VALUE ADDED TAX (vat) Services

Standard VAT rate is 5% in the UAE

A business must register for VAT if its taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, a business may choose to register for VAT voluntarily if its supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

Similarly, a business may register voluntarily if its expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

VAT-registered businesses generally:

• must charge VAT on taxable goods or services they supply;
• may reclaim any VAT they have paid on business-related goods or services;
• keep a range of VAT related business records (e.g. Tax invoices);
• report their taxable supplies and purchases in periodic VAT return.

Businesses will need to meet certain requirements to fulfil their tax obligations. To fully comply with VAT, businesses will need to consider the VAT impact on their core operations, financial management and book-keeping, technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT and make every effort to align their business model to government reporting and compliance requirements.

A Person required to register for VAT needs to submit a registration application to the FTA within 30 days of being required to register.

VAT Assistance from a tax expert guarantee precise adherence to VAT rules, effective tax planning, and smooth execution. A proper VAT implementation ensures businesses adhere to VAT regulations, avoid penalties, and optimize tax planning.

Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period.

Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them are prescribed in Federal Law no. (28) of 2022 on Federal Tax procedures and the Cabinet Decision No. (74) of 2023 on the Executive Regulation of the Federal Law No. (28) of 2022 on Tax Procedures.

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

A VAT Health Check for businesses in the UAE involves a thorough review and assessment of their Value Added Tax (VAT) processes and practices. It aims to ensure that businesses are complying with VAT regulations effectively and efficiently. This check typically involves examining VAT registration, invoicing procedures, record-keeping, tax calculations, and filing processes. The goal is to identify any areas of non-compliance, potential risks, or opportunities for improvement. By conducting a VAT Health Check, businesses can proactively address any issues and enhance their overall VAT compliance and financial management practices.

VAT, as a general consumption tax, is applied at 5% to all transactions of goods and services unless specifically exempt in Article 46 of the Federal Decree-Law No. (18) of 2022 on Value Added Tax or subject to a rate of 0% as per Article 45 of the Federal Decree-Law.

Businesses are responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders 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.

VAT will be charged at 0% in respect of the following main categories of supplies:

• Exports of goods and services to outside the GCC;
• International transportation, and related supplies;
• Supplies of certain sea, air and land means of transport (such as aircraft and ships);
• Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
• Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
• Supply of certain education services, and supply of relevant goods and services;
• Supply of certain healthcare services, and supply of relevant goods and services.

The following categories of supplies will be exempt from VAT:

• The supply of some financial services;
• Residential properties (excluding the first supply of newly constructed residential property which qualifies for the zero-rating treatment);
• Bare land; and
• Local passenger transport.

Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. VAT grouping would generally simplify accounting for VAT.

Penalties will be imposed in cases of non-compliance with tax legislation.

Examples of actions and omissions that may trigger penalties include:

• A person failing to register when required to do so;
• A person failing to submit a tax return or to make a payment within the required period;
• A person failing to keep the records required under the issued tax legislation;
• Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

As per Ar.79 of the Federal Decree Law No.18 of 2022 outlines the timeframes and conditions under which tax audits and assessments can be conducted by the tax authority, including provisions for voluntary disclosures, tax evasion, and tax registration failure.

• The tax authority cannot conduct a tax audit or issue a tax assessment to a taxable person after 5 years from the end of the relevant tax period, except in specific cases.
• If the taxable person is notified of a tax audit within the 5-year period, the tax authority can conduct the audit and issue an assessment within 4 years from the date of notification.
• In cases related to voluntary disclosures submitted in the fifth year from the end of the tax period, the tax authority can conduct an audit or issue an assessment after the 5-year period but must complete it within one year from the date of the voluntary disclosure.
• The Cabinet, upon the Minister’s suggestion, may amend the timeframes for completing tax audits or issuing tax assessments as per clauses 2 and 3.
• No voluntary disclosure may be submitted after 5 years from the end of the relevant tax period.
• In cases of tax evasion, the tax authority can conduct a tax audit or issue a tax assessment within 15 years from the end of the tax period in which the evasion occurred.
• In the case of tax registration failure, the tax authority can conduct a tax audit or issue a tax assessment within 15 years from the date the taxable person should have registered for tax.
• The statute of limitations mentioned can be interrupted for specific reasons as provided for in relevant federal laws.