A Guide to VAT Registration in the UAE

Are you feeling confused about VAT in the UAE? Ez Bizz Corporate Services LLC is here to simplify the VAT registration process for you.

VAT (Value Added Tax) was introduced in the UAE on 1st January 2018 to diversify the economy and create additional revenue streams. Since its introduction, VAT has become a crucial part of the UAE’s tax system, impacting both businesses and consumers.

Navigating the complexities of VAT as a business owner can feel overwhelming, but don’t worry. We’ve created a comprehensive guide on VAT registration in the UAE to make things clearer for you. In this article, we will explain why VAT registration is important, who needs to register, and provide a step-by-step guide on how to complete the process. We’ll also provide a checklist of required documents and share tips on staying compliant after registration.

What is VAT in the UAE?

VAT is an indirect tax applied at each stage of the supply chain where value is added, from production to the final sale.

As a business, you collect VAT on your sales for the government and can claim credit on the VAT paid for your purchases. This credit system ensures you only pay tax on the value added to the product, making the system fair for businesses of all sizes.

Here’s an example: If a manufacturer buys raw materials for AED 100 and adds a value of AED 30 during production, the total value of the product is now AED 130. The manufacturer charges 5% VAT (AED 6.5) and sells it to a retailer for AED 136.5. The retailer adds AED 20 of value, making the total value AED 156.5, and applies 5% VAT (AED 7.82). The retailer then sells the product to the final consumer for AED 164.32, who ultimately bears the VAT cost. At each step, businesses remit VAT to the government, minus the VAT they’ve already paid.

Why Register for VAT in the UAE?

There are several advantages to registering for VAT in the UAE, including:

• Legal compliance: By registering for VAT, you ensure that your business adheres to UAE tax regulations. If your taxable supplies exceed AED 375,000 and you fail to register within 30 days, your business could face penalties. Staying compliant safeguards your business’s reputation and finances.
• Improved financial management: VAT registration requires meticulous record-keeping, which helps businesses better manage their finances. Keeping accurate records of all VAT-inclusive transactions (sales and purchases) allows for proper tax reporting and better cash flow management.
• Government incentives: Registered businesses can take advantage of potential VAT refunds. If your input tax (VAT paid on purchases) exceeds your output tax (VAT collected on sales), you may be eligible for a refund, reducing your overall tax liability.

Who Needs to Register for VAT?

There are two types of VAT registration in the UAE—mandatory and voluntary.

A. Mandatory Registration

Businesses must register for VAT if their taxable supplies exceed AED 375,000 in the last 12 months or are expected to exceed this threshold in the next 30 days. Failing to register when required can result in penalties.

B. Voluntary Registration

If your taxable supplies and imports exceed AED 187,500 but fall below AED 375,000, you can voluntarily register for VAT. This option is particularly beneficial for startups and small businesses, allowing them to claim input tax credits on their purchases.

VAT Exemptions in the UAE

Not all businesses are required to register for VAT. According to UAE Federal Decree-Law No. (8) of 2017, certain sectors are exempt from VAT, including:

• Bare Land: The sale of undeveloped land is VAT-exempt.
• Financial Services: Financial services that don’t involve a fee, discount, or commission are exempt.
• Local Passenger Transport: Services such as buses, taxis, and metro systems are exempt from VAT.
• Residential Properties: The lease and sale of residential buildings, except zero-rated properties, are VAT-exempt.

VAT Penalties in the UAE

Failure to comply with VAT laws can result in significant penalties, including fines up to AED 50,000. For example, a delay in VAT registration can lead to a penalty of AED 10,000. Additionally, failing to pay VAT on time can result in a 2% penalty of the unpaid tax, followed by a 4% monthly penalty after one month.

VAT Registration Process for New Companies in the UAE

Here’s how to register your company for VAT in the UAE:

1. Eligibility Check: Determine whether your business meets the mandatory or voluntary VAT registration thresholds based on your taxable turnover.
2. Document Preparation: Collect the necessary documents, such as:
   • Trade licence
   • Passport or Emirates ID of authorized signatories
   • Proof of authorization (if needed)
   • Contact information (address, PO Box)
   • Bank account verification
   • Other documents like MOA or partnership agreements (if required)
3. Create an FTA Account: Visit the Federal Tax Authority’s website and create an e-Service account.
4. Fill Out the VAT Form: After logging into your FTA account, complete the VAT registration form with details about your business, turnover, and bank account.
5. Submit and Pay: Review your form for accuracy and submit your VAT registration. You may need to pay a fee, which the FTA will guide you through.
6. Application Review: Once your application is submitted, the FTA will review it. If approved, you will receive a Tax Registration Number (TRN) and VAT certificate within 30 days.

Documents Required for VAT Registration

To complete your VAT registration, you will need:

• Valid trade licence
• MOA (if applicable)
• Bank account details
• Contact information (email and phone number)
• Office address
• Yearly turnover report
• Customs details (if involved in import/export)
• Emirates ID of partners or owners
• Power of attorney (if someone else registers on your behalf)

Maintaining VAT Compliance Post-Registration

After registering for VAT, here are some best practices to stay compliant:

• Charge VAT: Ensure you charge the correct VAT rate (currently 5%) on all taxable supplies and display this clearly on invoices.
• Keep Records: Maintain detailed records of all income, costs, and VAT charges. The FTA recommends keeping these records for a minimum of five years.
• Submit VAT Returns: File VAT returns on time to avoid penalties.
• Issue VAT Invoices: Include necessary details like the date, a unique invoice number, your TRN, and VAT amount on all invoices.

Streamline Your VAT Processes

Filing accurate VAT returns is key to staying compliant. One way to simplify the process is by using automation tools like Alaan, which ensures accurate VAT calculations and reduces the risk of errors.

For businesses looking to streamline their VAT processes, Ez Bizz Corporate Services LLC is here to assit you every step of the way.