Value Added Tax (VAT) in the UAE

In this article:
business
Free Zone
Taxes
Mainland
01
Legislation
One of the main taxes in the UAE is VAT, which appeared in 2018. Its operating mechanism is similar to VAT in other jurisdictions.

There are a number of pieces of legislation governing VAT in the UAE, but the main sources of national legislation are Federal Decree-Law No. 8 of 2017 and Cabinet Resolution No. 52 of 2017.

The "Cooperation Council" Framework Agreement and the UAE’s national VAT legislation establish specific VAT rules for supplies between "Cooperation Council" (GCC) member states, which include:
  • Bahrain
  • Kuwait
  • Oman
  • Qatar
  • Saudi Arabia
  • UAE
02
VAT application and rate
The standard VAT rate in the UAE is 5%. However, there are supplies of goods and services that are taxed at a zero rate and those that are exempt from VAT.

VAT applies to taxable supplies of goods and services to the UAE as well as to imports of goods into the UAE from outside the "Cooperation Council" countries (and from "Cooperation Council" member states during the transition period) with limited exceptions.
Deliveries taxed at a zero rate
  1. Export of goods or services outside the UAE and "Cooperation Council" Member States.
  2. International transport of passengers and goods.
  3. Supply or import of precious metals, particularly gold.
Such supplies are treated as taxable supplies in all other respects, including entitlement to a refund of input VAT.
Supplies exempt from VAT
  1. Certain financial services.
  2. The sale of residential property (sale or lease).
  3. The sale of land.
VAT-exempt supplies do not require VAT accounting.
Designated Free zones
The tax authority has defined a list of Free zones which are considered to be outside the UAE for VAT purposes. Accordingly, imports and sales of goods within these Free zones are exempt from VAT. A similar exemption applies when goods are sold from one Free Zone to another.

Among designated Free zones:
  1. Jebel Ali Free zone (Jafza).
  2. Dubai Airport Free zone (DAFZ).
  3. Ajman Free zone.
  4. Umm Al Quwain Free Trade.
03
Registration for VAT purposes
The company is obliged to register with the tax authority and obtain a VAT number if its taxable turnover and imports exceed AED 375,000 (approximately USD 102,000)
  • in the preceding 12 months; or
  • will exceed this threshold within the next 30 days.

The company may obtain a VAT number voluntarily if it proves that its taxable turnover exceeded AED 185,000 (approximately USD 50,000)
  • in the preceding 12 months; or
  • will exceed this threshold within the next 30 days.

A company that makes exclusively zero-rate supplies may apply for an exemption from compulsory registration.

The threshold does not apply to non-residents. Non-residents will have to register for VAT purposes in order to remit any tax payable by them on deliveries to the UAE, irrespective of their value.

Should a non-resident make a delivery into the UAE for the benefit of a resident importer, the amount of the delivery must be accounted for by the UAE resident. This reduces the number of compulsory registration cases for non-residents.
04
Tax reporting and payment
Once registered, taxpayers must calculate the net VAT due and declare this on their returns. Companies must also state VAT on invoices sent to customers. Invoices must also contain other mandatory information.

VAT returns are usually required on a monthly or quarterly basis depending on turnover.
  • For sales of less than AED 150 million, quarterly.
  • For sales in excess of AED 150 million, monthly.

However, the UAE Federal Tax Authority may designate a longer or shorter period if it deems it appropriate.

Declarations must be submitted online via the Federal Tax Administration’s e-services portal by the 28th day (or the next working day if the 28th day falls on a weekend or bank holidays) of the month following the end of the accounting period.

Any VAT due for the accounting period is payable on the day of filing the return, and payments are usually made online via the website or by bank transfer.
05
VAT deduction
Should a company claim a VAT deduction, it must have a valid invoice issued by the supplier. A deduction is not allowed for supplies that are not related to the conduct of business. Entertainment, meals and the purchase or expenditure of cars for personal use, for example, are not deductible.
06
Record retention
Taxpayers are required to retain tax, accounting and other records to support the data entered in the VAT return for at least 5 years from the end of the relevant tax period and 15 years for real estate related activities. Under certain circumstances, the UAE Tax Authority may extend these time limits by a further four years.
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