Value Added Tax in UAE

Value-Added Tax (VAT) is an indirect tax levied on the consumption of goods and services at the point of sale, applicable in over 180 countries worldwide.

In the UAE region, it is now mandatory for all businesses to submit their applications to register for VAT before the upcoming deadline. The VAT rate will be 5%, intended to create a new income source for the UAE, which will be used to enhance public services.

The introduction of VAT in the UAE market is anticipated to bring positive changes. It will provide the UAE with a new revenue stream, which will be used to maintain high-quality public services. Additionally, VAT will support the government’s goal of reducing reliance on oil and other hydrocarbons for income. Like any taxation, the benefits of VAT will ultimately return to the people through national growth and increased opportunities. Although there have been concerns about potential inflation-related cost increases, experts believe VAT will be advantageous in the long term.

In the United Arab Emirates, it becomes mandatory for a business to register for VAT when the value of its imports and/or taxable supplies exceeds AED 375,000 in a year.

In the United Arab Emirates, Value Added Tax (VAT) is applied at a standard rate of 5% on the sale of goods and services. However, certain goods and services, referred to as exempt supplies, are not subject to VAT. Additionally, there is a category known as zero-rated supplies, where VAT is levied at a rate of 0%. Although no VAT is payable on zero-rated supplies, accounting regulations require them to be accurately recorded.

Businesses with an annual turnover under AED 150 million are typically assigned a Standard Tax Period by the Federal Tax Authority, which generally lasts three months. However, the start and end dates of this period vary for each business. Your tax liability for the period is calculated by subtracting the input tax credit from the Value Added Tax charged on the supplies of goods and/or services.

It is a legal requirement that input tax credit be claimed, failing which you are required to file a Voluntary Disclosure with the Federal Tax Authority.

For companies with an annual turnover of AED 150 million or more, the Standard Tax Period is typically one month. The outstanding VAT amount must be paid within 28 days of the end of the Standard Tax Period, and the VAT return must be filed accordingly. Filing an incorrect VAT return results in a penalty of AED 3,000 for the first offense and AED 5,000 for each subsequent offense. It is advisable to engage an experienced VAT specialist to handle your tax returns.

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