VAT Registration
As previously communicated there will be a mandatory registration requirement for UAE businesses with a turnover of AED 375,000 or more in any 12 month period. Businesses who will exceed this threshold initially must register for VAT, before the tax becomes effective from 1 January 2018.
In addition, businesses that are not currently required to register can elect to register voluntarily where the annual turnover, or the annual expenses subject to VAT, exceeds AED 187,500. It will be important for such businesses to assess and decide whether it will be better for them to register or not, based on their specific circumstances.
Businesses without a UAE establishment are also required to register for VAT if they are obliged to charge and collect UAE VAT on any value of local sales. Businesses unsure about their obligation or ability to register for VAT should seek further advice.
Many business groups will be interested and will have the ability to register for VAT under a single group registration. This will generally be of interest to those operating through a number of subsidiaries, particularly if they use a common accounting platform, although it may not necessarily be suitable for all.
Is Your Business VAT Ready ?
Value Added Tax (VAT) is a tax levied on the sale or consumption of goods and services. From the 1st January 2018, VAT was introduced in the UAE - but is your business liable?
The VAT rate is 5% and VAT paid provides the government with an additional source of income that will be used to provide public services in future. The hope is also to assist the government in reducing dependence on oil and hydrocarbon as revenue.
All businesses with taxable supplies and imports exceeding AED 375,000 per annum must register for VAT. If your restaurant or hospitality business has supplies and imports exceeding AED 187,000 per annum, registering for VAT is optional.
So what does this actually mean in practice? All VAT-registered businesses:
Must charge VAT on all taxable goods or services they supply
Must keep business records to allow the government to check they're doing things right
Can reclaim VAT paid on goods or services purchased for business use
If your business is required to register for VAT then you must report the amount of VAT you have charged as well as the amount you have paid to the government. At the end of each tax period, VAT-registered businesses must submit a 'VAT Return' to the Federal Tax Authority. This must summarise the value of purchases and supplies made during the tax period and show your VAT liability. The usual time period for submission of your VAT Return is within 28 days of the end of the tax period. For companies with an annual turnover below AED 150 million, reporting must be completed quarterly. If your business has a turnover exceeding AED 150 million annually, you must submit a report on a monthly basis.
It's simple to register your business for VAT online but it's important to note that you're not actually registering your business, you are registering the person operating as a business. You'll need to create an account on the FTA website and then register for VAT through their 'E-Services' portal. If you have any queries about the registration process or are unsure whether your business is liable to pay VAT, contact the FTA by phone or email.
Your business will collect VAT on behalf of the government at the point of sale. Consumers will pay a 5% increase in the cost of taxable goods and services in the UAE. If you have charged more VAT than you have paid, you will need to arrange to pay the difference to the government. If you have paid more VAT than you have charged, the difference can be reclaimed.
We hope this helps to explain VAT and the implications it has for your business. VAT is used in over 180 countries around the world, with many benefits for local governments. For any VAT-related queries, just ask us and we'll be happy to talk you through things!
FAQs on VAT in UAE
As of January 1 2018, the UAE implemented Value Added Tax (VAT). This is a tax on the consumption of goods at the point of sale and is set at 5%. Consumers pay this tax when they buy goods or services, and businesses collect the tax on behalf of the UAE Government. This is an indirect tax designed to raise revenue for public services, and is used by 180 countries throughout the world.
Tax is money levied by governments from individuals and businesses to pay for essential services such as hospitals. There is direct tax such as income tax, and indirect tax such as VAT or Sales Tax.
VAT is levied during each step of the supply chain and is finally paid by the consumer when they buy products or services. The business who supply these are responsible for charging the customer and paying the VAT to the government.
The UAE Government considers some services to be essential to all people living, working and visiting the country. It pays money from its treasury to provide and maintain these services to a very high standard. By charging VAT, it will be able to guarantee this high level of public service. It sees VAT as a way of reducing the country’s dependence on oil revenue going forward.
Most of the products and services people use every day will be liable to VAT. There are some exceptions, which will be listed by the Ministry of Finance.
Any business whose taxable supplies and imports exceed a value of AED 375,000 must register for VAT. There is also a voluntary threshold value of AED 187,500, above which businesses can also apply to pay VAT. A business may register for VAT if its expenses exceed this voluntary level, but has a low turnover.
Any business which incurs VAT while operating within the UAE will be able to claim this back. This is designed to encourage foreign companies to operate in the country. It also allows UAE businesses to claim VAT back while operating in other countries which have their own VAT systems. As the UAE rate of 5% is relatively very low, this is a big incentive to UAE businesses in other countries.
We consistently monitor our clients business to make sure they are on the right track. We want every business to flourish, therefore, you hear from Livingstones more than just once a year.
