Value Added Tax or VAT is a tax on the consumption or use of goods and services levied at each point of sale. VAT is a form of indirect tax and is used in more than 180 countries around the world. The end-consumer ultimately bears the cost. Businesses collect and account for the tax on behalf of the government.
In the U.A.E., VAT was introduced on 1 January 2018. The rate of VAT is five (5) percent, the lowest in the world.
Using the additional revenue from collection of VAT, the U.A.E. Government plans to continuously 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, will apply to the majority of transactions in goods and services. 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.
What are the businesses covered by VAT?
VAT applies equally on tax-registered businesses managed on the UAE mainland and in the free zones. However, if the UAE Cabinet defines a certain free zone as a ‘designated zone’, it must be treated as outside the UAE for tax purposes. The transfer of goods between designated zones are tax-free.
Criteria for registering for VAT
A natural or legal person in business must register for VAT if its taxable supplies and imports made by that person over the past 12 months exceeds AED 375,000. This is what is called mandatory registration for VAT.
Taxable supplies are all supplies of goods and services made by a person that are not exempt supplies, i.e. none of the following:
• Exempt financial services
• Bare Land
• Residential buildings
• Domestic passenger passport.
Registration is optional or voluntary for businesses whose supplies and imports exceed AED 187,500 per annum.
Only VAT registered businesses will need to charge and account for VAT.
How to register for VAT?
Businesses can register for VAT through the e-Services section on the FTA website. However, they need to create an account first and make sure that all the required documents are in order prior to proceeding with the application.
Once the email has been verified, log in and register the business.
Documents required for VAT registration
In order to register, the following are required.
• Business or Trade License;
• Copy of Passport/ Emirates ID (if resident of UAE) of Manager/ Owner
• Copy of Passport/ Emirates ID (if resident of UAE) of authorized signatory (if different from Manager)
• Proof of authorizing manager/ authorized signatory (articles of association, power of Attorney attested by notary public)
Timeline to complete the online registration with FTA
If all documents and details are in order, application can be completed within 15-20 minutes.
Additional Information and documents
Below is a summary of the most basic requirements and details for registering for VAT with the U.A.E. Federal Tax Authority.
• Basis of VAT registration- Voluntary or Mandatory
• Details about the applicant- You should register the person that is operating a business, not the business itself. A person can be an individual (i.e. operating as a sole trader), or a legal person (e.g. an incorporated business, a company) or another form of entity (e.g. an unincorporated body such as a charity or a club, a partnership or a trust). Generally, a VAT registration covers ALL of the business activities undertaken by the registered person.
• Trade License Details - It refers to any such license issued by an authorized issuing body in the UAE, including those in a UAE Free Zone.
• Filling in name of applicant should be done in both English and Arabic text. Hence, it is recommended to use assistance of a qualified translator.
• Trade License Copy
• Incorporation Certificate
• Articles of Association and other relevant corporate documents showing ownership of the business, depending on the basis of the registration.
• Passport copy of the owner
• Emirates ID copy of the owner
• Details of Manager
• Contact Details of Applicant
• Bank Details
• Director/ partner details
• Business Activity/ activities of Applicant
• Turnover (subject to VAT) for last 12 months, such as audit report, non-audited financial statements, self-prepared calculation sheet
• Expected Expenses (subject to VAT) for the last 12 months, proof acceptable are: audit report, non-audited financial statements, expense budget report.
Expected turnover (subject to VAT) for the next 30 days
Expected expenses (subject to VAT) for the next 30 days
Information about exempted supplies
Information about Imports and Exports transactions, customs registration numbers, if applicable.
Proof of authorization such as Power of Attorney or similar in the case of legal persons.
For the steps by step guidelines on the registration process, kindly refer to https://www.tax.gov.ae/pdf/Registration-User-Guide-VAT-VATG102_English_1.pdf
For any inquiries related to assistance with reviewing documents for VAT registration and with registering your business with FTA, kindly click the link