All You Need to Know About VAT Registration In UAE

VAT stands for Value Added Tax. It’s a type of indirect tax that was introduced in the United Arab Emirates on January 1st, 2018. Most importantly, the standard VAT rate in UAE is 5%. This means that most goods and services sold in the country will have a 5% increase in price to account for the VAT.

However, being registered in VAT also means that the company is authorized to collect tax from the customers, which will ultimately be paid to the government. 

So, in today’s guide, we will discuss VAT registration in UAE. Let’s dig in. 

Who Should Register Under Emirates VAT?

Not all businesses are required to register under Emirates VAT. This means you should register for VAT only if you meet certain criteria, such as the annual turnover requirements. 

There are two main categories for VAT registration in the UAE: mandatory and voluntary.

Mandatory VAT Registration:

A business in the UAE that exceeds a threshold is required to register for VAT. This threshold is AED 375,000 for taxable imports or supplies in the past year. If you have exceeded this threshold within the past year, then you must register for VAT in 30 days. If your business expects its taxable imports or supplies to reach AED 375,000 over the next thirty days, then you must register for VAT.

Note that this registration requirement is specific to UAE-based businesses. A slight difference exists for companies outside of the UAE. When a non-UAE business makes taxable supply within the UAE, it is required to register with VAT, no matter the value.

Voluntary VAT Registration:

UAE offers an option to businesses that don’t meet the mandatory threshold for registration but deal with significant amounts of taxable services or goods. Voluntary VAT registration is the solution. If you are operating a business with taxable imports or exports, then you can also opt to register for Vountary VAT. However, in that case, the value should exceed AED 187 500, which is half the mandatory threshold, but do not exceed AED 375,000. 

If you have a small or new business, then this option may be especially attractive and beneficial to you. They can claim input tax credits on their purchases by voluntarily registering with VAT. These credits are a way for businesses to recover part of the VAT paid on business expenses. This can be a huge advantage for businesses, especially those that incur high VAT costs.

When to Register for VAT in UAE?

To estimate when you should register for VAT in UAE, you need to ask yourself three questions. If the answer is YES, then you must register for VAT.

Here are the questions.

1. Have your taxable supplies and imports surpassed AED 375,000 within the last twelve months?
2. Even if you haven’t crossed the AED 375,000 threshold yet, do you expect your taxable supplies and imports to exceed this amount in the next 30 days?
3. Are you a business operating outside the UAE (non-resident) and supplying goods or services to individuals or companies in the UAE that are not registered for VAT?

If the answer to the above 3 questions is yes for you, then you must consider registering for the VAT within 30 days.

VAT Registration in UAE:

If you need your VAT registration in UAE, it’s easy. You can easily do so through the website of the Federal Tax Authority, also known as the FDA. It would take only 10-15 minutes. But before you head over to the process, you need to gather your documents. That will save you lots of time and energy. 

So, let’s dive deeper and find out what the required documents for VAT registration in UAE and how much it costs. 

Required documents

You need the following documents to apply for VAT in UAE.

1. First and foremost, a copy of your trade or business License (must be valid) 
2. Next, the Emirates ID & Passport copies of the business owner (sole proprietors), Partners (if applicable), and Authorized Signatory (for VAT matters)
3. Contact Information such as business address, PO Box, email, and phone.
4. Bank Account Details (business account, not individual) 
5. Memorandum of Association (for companies, not sole proprietors) 
6. Turnover Declaration of past 12 months that must be signed/stamped on letterhead. 
7. Sample Sales/Purchase Invoices (stamped/signed)
8. Proof of authorized signatory is also required. 
9. VAT Registration Letter (from the customs department, if applicable)

Apply

If you have gathered your documents, now is the time to apply for VAT registration in UAE. Here is how: 

Follow these simple steps:

1. Visit the Federal Tax Authority (FTA) website and set up an online account.
2. Gather the required documents as mentioned above.
3. Log in to your e-Service account and fill out the VAT registration form. This will involve details about your business, activities, turnover, and bank details.
4. Once you’ve reviewed and completed the form, submit your application electronically. There will be a registration fee associated with the process.
5. The FTA will review your application and documents. If everything is in order, they will issue you a Tax Registration Number (TRN).

Cost

The good news is that registering for VAT in the UAE itself is free of cost. You can complete the entire process electronically on the Federal Tax Authority (FTA) website without any upfront government fees.

However, you may have to pay a small amount of AED 500 in case you need an attested registration certificate. 

Although it’s free of cost in case of tax evasion or penalties, you may also be hindered by the following expenses. 

1. A penalty of AED 20,000 will be imposed if you fail to register for VAT when mandatory.
2. There’s an AED 1,000 penalty for the first offense of late filing a VAT return. This penalty increases to AED 20,000 if you commit the same offense again within 24 months.
3. If you neglect to disclose tax on imports, you’ll face a penalty of 50% of the total unpaid tax amount.
4. Submitting an inaccurate VAT return will result in a penalty of AED 3,000 for the first offense. Repeated offenses will incur a higher penalty of AED 5,000.
5. Failing to maintain proper tax records comes with a penalty of AED 10,000 for the first offense. This penalty is significantly harsher for repeat offenders, reaching AED 50,000.

Certificate

A VAT certificate is a document that is issued issued to the authorities as proof of VAT exemption.

The process for getting a VAT certificate in UAE involves registering online with the Federal Tax Authority (FTA) and submitting the necessary documents. Once approved, you’ll receive your VAT certificate electronically within the FTA’s eServices portal. Having this certificate demonstrates your compliance with VAT regulations, builds trust with clients, and allows you to claim input tax credits on certain business purchases.

How is VAT Calculated in UAE?

It’s easy to calculate the price after VAT in UAE. It involves applying a standard rate to the pre-tax price (exclusive of VAT) of a good or service.

Here’s how it works:

The UAE applies a 5% VAT rate to most taxable goods and services. This means that for every AED 100 you sell before VAT, you would add AED 5 as VAT. To calculate the final price, including VAT, you can use the following formula:

Price Including VAT = Price (Excluding VAT) + (Price (Excluding VAT) x VAT Rate)

Let’s say you sell a product for AED 100 (excluding VAT). To find the final price with VAT, you would calculate:

Price Including VAT = AED 100 + (AED 100 x 5%) 

= AED 100 + AED 5

= AED 105

So, the final price of the product with VAT would be AED 105.