What is VAT registration in Dubai?
On 1 January 2018, the United Arab Emirates bring together a Value Added Tax (VAT). VAT is an indirect tax on consumption, applying to most goods as well as services. The normal rate is 5%. However, some transactions will be either zero rate; or it may be exempt from VAT registration in Dubai; or it may be outside the scope of the VAT frame work.
VAT registration in Dubai is impose on supply of good as well as service; regardless of whether or not the executing parties get profit or incur loss. Simply put, it has nothing to do with the productivity of the business collecting the VAT. It is a tax on transactions that is borne by the end consumer.
Who needs VAT registration in Dubai
The VAT will be applicable on all UAE resident entities; including companies registered with various free zones. However, small company is exempt; if and only they have an annual revenue less than AED 375,000 (USD 100,000).
In addition, non-resident company, including UAE based offshore companies such as JAFZA Offshore; Ajman offshore as well as RAK Offshore; do not fall under the scope of Value Added Tax; so offshore company do not need to run for VAT registration in UAE.
Products as well as services that are standard rate, zero rate or exempt in the context of VAT; all goods and services would fall into one of the 4 categories:
- Standard Rated – 5% – Supplies made to the UAE resident entities as well as individuals; that cannot be classified as exempted or zero-rated.
- Zero Rated — Government funded education, a basic health care; exports of goods to countries outside GCC and also international air transport; are amongst a few of the zero rated items. However, the business can recover Input Tax if any.
- Exempted — Local passenger transport – cabs, metros, certain types of financial services; residential properties after first sale or more than 3 years old are some of the items; that fall under the exempted activities category.
- Outside the scope of VAT – Supplies not sold to UAE resident persons and entities.
How is VAT calculation for VAT registration in Dubai
As mention, VAT is a tax which end consumer pay of a good. However, every business along the supply chain acts as a collecting agent for the Government. How does this work?
Let’s say that a farmer produces 10 bottles of milk. He sells these to a supermarket for 100 AED. Of this income, 5% is subject to VAT. This means that 5 AED needs to be pay to the government.
The supermarket now sells the milk to the end customers. In total, he makes 150 AED. 5% of this income is subjecting to VAT, meaning that 7.5 AED needs to be pay to the government. However, the supermarket can the deduct the 5 AED that already has been paid by the farmer.
This way, only 5% of the final sales price is transfer to the government. 2.5 AED is paid by the supermarket, and 5 AED is paid by the farmer.
What should you do, regarding VAT registration UAE?
In order to be ready for VAT, we suggest the following steps:
- Make an assessment whether your business need VAT registration UAE with the FTA.
- Maintain accounting records as per IFRS and FTA guidelines.
- Invoices issue for supplies made in the UAE must collect VAT @ 5%.
- Adapt IT system to the VAT.
- Keep your records for at least 5 years available for inspection/audit by FTA.
- On-going compliance formalities – filing of VAT returns on a quarterly basis.
How to get started for VAT registration in Dubai
Are you in need of VAT services? Do you need someone to register for VAT, help you calculate the amount you have to pay or organize your books?
We are tax- and business setup consultants in Dubai, active in Dubai since 2006. We can assess you for what VAT needs; and also we can help you to calculate your VAT obligations; and make sure your books are in order so that you successfully pass an audit!