Everything You Need to Know About VAT in UAE

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Unlike direct income taxes, value-added taxes (VATs) are levied on the products sold by businesses to end consumers. Companies can apply this tax from the initial production to their different point of sales. The key aspect here is that the amount of tax is based on the cost of the product after deduction of the price that has been already taxed in the first place.

With the UAE having no personal income tax, VAT is a great source of funds for the government to maintain and enhance public services. However, the aspect of VAT is also relevant for individuals due to a direct impact on the cost of several products and services. 

If you wish to know more, go through the post to learn about what VAT is in the UAE, how it works, and how you can file for the same as a business.

What is VAT in UAE?

VAT is short for Value Added Tax which the government of UAE introduced in 2018. VAT is one of the major taxes applicable in the country which depends on the consumption of products and services available at every point of the supply chain. Value Added Tax is also one of the most prominent modes for businesses to collect taxes from the end-users on behalf of the Federal Tax Authority (FTA).

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How Does VAT for Business Work in UAE?

Governments in different countries implement taxes to generate revenue for security and public services like transportation, hospitals, etc. These taxes can be classified into two major categories – Direct Taxes and Indirect Taxes. 

Both types of taxes are applicable in the UAE. The government collects direct Taxes such as corporate taxes, while indirect taxes are collected by businesses acting as an intermediary, like retail stores, movie theatres, etc., on behalf of the government.   

VAT can also be referred to as a general consumption tax which is applied to most products and services purchased or sold. The standard VAT rate is 5 per cent, and the Federal Tax Authority ensures that the same is collected by conducting audits at regular intervals.

How to File VAT in UAE?

Here are a few simple steps that you can use for VAT filing in the UAE.

  1. Visit the FTA Website: First, you need to visit the website of the Federal Tax Authority.
  2. Create an Account: You have to create an account on the website to proceed with the VAT filing application.
  3. File VAT for Business: Provide your details and the required documents to file a VAT for your business.
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Conditions for VAT Filing in the UAE

A few conditions should be kept in mind when filing VAT in the UAE.

  • Your business must have a yearly turnover of more than AED 375,000 on taxable imports and supplies when filing VAT in the UAE. 
  • If your business has a turnover ranging between AED 187,500 and AED 375,000, you still have an option to file for VAT although it will not be mandatory.

Businesses collect VAT from consumers on behalf of the government. At the same time, they can file for a VAT return in the UAE. Keep reading to learn the steps you can follow to file for VAT return in the UAE.

When Should a Business File VAT Returns in UAE?

Businesses can contact the Federal Tax Authority and file VAT returns in UAE at the end of every tax period. VAT return indicates the liabilities of the business by summarising the supplies and purchases made in a specific period. 

As a taxable business, you must file VAT returns with the Federal Tax Authority within 28 days of the tax period. Here is how you can recognise the tax period.

  • When calculating quarterly, the annual revenue of your business must stand below AED 150 million. 
  • When filing monthly, the annual revenue of your business must stand around AED 150 million or more.
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Can Businesses Levy VAT in UAE?

In the UAE, the Value Added Tax is required to be collected by the tax-registered businesses running in the country’s free zones and on the mainland. However, the zones that the UAE cabinet declares as free or designated zones are to be considered as zones in the exterior of the UAE regarding taxation. The transactions made within the designated zones are tax-free.

Key Takeaways

  • VAT-registered businesses are required to apply VAT on all the supplies and purchases of goods or services.
  • VAT-registered businesses can file VAT returns in UAE paid by them for goods or services related to business.
  • VAT must be filed within 28 days of the tax period declared by the Federal Tax Authority.
  • Federal Tax Authority and the UAE government are authorised to conduct tests to check if taxes are being collected based on the standard rates.

You can use VAT calculators in the UAE to calculate the amount of taxes you will have to apply.

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