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vat Registration

VAT registration

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UAE adopted VAT on 1st January 2018. A 5% VAT is levied on most goods & services, while a few goods and services are exempt from VAT. Business owners need to register for VAT if its taxable supplies and imports exceed AED 375,000 per annum. The business setup in Free Zones are Exempt from VAT.

According to the regulatory authority, companies in UAE need to align their businesses to ensure correct and updated ledgers to avoid penalties.

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Which Businesses Require VAT Registration Services in Dubai?

Registration of business entities for VAT depends on the income generated by the business. The following are three different scenarios:

  • Mandatory: Businesses having taxable supplies and imports above AED 375,000 should register the business under VAT.
  • Optional: Business having taxable supplies and imports between AED 187,500 and 375,000, VAT registration is optional. This category comes under voluntary registration.
  • Exempt: Businesses having taxable supplies and imports less than AED 187,500 do not need to register the business under VAT.
Registration of business entities for VAT

Registration of business entities for VAT depends on the income generated by the business. The slab for entities who will become responsible for VAT Registration is as follows:

1. Businesses having taxable supplies and imports above AED 375,000

—— Mandated to apply for VAT registration

2. Business having taxable supplies and imports between AED 187,500 and 375,000

——- Can voluntarily apply for VAT registration

3. Business having taxable supplies and imports less than AED 187,500

——- Not required to apply for VAT registration

 

VAT Registration for different type of Company

Newly founded company

For the newly formed business, VAT registration is not necessary, unless the new company’s turnover is AED 187,500 or more. Any new company with a turnover below 187,500 AED does not have to register VAT.

Tax Group

To register VAT as a tax group, all the member companies must be established in the UAE. Registration also depends on the number of companies that are conducting business with multiple trade licenses. FTA will issue one Tax Registration Number (TRN) to the tax group, instead of issuing one TRN for each individual member company. 

 

International Companies

For any foreign business owners selling goods, which are located in the UAE,  to UAE customers,  VAT Registration is mandatory disregarding the level of turnover from such sales. 

 

Amazon sellers and other online business

According to the Federal Tax Authority (FTA) regulations, companies that conduct business on any digital or e-commerce platforms, e.g. Amazon or Shopify sellers, must register for VAT prior to any market activities in UAE. As a general rule, the standard VAT rate (5%）will be applied to these businesses. 

How will business owners calculate their VAT?

In order to assess how much the tax payable would possibly be, the business owner should first understand how much are their sales and purchases expenses in a given fiscal period. The tax payable by a particular taxpayer is equal to tax collected on output (sales) – tax paid on input (purchases).

 

Let’s look at an example of how to calculate output and input VAT. 

Investor A owns a bakery and spends 10,000 AED acquiring raw materials. The input tax rate is 5%, as a result, the input tax is 5% of 10,000 AED, which is 500 AED.

With the purchased materials, investor A reached a sales of 20,000 AED. Given the 5% is the output tax rate, our overall output tax is 1,000 AED.

Hence, the final (net) VAT payable by investor A is 1,000 AED – 500 AED = 500 AED.

In the VAT settlement, investors deduct input VAT from output VAT then report the resulting amount to the tax office. In the case where the procurement expenses exceed the business revenue generated from sales in any fiscal period, the difference will be negative and the amount will be refunded to the business owners.

Documents Required for VAT Registration

The following documents are required for VAT Registration:

  1. Copy of Trade License
  2. Passport copy and/or the Emirates ID of the owner/manager who owns the trade license
  3. Contact Details of the company
  4. Memorandum of Association (MOA) of the business establishment
  5. Company Bank Details of the company
  6. Turnover declaration for the last 12 months
  7. Projected income statement for next 30-days after getting the Tax Registration Number (TRN);
  8. If the business deals with the customs department, then a customs letter is required.
What sectors are zero rated?

There are a few business sectors exempted from VAT, in which case the standard VAT rate is not applicable. Below are some examples of the zero-rated sectors: 

  • Transportation of goods and services outside the GCC or intra-GCC
  • Supply of precious metals for investment
  • Newly constructed residential properties within three years of their construction
  • Supply of certain educational healthcare related goods and services
  • The crude oil and related derivatives sectors (may vary in different member states)