VAT Services in Dubai

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The UAE is leading among the best places in the world to start a business. Everything that an investor or business owner considers before establishing a business setup in a foreign location is present here. It attracts huge foreign investment every year with investor-friendly policies, a prime location, and a stable economy. However, to run a company without any issues, business owners need to understand VAT Services in Dubai, UAE.

The VAT system was introduced in the country in 2018. Today, it has become mandatory for every business, from a startup to a large company, to understand its rules. This is applied to almost all goods, and businesses must maintain compliance with its guidelines to avoid penalties. Start Any Business (SAB) can help you with everything, from VAT registration to filing and maintaining good financial health. With us on your side, you only need to focus on growing your business.

What is VAT in UAE?

As we discussed above, UAE VAT was introduced in 2018, at a standard rate of 5%. This applies to most goods and services sold within the country. If a business’s yearly taxable sales are more than AED 375,000, it needs to register for VAT with the FTA. Besides registration, a VAT-registered business has to issue VAT-compliant invoices and file returns regularly on time. Businesses collect this indirect tax on behalf of the government.

This tax is charged at each stage of production and sale. However, the final cost is paid by the consumer. Businesses can claim back the VAT paid on their expenses. To claim back their input VAT, they need to adjust the output VAT, which is the VAT they collect. Suppliers from some specific sectors, like healthcare, exports, and education, are either 0% or exempt from this indirect tax.

How VAT Works in UAE?

The UAE VAT system works like a chain. Businesses registered with FTA for VAT charge this indirect tax at each step of buying and selling what they sell (output tax). They need to pay VAT on what they buy (input tax). Then they need to pay the difference to the government. They can also get a refund if they paid more VAT on their purchases than they collected on sales.

Let’s understand how this works with an example. Suppose a technology supplier sells software to a local distributor. The supplier charges VAT on its service and pays it to the government. The distributor then sells the software packages to a retail company. The distributor will again charge VAT and claim back the VAT it paid to the supplier. When the retail company sells the software to end users, it will also charge VAT and claim back the VAT it paid to the distributor. This system makes sure that this indirect tax is not charged twice, and the final consumer actually pays the VAT.

Standard-Rated Supplies (5%)

This rate applies to most goods and services supplied in the Emirates. This category includes everything that is not specially mentioned as zero-rated or exempt. This includes:

Retail sales of goods
Hotel stays & restaurant meals
Construction services
Imported items & services
Entertainment & leisure activities
Professional services

Zero-Rated Supplies (0%)

These supplies fall under the category of taxable goods and services but have a VAT rate of 0%. Businesses that provide these supplies can reclaim the tax they paid on their purchase. This includes:

Exports: Goods and services that are sold to countries outside the GCC.
International Transport: Services for passengers and goods that start, end, or even pass through the UAE.
Precious Metals: Supply of investment-grade gold, silver, and platinum (99% pure or higher) is also zero-rated.
Real Estate: The first supply of a new residential building within three years of its completion is zero-rated. After this, all other sales are free from VAT charges.
Education: Certain educational services and related goods supplied by qualifying institutions.
Healthcare: Medicines, medical equipment, preventive and curative healthcare services offered by qualifying medical professionals and institutions.

Exempt Supplies

These supplies are free from VAT charges. As no VAT is charged on these supplies, businesses providing them cannot recover the VAT they paid on related expenses.

Certain Financial Services: This applies to financial services where there is no direct charge, like interest on a loan.
Residential Properties: As we discussed above, following the initial sale, all sales and leases of residential buildings are free from VAT charges.
Bare Land: The sale and lease of land with undeveloped buildings are also exempt.
Local Passenger Transport: Local passenger transport services via land, water, or air are free from VAT charges.</li

Understanding VAT Calculation in the UAE

Let’s understand how VAT is calculated in UAE with an example. Suppose a Dubai-based online electronic store buys smartphones from a local distributor for AED 100,000. For this purchase, the store needs to pay AED 5,000 VAT (5%). Then the store sells those phones to its customers for AED 120,000. It charges AED 6,000 VAT.

The store owner will keep the AED 1,000 difference and pay that to the FTA. This makes it clear that VAT is collected at every stage, but finally it is paid by the end consumer.

VAT Compliance & Obligations in UAE

Businesses operating in any sector within the UAE must comply with the required VAT rules if their annual taxable turnover is above the mandatory registration limit. With Start Any Business (SAB), you never have to worry about compliance issues, as our team knows all VAT obligations. We keep our clients protected from all legal worries and penalties by ensuring their businesses comply with the necessary VAT guidelines.

