− A Comprehensive Guide! −
On January 1, 2018, the United Arab Emirates (UAE) implemented Value Added Tax (VAT) as part of its efforts to diversify revenue sources and reduce dependence on oil. The standard VAT rate in the UAE is 5%, applied to most goods and services, with some exemptions and zero-rated items. Below is a detailed overview of VAT registration, filing, and penalties in the UAE.
A. The VAT Registration Process
Who Needs to Register for VAT?
Businesses (corporate entities) in the UAE must register for VAT their taxable supplies (sales) exceed the following thresholds:
- Mandatory VAT Registration: If the taxable supplies exceed AED 375,000 per annum.
- Voluntary VAT Registration: If taxable supplies are between AED 187,500 and AED 375,000 per annum, the businesses can opt for voluntary registration.
- Exemption: If taxable supplies are below AED 187,500 per annum, registration is not mandatory, though the businesses can still voluntarily register.
Registration Process!
Step 1: Create an Account on the FTA Portal! The Businesses need to create an account on the Federal Tax Authority (FTA) website (www.tax.gov.ae).
Step 2: Submit the Application! Complete the VAT registration application shown at the FTA portal and provide necessary details such as business activities, estimated turnover, and financial details.
Step 3: Required Documents! Businesses must provide documentation including trade licenses, bank details, and identification for business owners.
Step 4: VAT Registration Certificate! After the submission of the business’s application, the FTA will process the application and, if approved, issue a VAT registration certificate.
VAT Group Registration – What is that?
- Businesses with common ownership (at least 51% owned by the same entity) can apply for VAT group registration.
- This allows multiple entities to register under one VAT number, simplifying administration and offsetting VAT on supplies between group members.
B. VAT Filing
Filing VAT Returns:
Businesses registered for VAT are required to file periodic VAT returns. The filing periods are usually quarterly or monthly, depending on the size of the business.
- Quarterly Filing: For businesses with an annual turnover of less than AED 150 million.
- Monthly Filing: For businesses with an annual turnover of AED 150 million or more.
The VAT return must be filed within 28 days after the end of the tax period. For example, if the VAT period ends on March 31 for a business, the return must be filed by April 28.
Filing Process:
- Prepare VAT Return: Businesses need to calculate their VAT liability by determining the VAT on sales (output tax) and VAT on purchases (input tax).
- Submit VAT Return: After preparing the return, businesses must submit it through the FTA portal.
- Payment of VAT: If the VAT on sales exceeds the VAT on purchases, the business must pay the difference to the FTA
Electronic Filing:
All VAT returns and payments must be filed electronically through the FTA’s online portal. The portal allows for the submission of VAT returns, viewing past returns, and making payments.
C. Penalties for Non-Compliance
The UAE imposes penalties for various forms of VAT non-compliance. Penalties can apply to late registration, late filing, late payment, and incorrect filings. Below are some common penalties:
- Late Registration Penalties
Failure to Register for VAT on Time: If a business should have registered for VAT but fails to do so, it may face a fine of AED 20,000.
- Late Filing Penalties
Failure to Submit VAT Returns on Time: The penalty for late submission of a VAT return is AED 1,000 for the first instance. If the delay exceeds 30 days, the penalty increases to AED 2,000.
- Late Payment Penalties
Failure to Pay VAT on Time: A penalty of 2% of the unpaid tax amount is charged immediately if the payment is late. For subsequent delays, the penalty increases to 4% after 7 days and 1% daily after 30 days until the payment is made.
- Incorrect VAT Returns
Failure to Correct Incorrect Returns: If a business submits an incorrect VAT return and does not rectify it in time, a penalty of AED 3,000 may apply.
Intentional Errors: In cases of deliberate or fraudulent errors, the FTA may impose more severe penalties.
- Other Penalties
Issuing False Tax Invoices: If a business issues fake invoices or fails to issue them, penalties can be levied, along with potential prosecution.
D. VAT Refunds
- Refunds for Businesses: VAT-registered businesses can claim a refund of the VAT paid on business-related expenses (input tax) if the VAT paid on purchase exceeds the VAT collected on sales.
- Refunds for Tourists: The UAE also offers a VAT refund scheme for tourists on eligible purchases made in the country. Refunds can be processed through designated refund points at airports or online.
E. VAT Exemptions and Zero-Rating
Some goods and services in the UAE are exempt from VAT or are subject to a zero-rate VAT (0% VAT), including:
- Exempt Goods and Services: These are items on which VAT is not charged, but businesses cannot reclaim VAT on their purchases. Examples include financial services, residential property rentals, and certain healthcare services.
- Zero-Rated Goods and Services: These are goods and services on which VAT is charged at 0%, allowing businesses to reclaim VAT paid on inputs. Examples include exports, international transportation, and some education services.
F. Conclusion:
The introduction of VAT in the UAE has significantly impacted businesses, requiring them to adapt to new compliance requirements. Timely registration, accurate filing, and proper tax management are crucial to avoid penalties. Companies should maintain and are advised to detailed records to ensure compliance with VAT regulations.
