UAE VAT

Companies whose taxable products, services, imports, and exports exceed the threshold of AED 375,000 annually, need to mandatorily get VAT registration in UAE. Whereas, a business may opt to register for VAT voluntarily if their products, services, imports and exports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

Yes, businesses will be liable to maintain book of accounts for their business profits, incomes and costs. Companies will also have to document charges related to Value Added Tax separately. Along with the maintain of financial records, commercial organizations would also take assistance from accounting and auditing firms in UAE.

Yes, VAT invoices need to be retained for a period of 5years. These invoices need to be presented as and when required by the Federal Tax Authority.

The tax paying companies in UAE are required to file returns with the FTA on regular intervals. As slated, the returns need to be filed quarterly or whenever instructed by the FTA, i.e. within 28 days from the end of the tax period as per the measures determined in the VAT legislation. VAT returns need to be filed by FTA eservices.

Companies and businesses can register for VAT tax through the e-services section on the FTA online portal (https://eservices.tax.gov.ae/). However, they need to create an account and obtain a TRN number. Companies would also require a series of documents.

Businesses will be responsible for careful documentation of their business income, costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.

For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).

For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).

The VAT on real estate will depend on whether it is a commercial or residential property. Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e. 5%). On the other hand, supplies of residential properties will generally be exempted from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. To ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.

VAT will be charged at 0% in respect of the following main categories of supplies:

• Exports of goods and services to outside the GCC;
• International transportation, and related supplies;
• Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
• Supply or import of precious metals for investment purposes;
• Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
• Supply of certain education services, and supply of relevant goods and services;
• Supply of certain Healthcare services, and supply of relevant goods and services.
• Supply of crude oil and natural gas.

The following categories of supplies will be exempt from VAT:

• The supply of some financial services;
• Residential properties through sale or lease other than that which is zero-rated;
• Bare land; and
• Local passenger transport

VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT-registered business entity. The legislation includes the conditions and limitations concerning the use of this relief.

To avoid double taxation where second-hand goods are acquired by a registered person from an unregistered person for resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, on the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. The legislation will include the details of the conditions to be met to apply this mechanism.

Penalties on VAT and taxation will be imposed on non-compliance. Examples of actions and omissions that may give raise to penalties include:

• A person failing to register when required to do so;
• A person failing to submit a tax return or make a payment within the required period;
• A person failing to keep the records required under the issued tax legislation;
• Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

A scheme introduced to allow a UAE national who are not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence. A residence that will be privately used by the person and his family only then recovery of VAT on such expenses as contractor’s services and building materials is possible.

VAT will not be deductible in respect of expenses incurred for making non- taxable supplies., input tax cannot be deducted if it is incurred in respect of specific expenses such as renting or leasing of motor car, entertainment expenses e.g. employee entertainment as per Article (53) of federal Decree-Law No (8) of 2017 on Value Added Tax.

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

• The business must be a taxable person (the end consumer cannot claim any input tax refund).
• VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
• The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
• The goods or services acquired are used or intended to be used for making taxable supplies.

VAT is due on the goods and services purchased from abroad. In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.