAT can claim input tax credits on their expenses.

Here Are A Few New Trends and Updates (2024):

Category	Subcategory	Description
Digitalization of Tax Administration	Centralized Platform	Establishment of an online platform for taxpayers to file returns and manage accounts.
Digitalization of Tax Administration	Process Efficiency	Digitization of tax compliance processes for increased efficiency.
Excise Tax Amendments	Product Restrictions	Removal of exemptions for flavored tobacco and recreational nicotine products.
Excise Tax Amendments	New Tax Imposition	Imposition of excise tax on electronic nicotine delivery systems (ENDS).
Transparency and Accountability	Beneficial Ownership Disclosure	Mandatory disclosure of beneficial ownership information for companies.
Transparency and Accountability	Anti-Avoidance Measures	Enhanced tax residency rules and anti-avoidance measures to combat tax evasion.

So, Who Should Register for VAT in the UAE?

Two VAT thresholds determine if a business should register:

1. Mandatory Registration Threshold: If the taxable supplies and imports exceed AED 375,000 (approximately USD 102,723) annually, VAT registration is mandatory.
2. Voluntary Registration: If the annual taxable supplies and imports exceed AED 187,500 (approximately USD 51,361) but are below AED 375,000, businesses can register voluntarily. Voluntary registration offers benefits, especially when claiming VAT refunds.
3. Customs Brokers: Also, businesses registered as customs brokers should register for VAT.

VAT Registration Process

Here’s the step-by-step VAT registration process presented in a detailed and well-structured table format:

Step	Description	Details
1. Gather Necessary Documents	Prepare all essential documents required for VAT registration.	– Trade License: Your business’s official license issued by the UAE authorities. – Passport Copies: Copies of the owner’s or partners’ passports. – Business Activity Proof: Documentation to verify the nature of your business activities. – Financial Statements: Provide financial records that show your business’s annual revenue and expenses.
2. Create an e-Services Account	Register your business on the Federal Tax Authority (FTA) portal by creating an online account.	– FTA Website: Visit Federal Tax Authority Website and sign up. – Email Verification: Verify your email and create login credentials.
3. Fill and Submit VAT Registration Form	Complete the VAT registration form on the FTA portal.	– Business Details: Fill in your business’s trade name, address, and contact information. – Financial Information: Provide revenue figures and business type. – Submit: Once completed, review the details for accuracy, and submit the application electronically. You’ll receive a Tax Registration Number (TRN) after approval.

This structured format provides a clearer and more user-friendly way to understand the VAT registration process.

Documents Required for VAT Registration

To register, you will need to provide:

1. Trade license
2. Passport(s) of the business owner(s)
3. Bank account details
4. Proof of business activity
5. Financial records indicating your business revenue

Types of VAT Schemes

Two VAT schemes are available:

1. Standard VAT Scheme: Most businesses use this scheme, with VAT charged on sales and purchases.
2. Simplified VAT Scheme: Recommended for small businesses with fewer taxable transactions to make filing and VAT calculations easier.

Types of Registration:

• Regular Registration: For businesses with standard VAT rates (5%)
• Small Taxpayer Scheme (STS): For small businesses with annual turnover not exceeding AED 187,500

VAT Registration Fee:

• AED 799 registration fee (approximately USD 200), non-refundable.

VAT Registration Timelines

Upon meeting the mandatory threshold, register for VAT within 30 days. 

Failing to register within the required time frame may result in penalties ranging from AED 10,000 to AED 50,000. (approximately USD 3000 to USD 14000)

Calculating VAT

VAT calculation includes:

1. Input VAT: The VAT paid on purchases.
2. Output VAT: The VAT collected on sales.

Accurate records of all transactions are necessary to avoid calculation errors, especially when the business scales.

VAT Payment & Filing in the UAE

File VAT returns either monthly or quarterly. 

Use the FTA portal for submission and online payment.

Penalties for Non-compliance

Penalties for non-compliance include:

1. Failure to register for VAT: AED 20,000 (approximately USD 5,455)
2. Late VAT return filing: Penalties range from AED 1,000 to AED 3,000 (approximately USD 272 to USD 816)
3. Incorrect VAT returns: Penalties range from 5% to 50% of the VAT amount due

Benefits of VAT Registration

1. Compliance: Registering for VAT ensures compliance with UAE regulations.
2. VAT Refunds: VAT-registered businesses can claim a refund if the input VAT exceeds the output VAT.
3. Credibility: Being VAT-registered adds to business professionalism.

Accounting and Compliance Requirements:

• Establish a robust accounting system for tracking VAT expenses and credits.
• Issue tax invoices and receipts.
• File VAT returns electronically on a monthly or quarterly basis.

Input Tax Credits:

• Businesses can claim input tax credits on expenses incurred that are directly related to making taxable supplies.
• Credits can be carried back for up to two preceding tax periods.

Deregistering from VAT

Businesses can apply for de-registration when they no longer meet VAT registration criteria. 

This usually occurs when annual revenue falls below AED 187,500 (approximately USD 51000) or when ceasing business operations.

Tips:

• Register for VAT early to avoid penalties.
• Keep accurate records of all transactions.

Consult with tax professionals from Safari Star for guidance on compliance and optimization

FAQs about VAT Registration in UAE

1. Can freelancers register for VAT? 

Yes, freelancers must register if they meet the revenue threshold.

2. Is VAT registration mandatory for new businesses? 

Not immediately, but once they hit the threshold, registration becomes necessary.

3. What is the penalty for not registering for VAT on time? 

AED 10,000 (approximately USD 5,455) is the penalty for failing to register for VAT on time.

4. Can I claim back the VAT I paid on business expenses? 

Yes, if you are registered for VAT, you can claim back the VAT paid on eligible expenses.

5. How often do I need to submit VAT returns? 

Most businesses need to submit VAT returns every three months (quarterly). However, businesses with an annual turnover of over AED 150 million (approximately equal to USD 40,838,607) are required to file monthly VAT returns.  

Note: Please note that exchange rates can fluctuate, so the exact amount may vary slightly. For the most accurate and up-to-date conversion connect with Safari Star today!