VAT Registration in UAE

As we discussed above, for businesses with yearly taxable sales surpassing AED 375,000, FTA registration for VAT is mandatory. Once their sales cross the eligibility limit, they need to apply for registration within 30 days beginning when the limit was reached. However, if they fail to register on time, they need to pay a hefty penalty of AED 10,000. With Start Any Business (SAB), you secure VAT registration without any hassles.

Moreover, businesses with yearly taxable supplies surpassing AED 187,500 but less than AED 375,000 can also register with VAT for FTA. With voluntary registration, businesses become eligible to claim back the VAT they paid on their purchases and expenses. Also, this registration improves their credible image in the market.

Invoice Generation & Payment Collection

All the businesses in the UAE making taxable supplies of goods and services must issue tax-compliant invoices. For the buyers, these are important for recovering the input tax. Moreover, these are also necessary for the sellers to maintain an official audit record for the VAT they charged.

VAT-registered businesses need to use a full tax invoice for B2B sales or when the amount is above AED 10,000.
VAT-registered businesses must use a simplified tax invoice for B2C sales or when the amount is below AED 10,000.
Every tax invoice for a taxable supply must include specific details, like the tax invoice label, details of the seller and recipient, TRN, a unique invoice number, issuance date, supply date, details about goods and services, and the amount of VAT charged.
You need to issue the VAT invoices within 14 days of making the supply. Moreover, make sure to charge 5% on all taxable supplies.

VAT Payment (Remittance to the Government)

If the calculated output VAT is more than the input VAT, the business must pay the difference to the FTA.
All payments related to VAT must be made to the FTA through its e-Services portal, using credit card, local bank transfer, and other options.
Both late and incorrect payments can lead to serious penalties.

VAT Return Filing

All businesses registered with the FTA for UAE VAT need to file their tax returns regularly using the EmaraTax portal. The annual turnover of a business determines its filing frequency.

Monthly: Businesses that are earning more than AED 150 million must file returns monthly.
Quarterly: Businesses with earnings less than AED 150 million file their returns quarterly.

Generally, businesses registered with VAT in UAE file their returns with the FTA every quarter. They have 28 days after the tax period ends to file their returns and make all related payments. This process involves calculating VAT collected on sales, VAT paid on purchases, and balancing these amounts to find the net VAT that needs to be paid or refunded. The VAT 201 return provides details on various VAT-related activities, including:

Standard-rated supplies
Zero-rated supplies
Exempt supplies
Imports that fall under the reverse charge mechanism
Corrections or adjustments to previously filed returns

Record-Keeping Obligations

All tax invoices and credit notes that they have issued and received.
Details of all supplies and imports of goods and services.
Records of goods and services used for personal or non-business purposes.
Records of purchases for which input tax was not claimed.
Records of all goods and services they have exported.
Any changes made to their accounts or tax invoices.
Details of the tax accounting frameworks used.

How Businesses Can Recover VAT in the UAE

Recovering input VAT is a main feature of this indirect tax system. All registered businesses need to understand how they can balance the VAT they owe on their sales with the VAT they paid on their business-related purchases.

Recoverable VAT

Businesses that are VAT-registered can reclaim the VAT they pay on purchases used for taxable business activities. This includes VAT on both standard-rated and zero-rated supplies.

Non-Recoverable VAT

VAT expenses on those that are non-recoverable are entertainment, non-commercial vehicles, and costs associated with providing exempt supplies. Employee benefits are only recoverable if they are legally required.

Reclaiming Refunds

If your input VAT tax is higher than output VAT, you can carry the tax credit forward to a future tax period or apply for a direct refund. For foreign businesses and certain government and charitable organizations, the FTA provides special refund schemes.

Zero-Rated & Exports

By maintaining correct documentation, businesses can still recover the input VAT on supplies used to produce zero-rated goods and services, including exports.

Imports

Businesses registered for VAT can report and recover VAT on imported goods in their VAT return. However, non-registered businesses have to pay VAT but cannot claim it back.

Capital Assets

If a business buys a capital asset and claims input VAT credit, it may have to adjust the credit later if it has used it for non-taxable purposes instead of taxable ones.

Input Tax Allocation

Businesses that make both taxable and exempt supplies must divide their input VAT based on the proportion of taxable sales to their total revenue. However, they can only recover VAT for their taxable sales.

VAT Rules for Global Business Deals

To make sure the VAT is only charged and collected on domestic consumption, the UAE applies specific rules for cross-border trade.

