If you are running a business in the UAE, then you must know about its tax system. VAT is one of the most crucial taxes in the UAE. Value Added Tax is a tax on the use of services and goods levied at every sale. There are organizations that charge and collect tax on behalf of the government. UAE VAT eligibility is for tax-registered businesses operating both in free zones and Dubai Mainland.
A business should register for VAT if the imports and taxable supplies exceed the mandatory registration threshold of AED 375,000. Also, a business can choose to register for VAT voluntarily. The voluntary registration threshold is AED 187,500. Many people also ask about the VAT rules for the UAE and who is exempted. All your answers to these questions are in this blog. So, keep reading and get the most out of this blog post.
Before going into the depth of this topic. Let’s discuss the main problems businesses face regarding VAT registration.
1. Understanding the VAT registration requirements and process
The VAT registration process can be complicated. Also, businesses need to understand the requirements for registration. In Addition, the threshold for registration, how to get a Tax registration number, and the documentation.
2. VAT compliance
Businesses need to ensure that they remain compliant with VAT regulations. Also, it includes calculating input and output tax and understanding of VAT filing process. Moreover, it includes keeping accurate records.
3. Cross-border transactions
Cross-border transactions can be quite challenging for businesses. Also, it gives a tough time with the VAT treatment of imports and re-exports. In addition, to ensure compliance with relevant regulations.
4. VAT penalties
Businesses can face penalties for VAT non-compliance. So, it is important to know the penalties for late filing of VAT returns. Also, the penalties for incorrect VAT calculation and failure to maintain the records.
Now, let’s discuss the possible solutions for VAT compliance. Also, the in-depth key points about VAT registration.
What is VAT eligibility?
VAT is a tax imposed on the imports and supply of services and goods. Goods can be any physical entity, such as electronics, vehicles, food and beverage, furniture and clothing, etc. Services can be any commercial activity, such as hiring or loaning any goods to someone or selling business assets.
What is the VAT Rate
A tax rate is the percentage of income or taxable that is paid to the government as a tax. The FTA has set the standard rate for goods and services. The VAT rate is 5% on all types of supplies.
Now, let’s look at the zero-rated supplies and non-taxable supplies for VAT eligibility.
Zero-rated Supplies
Zero-rated supplies in UAE VAT refers to taxable supply on which VAT is charged at a zero rate.
The following supplies will be zero-rated:
- International transport and related deliveries.
- Export of services and goods outside the GCC countries.
- Supply of some sea, air, and land transport modes.
- The first supply of residential buildings.
- First supply of charity buildings.
- Supply of crucial oil.
- Supply of education services and services supply of preventive and basic health care.
Non-taxable supplies
Supplies on which VAT is not charged and are exempted are known as Non-Taxable supplies. Here are the 2 types of non-taxable supplies.
1. Exempt supplies
Exempt supplies are non-taxable supplies for VAT. VAT is not charged on exempt supplies. These are the following categories of exempted supplies:
- Bare land
- Residential rent
- Government entities
- Medical fee
- Medicine Cost
- Airline tickets
- Salaries, Bonuses
- Residential buildings
- Supply of some financial services
- Local passenger transport
2. Out of scope supplies
These are the supplies that are outside the purview of the VAT in UAE. You don’t have to declare out-of-scope supplies in the general VAT returns submitted in each tax period. Here are some of the examples of out-of-scope supplies:
- Intergroup Transactions
- Dividends received from passive shareholding
- Interest income from bank deposits
- Tips
- Services provided by the employees to the employers
Mandatory registration
The threshold of UAE VAT is AED 375,000 in the period of 12 months.
Businesses expect the value of their taxable supplies to exceed AED 375,000 within the last 30 days.
Voluntary registration
Businesses can apply for voluntary registration. If they don’t meet the mandatory requirements in these situations:
There is a voluntary registration threshold of AED 187,500 in the period of 12 months.
The total value of taxable supplies is expected to exceed the voluntary registration limit within 30 days.
Also, the question is how to stay compliant with the UAE VAT. Here are some of the possible solutions for the main problems of VAT registration and VAT compliance.
VAT Compliance
Businesses can seek professional advice from the best VAT consultants in UAE.
There are many resources available online from the government agencies such as FTA.
