VAT in the UAE: What UK, Canadian, and US Investors Need to Know

For UK, Canadian, and US investors, navigating Value Added Tax (VAT) compliance in the UAE can be challenging. Since the UAE introduced VAT in 2018, all businesses meeting the mandatory VAT threshold must register, collect VAT, and file regular tax returns. However, VAT regulations can differ based on business activities, residency status, and exemptions. This blog explores VAT obligations for foreign businesses, including registration, filing, reclaim procedures, and key compliance requirements for companies from the UK, Canada, and the US.

VAT in the UAE: An Overview

VAT is an indirect tax levied at a standard rate of 5% on most goods and services in the UAE. Businesses must collect VAT from customers, file periodic VAT returns, and remit the tax to the Federal Tax Authority (FTA). For UK, Canadian, and US companies operating in the UAE, VAT Compliance depends on:

• Business Registration Status – Foreign companies exceeding the UAE VAT threshold must register for VAT.

• Goods and Services Supplied – Some supplies are VAT-exempt or zero-rated, affecting tax obligations.

• Transactions with UAE Residents – Selling goods/services to UAE residents may require VAT collection and reporting.

• Imports and Exports – VAT applies differently to goods imported/exported between the UAE and other countries.

To avoid non-compliance penalties, businesses must understand their VAT obligations and filing processes.

VAT Registration Requirements for Foreign Businesses

Who Needs to Register for VAT?

Foreign companies must register for VAT in the UAE if they meet one of the following conditions:

• Mandatory Registration – If annual taxable supplies exceed AED 375,000, VAT registration is compulsory.

• Voluntary Registration – If taxable supplies or expenses exceed AED 187,500, companies can register voluntarily.

Can Non-Resident Companies Register for VAT?

Yes. Non-resident businesses (without a physical presence in the UAE) must register for VAT if they:

• Provide taxable goods/services in the UAE.

• Do not have a local business partner handling VAT obligations.

VAT registration ensures compliance and smooth trade operations for UK, Canadian, and US companies.

VAT Filing and Compliance for Foreign Companies

VAT Return Filing Requirements

Once registered, businesses must file VAT returns with the FTA either monthly or quarterly. VAT returns include:

• Total sales and purchases for the period.

• Output VAT collected (from customers).

• Input VAT paid (on business expenses).

• Net VAT payable (or refundable, if input VAT exceeds output VAT).

VAT Compliance Rules

To remain compliant, foreign businesses must:

• Charge VAT correctly – Apply the right VAT rate (5% standard, 0% for exports).

• Issue VAT-compliant invoices – Include TRN number, tax rate, and invoice details.

• Keep proper records – Maintain tax invoices, receipts, and financial records for at least five years.

• Submit VAT returns on time – Late filings result in penalties.

Failing to comply can lead to significant fines from the FTA.

VAT Reclaim for UK, Canadian, and US Businesses

Who Can Claim a VAT Refund?

Foreign businesses that incur VAT in the UAE but do not have VAT-registered activities can apply for a VAT refund.

Eligibility for VAT refunds

To qualify for a refund, businesses must:

• Be based in a country with a UAE VAT refund agreement (UK and Canada are eligible; the US is not).

• Not be VAT-registered in the UAE.

• Have incurred VAT on eligible business expenses.

VAT Refund Application Process

Eligible businesses must:

• Submit refund applications through the FTA.

• Provide supporting documents (invoices, business registration, proof of expenses).

• Meet the submission deadline (typically by March 31 of the following year).

• Wait for FTA processing (refunds take up to six months).

Proper VAT refund planning helps businesses recover costs and improve cash flow.

VAT Exemptions and Special Cases

Zero-Rated vs. VAT-Exempt Supplies

Some supplies are exempt from VAT, while others are zero-rated (taxed at 0%).

• Zero-rated (0% VAT) – Includes exports, international transportation, and certain healthcare and education services.

• VAT-exempt – Includes financial services, local passenger transport, and residential real estate leases.

Knowing these classifications helps foreign investors correctly apply VAT on transactions.

VAT in UAE Free Zones

• Free Zone businesses generally follow VAT rules unless designated as a VAT-exempt Free Zone.

• Transactions between Free Zone companies may be VAT-free, but mainland transactions require VAT Compliance.

Foreign businesses in UAE Free Zones should assess VAT obligations carefully.

How Young and Right Can Help

At Young and Right, we provide expert VAT advisory and compliance services for UK, Canadian, and US businesses operating in the UAE. Our specialized tax professionals help simplify VAT processes, ensure full compliance, and maximize tax efficiency.

1. VAT Registration and Compliance Support

• VAT Registration Assistance – We handle the entire VAT registration process for foreign businesses.

• Compliance Checks – Our team ensures accurate tax calculations, invoicing, and reporting.

• Ongoing Advisory Services – Stay updated on VAT regulations and compliance best practices.

2. VAT Return Filing and Record-Keeping

• Accurate VAT Return Filing – We assist businesses in filing VAT returns correctly and on time.

• Financial Record Management – Our experts maintain VAT records to meet UAE’s tax requirements.

• Penalty Avoidance Strategies – Avoid unnecessary fines through proactive tax planning.

3. VAT Refund Assistance

• Eligibility Assessment – We determine if your business qualifies for VAT refunds.

• Error-Free Applications – We prepare and submit VAT refund applications with proper documentation.

• Refund Follow-Up – Our team ensures timely processing and approval from the FTA.

4. VAT Dispute Resolution and Audit Support

• FTA VAT Audit Assistance – We help businesses prepare for VAT audits and handle disputes with the FTA.

• Appeals and Penalty Mitigation – Our legal experts assist in resolving VAT disputes efficiently.

5. Long-Term VAT Planning for Foreign Investors

• Custom VAT Strategies – We develop VAT plans tailored to your industry and business model.

• Cross-Border VAT Advisory – Ensure compliance with UAE and international tax laws.

• Continuous VAT Monitoring – We provide ongoing support to keep businesses compliant.

By partnering with Young and Right, foreign businesses can streamline VAT implementation, minimize risks, and optimize tax efficiency.

Conclusion

For UK, Canadian, and US businesses operating in the UAE, VAT Compliance is a critical aspect of financial management. Understanding registration requirements, tax filing obligations, refund eligibility, and compliance best practices ensures businesses avoid penalties and maximize tax efficiency. By working with VAT experts, foreign investors can navigate the complexities of UAE VAT laws, ensuring smooth operations and regulatory compliance. Partner with Young and Right today to simplify your VAT processes and ensure full compliance with UAE tax laws.