Key VAT Points Every Business in the UAE Should Know

Value Added Tax (VAT) is a crucial component of the UAE’s taxation system, impacting businesses across various industries. Introduced in 2018 at a standard rate of 5%, VAT Compliance is mandatory for businesses meeting the specified turnover thresholds. Failure to comply with VAT regulations can lead to penalties, financial setbacks, and operational disruptions. In this blog, we will outline the key VAT points every business in the UAE must understand, including VAT registration, return filing, penalties, exemptions, and compliance requirements.

Understanding VAT in the UAE

VAT is an indirect tax applied at each stage of the supply chain, ultimately borne by the end consumer. Businesses act as intermediaries, collecting VAT on behalf of the government and ensuring accurate tax reporting. Key aspects of VAT include:

• Standard VAT Rate: The general VAT rate is 5%, applicable to most goods and services.

• Zero-Rated VAT: Some goods and services, such as international transportation and healthcare, are taxed at 0%.

• Exempt Supplies: Certain financial services, residential properties, and local passenger transport services are VAT-exempt.

• Reverse Charge Mechanism: Applies when a business imports goods or services, requiring them to report and pay VAT instead of the supplier.

1. VAT Registration: Who Needs to Register?

Businesses must determine whether they are required to register for VAT based on their annual taxable turnover.

Mandatory VAT Registration

A business must register for VAT if:

• Its taxable turnover exceeds AED 375,000 in the past 12 months.

• It expects taxable turnover to exceed AED 375,000 in the next 30 days.

Voluntary VAT Registration

A business can register voluntarily if:

• Its taxable turnover is at least AED 187,500 per year.

• It incurs expenses above AED 187,500, allowing input VAT recovery.

VAT Registration Process

Businesses can apply for VAT registration through the Federal Tax Authority (FTA) online portal by submitting:

• Trade license copy

• Passport and Emirates ID of owners

• Financial statements or projected turnover evidence

• Business bank details

Failure to register on time can lead to a penalty of AED 10,000 imposed by the FTA.

2. VAT Return Filing: Compliance and Deadlines

Registered businesses must file VAT returns periodically to report the tax collected and paid.

VAT Filing Deadlines

• Most businesses must file VAT returns quarterly (every three months).

• Larger businesses with turnover exceeding AED 150 million must file monthly returns.

• The deadline for VAT return submission is the 28th of the month following the tax period.

Steps for Filing VAT Returns

• Prepare Tax Invoices: Ensure all sales and purchases are documented with valid tax invoices.

• Calculate VAT Payable: Determine the VAT collected from customers and the VAT paid to suppliers.

• Submit VAT Return: Log in to the FTA portal and complete the VAT return form.

• Pay VAT Due: Settle any outstanding VAT liability before the deadline to avoid penalties.

Late VAT return submission incurs a penalty of AED 1,000 for the first offense and AED 2,000 for subsequent violations within 24 months.

3. VAT Penalties for Non-Compliance

Businesses that fail to comply with VAT regulations risk heavy fines. Common violations include:

• Failure to register for VAT: AED 10,000 penalty

• Late VAT return filing: AED 1,000 (first offense), AED 2,000 (subsequent offenses)

• Late VAT payment: 2% penalty on the outstanding tax immediately, 4% after 7 days, and a * * 1% daily penalty up to 300%

• Failure to issue tax invoices correctly: AED 5,000 per incorrect invoice

• Failure to maintain records for five years: AED 10,000 penalty (first offense), AED 50,000 (repeat offenses)

Businesses should implement strong VAT Compliance measures to avoid penalties and ensure smooth operations.

4. VAT Exemptions and Zero-Rated Supplies

Understanding the difference between exempt supplies and zero-rated VAT is crucial for accurate tax reporting.

Zero-Rated VAT (0%)

Businesses selling zero-rated goods and services must report them in VAT returns, but no VAT is charged. Examples:

• International transportation

• Healthcare and education services

• First supply of residential properties

• Export of goods and services outside the GCC

VAT-Exempt Supplies

Businesses dealing in VAT-exempt supplies do not charge VAT and cannot reclaim input VAT on related expenses. Examples:

• Certain financial services (e.g., life insurance, interest on loans)

• Local passenger transport

• Bare land sales and residential rental properties

5. VAT refunds and Input Tax Recovery

Registered businesses can reclaim VAT on eligible expenses through input tax recovery.

Who Can Claim VAT refunds?

• Businesses with VAT incurred on eligible expenses

• Exporters dealing in zero-rated goods and services

• Foreign businesses registered under the VAT refund scheme

VAT Refund Process

• Ensure valid tax invoices for all input VAT claims.

• Submit VAT refund requests while filing VAT returns.

• The FTA reviews and processes VAT refunds within 90 days.

Errors in refund applications can delay processing or lead to rejection. Consulting a VAT expert ensures proper claim filing.

How Young and Right Can Help

At Young and Right, we provide comprehensive VAT services to help businesses navigate UAE VAT regulations, ensure compliance, and avoid penalties. Our expert team simplifies VAT registration, return filing, and tax planning to ensure your business remains fully compliant.

1. VAT Compliance and Advisory

• Ensuring adherence to FTA VAT regulations

• Tailored VAT planning strategies

• Ongoing VAT advisory for tax optimization

2. VAT Registration and Return Filing

• Hassle-free VAT registration assistance

• Timely and accurate VAT return preparation and filing

• Record-keeping guidance to maintain compliance

3. VAT refunds and Tax Recovery

• Maximizing VAT refunds with error-free claims

• Assisting exporters and zero-rated businesses in VAT recovery

• Ensuring compliance with FTA refund criteria

4. VAT Audit Support and Dispute Resolution

• Preparing businesses for FTA VAT audits

• Handling tax disputes and appeals

• Offering penalty mitigation strategies

5. Continuous VAT Support and Training

• Proactive VAT risk assessment and compliance monitoring

• Providing staff training on VAT invoicing and record-keeping

• Offering long-term VAT solutions to ensure smooth operations

Conclusion

VAT Compliance is a critical responsibility for businesses in the UAE. From registration and return filing to VAT refunds and compliance, understanding the key VAT regulations ensures that businesses avoid penalties and maintain financial stability. By partnering with VAT experts like Young and Right, businesses can streamline VAT processes, reduce tax liabilities, and ensure compliance with UAE tax laws. Whether you're a startup, SME, or multinational corporation, professional VAT services help you stay compliant and financially efficient in the UAE. Need expert VAT assistance? Let Young and Right handle your VAT requirements so you can focus on growing your business.