6th October 2017. Updated 21st October 2017.
Value Added Tax (VAT) is due to be introduced in the UAE from 1st January 2018. Whilst this has been known for a while, the Federal Decree-Law No. (8) of 2017 on Value Added Tax has recently been issued. It is essential that companies understand whether or not they are required to register. Lack of knowledge of the law will not be tolerated and penalties will be imposed.
What is VAT?
VAT is a tax imposed on the import and supply of goods and services at each stage of production and distribution. Goods are considered a physical property that can be supplied. Services are considered anything that can be supplied other than goods. The supply of goods and services is also referred to as Taxable Supplies.
What is the Tax Rate?
The UAE has set the standard rate at 5%.
The following supplies will be zero-rated:
- Export of goods and services outside the GCC countries applicable for taxation
- International transport and related deliveries
- Supply of some air, sea and land transport modes
- Supply or import of precious metals for investment purposes (such as gold and silver with a purity of 99%)
- The first supply of residential buildings which is within three years from the date of completion of construction
- Supply of education services and associated goods and services
- Supply of preventive and basic health care services and associated goods and services
VAT will not be applied to the following:
- Supply of some financial services
- Residential buildings
- Bare land
- Local passenger transport
What is the VAT Threshold?
The UAE has set the VAT threshold at AED375,000 and the voluntary registration threshold at AED187,500.
Who needs to register for VAT in the UAE?
- Businesses whose total value of taxable supplies exceeded AED375,000 during the previous 12 months.
- Businesses which expect the value of their taxable supplies to exceed AED375,000 within 30 days.
Businesses may apply for voluntary registration, if they don't meet the mandatory requirements, in the following situations:
- The total value of taxable supplies during the previous 12 months exceeds AED187,500.
- The total value of taxable supplies is expected to exceed the voluntary enrollment limit within 30 days.
Businesses can register as a group in the following situations:
- Each business is established in the UAE
- The relevant persons are related parties
- One or more persons conducting business in a partnership shall control the others
Taxable supplies should be advertised as inclusive of tax.
Administrative penalties will be imposed in the following instances:
- Failure to display prices inclusive of tax
- Failure to notify the Federal Tax Authority of applying tax based on the margin
- Failure to comply with conditions and procedures for keeping and transporting goods in and between Designated Zones
- Failure to issue a tax invoice when making any supply
- Failure to issue a tax credit note
- Failure to comply with conditions and procedures for the issuances of electronic tax invoices and tax credit notes
Penalties for the above will be in the form of fines. Please refer to a previous blog for more information: New Tax Law in the UAE.
The following must be kept:
- Records of all supplies and imports of goods and services
- All tax invoices relating to the receipt of goods and services
- All tax credit notes
- All tax invoices
- Records where goods and services have been disposed of or used for matters not related to business
- Records for goods and services for which Input Tax was not deducted
- Records of exported goods and services
- Records of adjustments or corrections made to accounts or tax invoices
Are free zones exempt from VAT?
Some areas may be established as VAT-free zones. Don’t be confused with the current free zones because an existing free zone may not be a VAT-free zone! When setting up a company in a UAE free zone it states exemption for 50 years of corporation tax and personal tax, nothing about VAT.
How to register
Registration with the Federal Tax Authority is between 1st October 2017 and 4th December 2017. Registration is online via the Federal Tax Authority's website: www.tax.gov.ae Failure to register and submit the subsequent tax returns as per the regulations will incur penalties.
The above information is purely intended as an overview and does not constitute legal advice. It is strongly recommended that professional advice and assistance is sought from tax specialists in relation to your specific business.
Related Blogs that you may be interested in:
New Tax Law in the UAE CLICK HERE
What you need to know about WPS, the UAE’s Federal payroll system CLICK HERE
Gateway is an award-winning business setup specialist, helping foreign companies to register their Abu Dhabi businesses correctly and cost effectively. By understanding clients’ activities and goals, we identify the most suitable route to market, including the risks and how to mitigate them, regulatory requirements, and ongoing commitments so that they can make an informed decision that is right for their business. Our corporate sponsorship service for onshore companies provides security, control and 100% of the profits to our foreign clients. We then manage the business setup and visa processing requirements from A-Z so that they can focus on developing their business. Email us: info@GatewayToAbuDhabi.com
Jenny Hunt, CEO Gateway Group of Companies