What is Value Added Tax (VAT) in UAE?

The reason why so many companies and organisations are keen on setting up their businesses in Dubai is because in UAE businesses enjoy a tax exempt haven where they can operate in a free market without any kind of taxes that may hamper their earnings. However, since 2018, Value Added Tax or VAT has been added on the purchase and sale of most goods and services save from some that still enjoy a 0% VAT. Even though this tax has been added recently, it still is quite less and Dubai still remains a taxation laxed nation.

Since 2018, the Value Added Tax has been a part of taxation in the entire United Arab Emirates. It is the only tax of its kind and is added to the most goods and services in Dubai. In the city, the general VAT rate of 5% is applied to most goods and services while the exempted goods and services get 0% rate provided they meet certain specific conditions.

What Are the VAT Exemptions and Specialities

There are several exemptions that fall under the VAT legislation where certain goods and services enjoy a 0% VAT rate. Following are the goods and services that enjoy a 0% VAT rate.

  • Goods and Services that are exported outside VAT implementing
  • Gulf Cooperation Council (GOC)member states
  • With the supply of crude oil/natural gas
  • International transportation
  • The first supply of residential real estate
  • Specific areas such as education and health care
  • Certain financial services

The ensuing supply of residential real estate are excluded from the VAT. Additionally, VAT is not applied to transactions involving bare land or domestic passenger transportation.

Understanding VAT Regulations and Implications for Companies in UAE Free Zones

Furthermore, some transactions in goods and services between companies established in UAE designated Free Zones may not be subjected to VAT. However, the services used inside the designated Free Zones are subjected to VAT in accordance to the general application of the UAE VAT legislation.

The statutory VAT registration level for enterprises with UAE residents is AED 375,000, and the voluntary registration threshold is AED 187,500. For non-resident companies providing supplies for which the UAE VAT must be charged, there is no registration threshold. Grouping VAT is permitted as long as certain requirements are met. There are certain documentation and record-keeping needs, like the need to send tax invoices and VAT returns (quarterly or monthly depending on the FTA’s allotment).

In theory, excess input VAT can be reclaimed from the FTA after following a specified process. As an alternative, VAT credits can be carried over and subtracted from subsequent output VAT. Fines and penalties may apply to companies who don’t follow their VAT duties. Penalties come in both fixed and tax-geared forms.

Difference Between Zero-Rated & Exempted
Tax Supplies

Zero-Rated Tax Supplies

0% rate of VAT applies to certain types of goods and services. On 0% VAT, input tax can be recovered. Those businesses that qualify for 0% VAT on all their purchases except from some classified goods and services. Examples are:

  • Exports of goods and services
  • First sales/rent of residential buildings
  • Certain educational services and related goods and services
  • Related goods and services

Exempted Tax Supplies

Exempt supplies are goods and services for which VAT is not charged. Additionally, you are exempt from the VAT registration requirement if all of your supplies fall under the category of exempt supplies. Additionally, you are not even eligible to claim input tax.

  • Financial Services like life insurance
  • Residential Buildings
  • Bare Land
  • Local Passenger Transport

We Provide Excellence in Value Added Tax (VAT) Services in Dubai

The Value Added Tax in Dubai is the only major tax that is utilised in the city. Since Dubai is islamic in nature, most taxes are exempted in the city. And only 5% VAT is issued on most goods & services. However, on some goods and services that 5% is exempted.

TWe at RadiantBiz are here to provide you with the best consultancy services that help you set up and comply with Value Added Tax policy in the country. We assess your invoices, quotations, contracts, and purchase orders and determine which category your business falls in .

Your business can fall under the categories of Mandatory Registration or Voluntary Registration, both have their own due diligence and set of rules.

Mandatory Registration

If your business’s Value of taxable goods and services exceeds that of the mandatory registration threshold of AED 375,000 over the previous 12 month period, or your company’s anticipated total value of all taxable goods and services will be greater than the mandatory registration threshold of AED 375,000 in the next 30 days.

Voluntary Registration

On the other hand if your business’s Value of taxable goods and services exceeds that of the voluntary registration threshold of AED 187,500 over the previous 12 month period or if your company’s anticipated total Value of all taxable goods & services will be greater than the voluntary registration threshold of AED 187,500 in the next 30 days.

Our Other Services in Taxation

Account Creation Support : From form registration to running the entire process without hurdles, we help you with your account creation and maintenance. With our years of experience in Business build-up and set-up in Dubai, we are always on top of our research and due diligence and thus we provide the best accounting services in the city.

Documentation : We provide you the complete documentation solution by prying the application process promptly and smoothly. We assess all your documents and ready them for the documentation part of your entire Value Added Tax (VAT) registration process.

Tax Registration Number (TRN) Certificate : Remember that VAT in Dubai only works if it has been registered and verified with the Government of Dubai. And thus to make sure all businesses adhere to the strict laws of VAT, all businesses require their unique Tax Registration Number and we help you get it and certify it.

Tax Residency : After the completion of your VAT registration, documentation and Tax Registration Number Certificate, your business is now eligible for Tax Residency and we make sure that you reach this stage as fast as possible and with complete adherence to the Dubai Tax law.

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