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Value Added Tax - VAT in UAE

Tax Consultancy

Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent. VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

VAT, as a general consumption tax, is applied to the majority of transactions in goods and services. A limited number of goods and services are granted exemptions. Businesses will be responsible for carefully documenting 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.

Criteria for registering for VAT

A business must register for VAT if its taxable supplies and imports exceeds AED 375,000 per annum. It is optional for businesses whose supplies and imports exceed AED 187,500 per annum. A business house pays the government the tax that it collects from the customers, but at the same time it receives a refund from the government on tax that it has paid to its suppliers. Foreign businesses may also recover the VAT they incur when visiting the UAE.

When are businesses required to file VAT return

Taxable businesses must file VAT returns with FTA on a regular basis and usually within 28 days of the end of the ‘tax period’ as defined for each type of business. A ‘tax period’ is a specific period of time for which the payable tax shall be calculated and paid. The standard tax period is:

  • quarterly for businesses with an annual turnover below AED150 million
  • monthly for businesses with an annual turnover of AED150 million or more.
The FTA may, at its choice, assign a different tax period for certain type of businesses.