FAQ’s on VAT Registration
Value-added Tax (VAT) was introduced in the United Arab Emirates (UAE) on 1 January 2018. The general VAT rate applied is 5% and it applies to most goods and services, with some subject to a 0% rate or an exemption from VAT (subjective to detailed conditions being met).
In UAE VAT standard rate is 5% on the invoice value (excluding special cases, e.g., profit margin scheme). For instance, if the Cost Price of the goods/services is = AED 100, knowing the VAT rate is 5%, then Input VAT (VAT paid during purchase) will be 100×5%= AED 5.00. Input vat is commonly known as Vat Credit or Recoverable VAT.
A business must mandatorily register for VAT if its taxable supplies and imports exceed AED 375,000 per year. It is voluntary for those businesses whose supplies and imports exceed AED 187,500 per year.
Who should register for VAT?
- If imports and taxable supplies of your business exceed the threshold limit of AED 375,000 in the previous one year, your business falls under the Mandatory VAT Registration tag. Mandatory VAT registration applies to your business if it could probably pass the limit of AED 375,000 in the next 30 days.
- If the value of your taxable expenses and supplies exceeded AED 187,500 in the last one year, your business is accountable for Voluntary VAT Registration. If your yearly revenue is below AED 375,000 and above AED 187,500, VAT registration is optional and voluntary. VAT for Free Zone Companies in UAE Companies operating in Designated Zones (nominated free zones which are eligible for special VAT treatment with certain limitations) will have to register for VAT.
Is VAT Registration only for companies and not for individuals?
Individuals or businesses which meet the threshold limit i.e., earning an annual turnover of AED 375,000 or more (mandatory) and AED 187,500 or more (voluntary), must register for VAT UAE to conduct business in any of the Emirates.
Can a newly formed company apply for VAT?
A newly formed company may register for VAT based on certain scenarios. Firstly, an entity may apply for VAT based on their taxable expenses. If their taxable expenses meet the threshold of AED 187,500, they are eligible for voluntary VAT registration.
Alternatively, if the entity provides an LPO from a client or an upcoming business deal to show that they will achieve the threshold required for voluntary registration. In this case, if accurate documentation is submitted the organization can register for VAT.
What is the voluntary & mandatory threshold?
Voluntary VAT Registration in UAE can be achieved, only if the annual supplies or taxable expenses incurred is not less than the voluntary registration threshold. The Voluntary Registration Threshold is AED 187,500 which is 50% of the mandatory registration threshold.
According to the Federal Tax Authority (FTA), it is mandatory for a business to register for VAT when their annual turnover reaches a threshold of AED 375,000/-. As per the UAE tax law, non-compliance with mandatory registration for VAT can lead to hefty penalties.
What are the consequences if we fail to register for VAT or we delay the registration?
Businesses that fail to register on time will be charged with a late registration administrative penalty of AED 20,000 and additional penalties based on late filing and non-payment of previous VAT liabilities on a percentage basis.
What are the documents & information required for VAT Registration?
- Trade license
- Registration certificate of the company or Certificate of Incorporation
- Memorandum of Association or Articles of Association or both (if available)
- Passport and Emirates ID of shareholders/owners / managers
- Address of office
- Bank account details – Bank name, IBAN, BIC & Branch name
- Contact details – email address and mobile number
- Turnover declaration for the last one year
- Customs Certificate – for VAT linking.
- Expected expenses & revenue for the next 30 days after receiving Tax Registration Number (TRN)
What is a TAX Group?
A group of two or more individuals engaged in a business that justifies the conditions set by the UAE VAT law & registers the group as a single taxable person in the free trade zone is categorized as a Tax Group.
What are the advantages of registering VAT as a tax group?
- All entities in this group will have one Tax Registration Number (TRN) which simplifies accounting & helps with the preparation of compliance reports like VAT returns.
- Supplies between the VAT group will not incur any VAT but those goods provided by this group to a third party will be subjected to VAT.
What are the disadvantages of registering for VAT as a tax group?
- If the group of companies’ strategy is to keep any company veiled, it is then required to keep such companies out of the tax group.
- Sometimes, tax computation of a tax group appears to be very complicated & concentrated on a quarterly basis or a monthly basis. This increases the amount of work levied on the accounting & VAT team.
How can we help?
VAT can be a complicated process; we are registered tax agents, & we understand that you may not get enough time to investigate tax matters. Our agents & VAT auditors will take care of your accounts, save your time with FTA matters, keep updated with tax laws and regulations & give free consultation.