How to Register for VAT in the UAE
If a business meets the criteria for registration, it is mandatory to register for Value Added Tax (VAT) in the UAE. The Federal Tax Authority (FTA) oversees the process, and registration should be online via the FTA portal. The first step for businesses is registering an account in FTA e-Services and completing the VAT registration form as required.
This includes information about the company’s activities, trade license registration information, financial statements, and identification documents of the business owner or partners. The process requires the uploading of supporting documents.
The FTA reviews the application once submitted, which can take a several-day-long process. Once done, a Tax Registration Number (TRN) is generated, which confirms registration for VAT from there, businesses will have to meet VAT requirements, including collecting VAT on taxable supplies, filing tax returns, and keeping financial records.
The UAE introduced the Value Added Tax (VAT) on January 1, 2018, as part of its plan to diversify sources of revenue. Most goods and services are subject to VAT at a standard rate of 5%. VAT registration in the UAE is important to businesses, so they must understand the procedures, eligibility, and methods to calculate VAT for tax compliance. Thus, here is a complete guide on VAT registration in the UAE, i.e. turnover limits, exempted services, VAT calculation, etc.
What is the Turnover Limit for VAT Registration in the UAE?
The second is that the UAE Federal Tax Authority (FTA) has established certain turnover thresholds, which help businesses determine whether they are liable for VAT registration. They are further categorized into mandatory registration thresholds and voluntary registration thresholds.
Mandatory VAT Registration:
This includes taxable supplies such as goods, services, imports, and reverse charge transactions.
- Businesses with an annual taxable turnover exceeding AED 375,000 must register for VAT.
Voluntary VAT Registration:
- Businesses with an annual taxable turnover exceeding AED 187,500 but below AED 375,000 may choose to register for VAT voluntarily. Voluntary registration allows businesses to reclaim input VAT on expenses
Which Services Are Exempt from VAT in the UAE?
While most goods and services are subject to VAT, certain categories are either exempt or zero-rated. Understanding these classifications is essential for businesses to ensure proper tax compliance.
Exempted Services (No VAT Applied):
Exempt services do not attract VAT, meaning suppliers cannot charge VAT on these transactions, nor can they reclaim input VAT. The following sectors are VAT-exempt in the UAE:
Life insurance and reinsurance:
Contracts identifiable as Islamic finance am which follow Shariah principles
Rentals & Sales | Residential Properties:
- Selling the home after constructing it for three years
- For long residential leases (commercial leases are excluded)
Local Passenger Transport:
- Public transport services like taxis, buses, metro, and ferries
Bare Land Sales:
- Selling empty land that has no infrastructure
Zero-Rated Supplies (VAT at 0% but Input VAT is Reclaimable):
Zero-rated services should be taxed with a 0% VAT and therefore firms may deduct input VAT on expenses related to them. These include:
- Outside the Gulf Cooperation Council Export of goods and services.
- Transport services abroad such as airfare, shipping, etc.
- Healthcare and other educational services.
- Certain precious metals such as gold, silver, and platinum supply.
How Do You Calculate VAT in UAE?
The calculation of VAT is a key aspect of compliance for businesses. The rate of VAT is 5% on the taxable amount. Here is the important information you need to know about VAT calculations.
Output VAT: Calculating VAT Payable on Sales
Businesses are required to charge VAT on any taxable sales, which they collect from customers. The formula is: Selling price + 5% of the total price.
For example, if a business sells a product for AED 1,000, VAT will be AED 50, and the total price payable by customer is AED 1,050.
Understanding VAT on Purchases (the Input VAT):
Businesses are entitled to recover VAT incurred on goods and services used in making taxable supplies. The formula is: Purchase price + 5% of the total price.
For example, if an entity purchases raw materials of AED 500, then VAT paid will be AED 25.
Tax Payable to FTA Calculation:
The net VAT to be paid to the FTA is VAT payable= Output VAT – Input VAT
For Example:
Output VAT collected from sales: AED 1,000
Input VAT paid on purchases: AED 600
VAT payable to FTA: AED (1,000 – 600) = AED 400
Businesses that have input VAT exceeding output VAT can ask for a refund of VAT.
How to Register for VAT in UAE
Businesses that need to register for VAT can do so through the FTA’s online portal. The process looks like this, step by step.
Create an e-Services Account:
- To visit the FTA website
- Create an account and verify your email.
Login to the FTA Portal:
- Log in using registered credentials
- Fill out the VAT registration form:
- Describe the business, including:
- Trade license information
- Contact details
- Business activities
- Turnover details
- Bank account details
Attach Required Documents:
- Trade license copy
- Website for UAE National Owners only
- Bank account details
- Financial statements (if available)
- Information about the structure of a business ownership
Submit the Application:
- Usage: Double-check details before submission.
- Apply and await approval.
Obtain the VAT Registration Certificate:
- After approval, a Tax Registration Number (TRN) will be issued by the FTA.
- TRN must appear on invoices by businesses.
An Overview of a Vital Requirement for UAE Businesses By understanding the turnover thresholds and the VAT calculations that are used with goods and services, businesses can keep up with tax regulations. Businesses are expected to keep their records accurate, file their returns on time, and comply with the regulations implemented by the FTA to avoid penalties. Businesses can smoothly sail through VAT requirements and operate legally in the UAE’s tax framework by following the above registration process.
