If you have ever worked in the UAE or done business there then you know there is no tax in the UAE. However, this changed in 2018 when they introduced Value Added Tax for certain businesses. This tax is not applied to individuals, just businesses, and even only to businesses that meet certain criteria.
If you own such a business that meets the criteria for VAT in UAE, then you will need to register for it. In this guide we will tell you if you meet the criteria and if you do, we will guide you through the whole VAT registration process in UAE and even tell you what comes next.
What is VAT?
VAT stands for Value Added Tax and it is levied on goods and services that add value to the supply chain of a product along with its distribution. It is a tax that businesses pay to the government while collecting it from the consumers on behalf of the government.
How does VAT work in the UAE?
The standard VAT rate in UAE is 5%, which means that the price of any goods you buy in UAE has a 5% VAT included in it. You yourself are not directly paying any tax to the UAE government but businesses registered with VAT are collecting it on behalf of the UAE government.
As you already know the UAE government does not tax individual citizens and residents, and as such it levies VAT only from certain kinds of businesses. Businesses that meet certain criteria and what this criterion is, we will tell you next.
What kind of businesses require VAT registration in the UAE?
The main criteria to determine if a business has to register for VAT is its annual threshold. This means that if its turnover exceeds a certain amount at the end of a business year, it must register for VAT. This criterion puts businesses into three broad categories and they are as follows.
- Mandatory Registration
If the annual turnover of a business in terms of its imports and taxable supplies exceeds AED 375,000 over the period of the last 12 months or the business expects it to exceed in the coming 30 days then it needs to register for VAT in UAE.
- Voluntary Registration
Businesses with an annual turnover of AED 187,500 over the period of the last 12 months can voluntarily register for VAT. Similar to mandatory registration this includes businesses that expect their turnover to exceed said amount in the coming 30 days.
- VAT Exempted Businesses
Businesses whose annual turnover does not exceed the amounts mentioned in the above two registration categories cannot register for VAT in the UAE. However, there are other businesses exempted from VAT even if they meet the mandatory and voluntary criteria and they are as follows.
- Businesses that provide transport services like buses, taxis, etc. in the UAE.
- Businesses that provide financial services.
- Businesses involving residential properties, i.e. selling or leasing these properties.
- Businesses that are involved in the development of barren land.
Documents required for VAT registration in UAE
To register for VAT in UAE you need the following documents.
- A valid copy of your trade license.
- A valid copy of your Emirates ID if you are the owner of or a partner of the business.
- A valid copy of your Passport if you are the owner of or a partner in the business.
- Contact details of your business. These include the address and P.O. Box.
- Contact details including email and contact number of the person who is the main point of contact for the company.
- All your banking details along with a bank letter to verify your company’s account with the bank.
- You also need to provide a Memorandum of Association otherwise known as MOA.
- In the case of imports and exports, you need to provide customs details.
- A complete report of your annual turnover, on stationary that has the company’s letterhead.
Procedure for VAT registration in UAE
If you meet the criteria for registration and all your documents are ready then you need to follow these steps to get officially registered.
- First, you need to create an e-service account by visiting the official website of the Federal Tax Authority (FTA).
- Once you have created your account you need to log in and fill out the registration form. You will need to fill in all the necessary details like contact info, banking details, and any other business-related details.
- Once you have filled out the form and verified that all the information you have filled is correct, you need to submit your application.
- Next, you need to pay the registration fee. The information about the exact amount of the fee and how you can pay it will be provided on the FTA website.
- Next, you will provide all the relevant documents to the FTA for verification and by doing so your registration process is complete.
- Now all you need to do is wait for the verification process to complete and for FTA to do the necessary paperwork on their end.
This whole process will take around 30 days and once completed you will receive your VAT certificate, along with the Tax Registration Number (TRN).
Potential Penalties for not registering
If your business meets the criteria for VAT registration in UAE and you don’t register or complete the process by the deadline set by the Federal Tax Authority FTA then you will have to pay a fine of AED 20,000 and other penalties may also apply in addition to the fixed fine.
What comes next after your VAT registration in UAE?
Once you have registered with VAT you need to take care of the following things.
- Always comply with the rules and regulations set by the FTA.
- Start charging the VAT of 5% on all your supplies and it must be clearly stated on these supplies that a VAT of 5% is being charged.
- As with any other kind of tax you need to file the tax returns in a timely manner at the end of every fiscal year.
- Last but not least, keep a record of all your billing and financial details including the VAT invoices that you issue after charging the VAT.