Businesses can use the VAT accounting software. So, that this can help them to calculate VAT accurately. Moreover, businesses in UAE can get advice from VAT consultants in UAE to ensure compliance.
VAT audit and review
Businesses must maintain accurate VAT records. Businesses can always get professional assistance from UAE VAT consultants. They can hire the best accounting and bookkeeping firms in UAE to handle VAT.
VAT penalties
The VAT penalties in the UAE are designed to deter businesses from non-compliance with the VAT laws and regulations. The penalties can be severe, so businesses need to understand their obligations and take steps to avoid penalties. Businesses can get professional advice from VAT consultants about VAT penalties.
Here are the following common VAT penalties in the UAE:
- Late registration penalty
- Failure to file a VAT return
- Late payment of VAT
- Failure to issue a tax invoice
- Failure to keep adequate VAT records
- Fraudulent VAT returns
- Incorrect calculations
How can ebs help?
ebs is one of the leading accounting and bookkeeping firms in Dubai. Our team of ebs assists businesses in the VAT provisions as per the tax procedure law. ebs team will do everything in their power to ensure VAT compliance for you. Our VAT experts will help you to stay compliant and avoid the penalties.
ebs VAT services is a suite of services to help businesses comply with VAT laws and regulations. ebs VAT services include:
- VAT registration
- VAT accounting
- VAT return filing
- VAT compliance reviews
- VAT training
Conclusion
In this blog, we explored the common problems businesses face in VAT compliance. We also discussed VAT eligibility and what can be the possible solutions. It is advisable to consult the best accounting and bookkeeping companies in UAE, such as ebs. It will help you to stay compliant and avoid table-turning penalties. ebs provides the following VAT compliance services in Dubai.
-
VAT registration
ebs can help businesses register for VAT and get a Tax Registration Number (TRN).
-
VAT return filing and preparation
ebs help companies to prepare VAT returns on time. Also, to file their VAT returns accurately.
-
VAT advice and consultancy
ebs can provide VAT consultancy on all aspects of VAT compliance. It includes cross-border transactions, VAT audits, and input tax credit claims.
-
VAT accounting
VAT accounting is the process of recording and reporting VAT transactions. It involves tracking all sales and purchases that are subject to VAT, calculating the amount of VAT due, and filing VAT returns with the tax authorities.
Therefore, Inaccurate VAT accounting can lead to penalties from the tax authorities. Here are some of the steps involved in VAT accounting:
- Identify VAT supplies and purchases.
- Calculate the amount of VAT due.
- Record VAT transactions.
- File VAT returns.
We provide other important services that could be useful for your business. Our services include accounting and bookkeeping services, Auditing, Due Diligence audit services, and many more. Feel free to get in touch with our experts and contact us today.
FAQs
What are the criteria for qualifying for VAT in the UAE?
To qualify for VAT in the UAE, a business must meet the following criteria:
-
Annual turnover
The business’s annual turnover must be equal to or greater than AED 375,000.
-
Nature of business
The business must be engaged in the supply of goods/ services that are subject to VAT.
-
Registration threshold
The business must register for VAT if its annual turnover exceeds the registration threshold for its specific industry.
How can I get a VAT registration certificate in the UAE?
Log in to the EmaraTax Platform using Emirates ID UAE Pass or your taxpayer account. In the Dashboard, the VAT registration certificate can be found in the “My Correspondence section” of your Taxable Person account. Click the certificate and download the PDF.
What is VAT-exempt supplies in the UAE?
Here are the main VAT-exempted supplies in the UAE:
- Bare land
- Residential buildings
- Supply of some financial services
- Local passenger transport
How is VAT calculated in UAE?
You can add a 5% VAT to the sale price. Also, you can use the VAT calculator in UAE to calculate faster. Here is the formula for calculating VAT:
VAT Payment = Output VAT – Input VAT
You should apply this formula once you have calculated the output VAT and Input VAT.
If the output VAT is more than the input VAT, then the difference will be the VAT payable.
If the input VAT is more than the output VAT, then the difference will be VAT refundable.
For example, the Selling Price of the services/goods is = AED 100. Then, the VAT on the services/goods will be the selling price x 5%, which is 100×5% = AED 5.