VAT in the UAE: Your Frequently Asked Questions

In this article, we will deal with the frequently asked questions about VAT in UAE issued in accordance with Federal Decree Law (8) of 2017.

General VAT FAQs

What is VAT?

It is an indirect tax imposed on most goods and services that are supplied.

What is the Purpose of Imposing VAT?

VAT makes a new source of income for the government that will contribute to its continued provision of high-quality services to its citizens and residents.

Since when was VAT Applied and What is its Rate?

It has been applied since January 1, 2018, and its rate is 5%.

Who Bears the Cost of this Tax?

The final consumer is the one who must pay this tax.

Who Collects and Calculates the Tax for the Government?

Businesses undertake the task of collecting and calculating tax for the government.

VAT Scoop FAQs

What Sectors are Subject to VAT?

It is imposed on the supply of all goods and services, including food, commercial buildings and hotel services, except in the case where the tax is zero-rated or exempted.

What is the Difference Between Zero-Rated Supplies and Exempt Supplies?

The difference between Zero-Rated Supplies and Exempt Supplies is that the Zero-Rated Supplies can recover the tax it incurs on its purchases, while the Exempt Supplies can’t, as it is not subject to tax registration. Read more about this here: Difference between Zero-Rated and VAT-Exempt.

What Sectors are Zero-Rated for VAT?

The zero rate applies to the following goods and services:

  • Direct or indirect export operations outside the countries that apply this tax, which are the GCC countries.
  • Services related to international goods and passenger transportation.
  • Air transportation of passengers within the country in the case that such transportation is considered international.
  • Supplies related to air, land and sea means of transport used to transport passengers (read more: VAT Treatment for UAE Transportation)
  • Goods, and the supply of related services.
  • Supplies related to investment precious metals or their import for investment purposes.
  • Supplies for the first time related to residential buildings within three years of their construction.
  • The first supply of buildings that were converted from non-residential buildings to residential buildings.
  • Supplies related to education services.
  • Supplies related to basic and preventive health care services.
  • Supplies related to natural gas and crude oil.

What Sectors are Exempt from VAT?

  • Supplies related to residential buildings through sale or rent, except in cases where the zero rate is applied.
  • Supplies related to space lands.
  • Supplies related to local passenger transportation services.

Is VAT Imposed on the Rented Property?

We differentiate here between two cases: the case of renting a residential building, which is exempt from tax, and the case of renting a commercial building, which is subject to VAT.

In the case where the building has dual use (residential and commercial)?

Regarding the sale and rent related to the residential part, we differentiate between two cases: the case of the first supply, in which it is subject to a zero rate, and the case of the subsequent supply, in which it is exempt.

As for the commercial part, it is subject to tax, whether in the sale or purchase process.

Should I pay VAT for Imported Goods?

VAT is due for products and services including imported goods and services. The recipient has to pay vat under the reverse charge mechanism.

VAT Registration UAE FAQs

What is the Mandatory Registration Limit and the Optional Registration Limit for VAT?

The mandatory registration limit is 375,000 AED, and registration occurs if supplies and imports from abroad exceed this limit. The voluntary registration limit is AED 187,500, and registration occurs if the supplies and imports from abroad are less than the mandatory registration limit and more than the voluntary registration limit.

Read more about this: VAT Registration Threshold.

 How to Register for VAT?

This is done through the Federal Tax Authority’s website or though contact VAT Registration UAE team.

What Language is used in the VAT Registration Form in UAE?

The registration form is available in both English and Arabic.

 What Happens in Case of Late VAT Registration?

In this case, a fine of 20 thousand UAE dirhams will result. Read more about this: VAT Late Payment Penalty in UAE

Why Should Businesses Register for VAT?

Vat registration will help businesses in UAE to claim back input tax paid on their business expenses and purchases. If your business is not vat registered, then it means you are losing all input tax costs. This can result in an increase in the selling price of goods and services, stagnant business growth, and/or loss of competitiveness in UAE market.

Apart from that, businesses that haven’t registered for VAT even after reaching the mandatory threshold may face vat fines as per the country’s law.

When Should a Taxable Person Utilize the Tax Registration Number?

A tax registration number is required as it enables goods or services supplier to provide an invoice. Every invoice with a VAT charge has to include the TRN of the supplier or taxable person supplying goods/services.

How to Cancel tax Registration?

This is in specific cases:

  • In the case of stop making taxable supplies.
  • If the taxable supplies are less than the voluntary registration limit.
  • If the supplies have exceeded the voluntary registration limit but are still below the mandatory registration limit.

Read more about this: Guide on Deregistering or Cancelling VAT Registration in UAE.

How to Register as a Tax Group?

Businesses that meet the requirements will be able to satisfy the taxation law requirements by registering as a VAT tax group in UAE. Such requirements include similar business types and having business premises in the country. For certain businesses, a tax group would be beneficial as it simplifies the vat accounting process in UAE.

Read more about this:

Other VAT FAQs

 Who are the Categories that Take Benefit from VAT Refunds?

  • UAE National regarding the taxes they paid on the construction of new housing according to certain conditions specified by the executive regulations of the law.
  • Business visitors who do not have a place of establishment or fixed establishment in the country.
  • Tourists according to certain conditions, including that the tourist coming from abroad at the date of supply must intend to leave the country within 90 days from the date of supply, taking with him the goods he purchased.
  • Foreign governments, international organizations, diplomatic entities and missions, in the case where the acquisition of goods and services was made only for personal use.

Can a UAE National be able to Claim VAT?

UAE may introduce a scheme wherein a UAE national can reclaim VAT on goods and services related to residential construction.

What’s is Reverse Charge Mechanism for VAT?

The reverse charge mechanism for VAT is applied to imported goods and services in UAE. Under this, the supplier need not pay the vat whereas the recipient is responsible to pay the vat which he can claim back under input vat returns.

 What Records should be Kept?

All registered and unregistered businesses must maintain records such as the balance sheet, profit and loss accounts, fixed asset records, and salaries and wages records, and they must also maintain accounting books.

 What is the Deadline for Businesses to Submit their VAT Returns?

This is done periodically within 28 days of the end of the tax period, which is three months, or on any other date determined by the Authority.

What is the Penalty for Evading VAT?

The person subject to the tax who evades its payment shall be punished with imprisonment and a fine not exceeding (5) times the amount of the tax that was evaded, or with one of these two penalties.

We know you have more questions regarding VAT in UAE as it can be a complicated subject. Call us here in VAT Registration UAE for more information!

We at Farhat & CO, are certified public accountants and tax consultants. We have a team of specialists and qualified tax agents who are experienced in UAE VAT law, and we are ready to represent our clients before tax dispute committees or the courts.