Export goods are zero-rated if shipped outside the GCC. However, you need to provide documentation for export.
Exported services are mostly zero-rated if the benefit is received outside the UAE. This simply means these services must not be linked with any UAE property or event.
5% VAT applies to imported goods. Registered businesses pay this through RCM, while non-registered businesses pay customs but can’t reclaim it.
Imported services are subject to a 5% reverse charge VAT. All input VAT can only be recovered by fully taxable businesses.
Trade between GCC countries is treated as a zero-rated export from the UAE. Here VAT is paid by the importer in the destination country.
If international transport services are part of one complete international journey, they are treated as zero-rated.
Foreign digital service providers need to register for UAE VAT and charge it on B2C sales.

Penalties for Non-Compliance

VAT-registered businesses in the UAE must follow the required compliance obligations. From late tax payments to late registration, the tax authority fines for various non-compliance mistakes.

Late Registration: Businesses that don’t register with FTA for VAT after their taxable sales reach the eligibility limit within 30 days face a penalty of AED 10,000.
Late Filing of a Tax Return: If you fail to submit a VAT return on time, you will face an AED 1,000 penalty for the first offense. However, for repeated offenses within 24 months, AED 2,000 must be paid as a penalty fee.
Late Deregistration: You must submit a deregistration application to the FTA to avoid penalties, which can be AED 1,000 per month and can lead to a bigger penalty of AED 10,000.
Record-Keeping Failure: You can face a penalty of AED 10,000 for not maintaining the necessary records for the first offense. However, this penalty fee can increase up to AED 50,000 for each repeated violation.
Late Payment of VAT: 2% of the unpaid tax is due immediately, 4% is due seven days after the payment deadline, and there is a 1% daily penalty on any remaining unpaid tax, with a maximum cap of 300%.

Choose Start Any Business for VAT Services in Dubai

Make handling VAT registration, deregistration, and other compliance tasks easier for you with Start Any Business (SAB). We are the leading VAT consultants in Dubai and offer complete and customized VAT solutions for businesses of all sizes. Our team stays updated with all changes in tax and VAT laws. So, you can stay assured that your business is always compliant with the latest guidelines.

We have been simplifying the entire VAT process for our clients from diverse sectors for years. Whether you need support for VAT refund processing, e-invoicing implementation, or return filing, we can help with anything. Make us your reliable partner and get the right solutions for all your business’s VAT needs.

Frequently Asked Questions On VAT Services in Dubai, UAE

List of goods and services are exempt from VAT in Dubai that are:

Education & Training
Oil & Gas
Transportation
Healthcare
Real Estate
Financial Service

To claim a VAT refund, applicants are required to submit a refund form to the Federal Tax Authority (FTA) via email along with supporting documents.

To access the VAT return for 201, the taxpayer should log in to the FTA e-service portal using your registered username and password. From navigation menu, select the VAT-> VAT 201 -> click on VAT 201 -new VAT return to initiate the VAT return filing process.

UAE suppliers are only entitled to impose the zero rate of VAT on services supplied. In case the setup of its recipient, it is most associated with supply, is outside UAE.

To calculate VAT, you need to follow these things :

Determine the net price (VAT exclusive price)
Find out the VAT rate
For calculate the VAT price: first, multiply the net amount by VAT rate
Determine the gross amount: multiply the net price by the VAT rate, and then.
Add this to the VAT exclusive amount so you receive the VAT inclusive

Yes, VAT registration in mandatory in the UAE. When you are expecting to supply goods or services in UAE or arrange for VAT, you are required to register after the VAT law comes into force and there is no other person in UAE due to VAT on your behalf.

All the businesses residing in the UAE state and in the last 12 months the value of supplies in the member states have exceeded AED 375,000. They must compulsorily register under the UAE VAT.

The three types of VAT are :

Consumption
Income kind
Gross National products

Once your trade is registered in VAT. When your business income reaches the VAT registration limit. Then charge VAT on services.

UAE citizens are entitled to a refund of Value Added Tax (VAT) imposed on the construction of a new residence for their own use.

Any business or business of manufacturing, whether it is a sole proprietorship or a partnership company, that sells its products, is liable for VAT registration.

The standard VAT return period applicable to most taxpayers is a quarterly return i.e., three calendar months. In addition, the FTA may request certain types of businesses to file VAT returns on a monthly basis. The last date for filing the return will be the 28th day after the end of the VAT return period.

Areas that are exempted from VAT in the UAE are:

Supply of some financial services
Residential properties-sale and lease.
Bare land-sale and lease.
Local passenger transport.

Since the location of supply of goods generally follows the place of goods, the supply of goods to the designated zone is carried out outside the United Arab Emirates. It means that default supplies that such supplies are not subject to UAE VAT.

UAE corporate tax for new businesses establishes a 0% rate for small businesses that operate below the threshold, while imposing a 9% tax on profits that exceed AED 375,000.