In this article, we deal with the frequently asked questions about VAT in UAE issued in accordance with Federal Decree Law (8) of 2017. This guide combines common questions businesses and individuals ask regarding VAT applicability, registration, refunds, compliance, and penalties in the UAE.
General VAT FAQs
Q1. What is VAT?
It is an indirect tax imposed on most goods and services that are supplied.
Q2. What is the Purpose of Imposing VAT?
VAT makes a new source of income for the government that will contribute to its continued provision of high-quality services to its citizens and residents.
Q3. Since when was VAT Applied and What is its Rate?
It has been applied since January 1, 2018, and its rate is 5%.
Q4. Who Bears the Cost of this Tax?
The final consumer is the one who must pay this tax.
Q5. Who Collects and Calculates the Tax for the Government?
Businesses undertake the task of collecting and calculating tax for the government.
VAT Scope & Applicability FAQs
Q6. What Sectors are Subject to VAT?
It is imposed on the supply of all goods and services, including food, commercial buildings and hotel services, except in the case where the tax is zero-rated or exempted.
Q7. What is the Difference Between Zero-Rated Supplies and Exempt Supplies?
The difference between Zero-Rated Supplies and Exempt Supplies is that the Zero-Rated Supplies can recover the tax it incurs on its purchases, while the VAT Exempt Supplies can’t, as it is not subject to tax registration.
Q8. What Sectors are Zero-Rated for VAT?
The zero rate applies to the following goods and services:
- Direct or indirect export operations outside the countries that apply this tax, which are the GCC countries
- Services related to international goods and passenger transportation
- Air transportation of passengers within the country in the case that such transportation is considered international
- Supplies related to air, land and sea means of transport used to transport passengers
- Goods, and the supply of related services
- Supplies related to investment precious metals or their import for investment purposes
- Supplies for the first time related to residential buildings within three years of their construction
- The first supply of buildings that were converted from non-residential buildings to residential buildings
- Supplies related to education services
- Supplies related to basic and preventive health care services
- Supplies related to natural gas and crude oil
Q9. What Sectors are Exempt from VAT?
- Supplies related to residential buildings through sale or rent, except in cases where the zero rate is applied
- Supplies related to space lands
- Supplies related to local passenger transportation services
Q10. Is VAT Imposed on the Rented Property?
We differentiate here between two cases:
- Renting a residential building, which is exempt from tax
- Renting a commercial building, which is subject to VAT
In the case where the building has dual use (residential and commercial):
- Regarding the residential part, the first supply is subject to a zero rate, and subsequent supplies are exempt
- The commercial part is subject to VAT in both sale and rental cases
Q11. Should I pay VAT for Imported Goods?
VAT is due for products and services including imported goods and services. The recipient has to pay VAT under the reverse charge mechanism.
VAT Registration UAE FAQs
Q12. What is the Mandatory Registration Limit and the Optional Registration Limit for VAT?
The mandatory registration limit is AED 375,000. The voluntary registration limit is AED 187,500.
Q13. How to Register for VAT?
This is done through the Federal Tax Authority’s website or through contact with the VAT Registration UAE team.
Q14. What Language is used in the VAT Registration Form in UAE?
The registration form is available in both English and Arabic.
Q15. What Happens in Case of Late VAT Registration?
In this case, a fine of AED 20,000 will be imposed.
Q16. Why Should Businesses Register for VAT?
VAT registration will help businesses in UAE to claim back input tax paid on business expenses and purchases. If a business is not VAT registered, all input tax costs are lost, which may result in increased selling prices, stagnant business growth, and loss of competitiveness.
Businesses that fail to register after reaching the mandatory threshold may also face VAT penalties under UAE law.
Q17. When Should a Taxable Person Utilize the Tax Registration Number?
A tax registration number is required as it enables suppliers to issue VAT invoices. Every VAT invoice must include the TRN of the supplier.
Q18. How to Cancel Tax Registration?
Tax deregistration applies in the following cases:
- When taxable supplies stop
- When taxable supplies fall below the voluntary registration limit
- When supplies exceed the voluntary threshold but remain below the mandatory threshold
Q19. How to Register as a Tax Group?
Businesses meeting eligibility conditions can register as a VAT tax group in UAE. This requires similar business activities and premises in the UAE. VAT group registration simplifies VAT accounting and compliance.
VAT Refund & Relief FAQs
Q20. Who are the Categories that Take Benefit from VAT Refunds?
- UAE nationals for VAT paid on construction of new residential properties
- Business visitors without a fixed establishment in the UAE
- Tourists meeting eligibility conditions
- Foreign governments, international organisations, and diplomatic missions
Q21. Can a UAE National be able to Claim VAT?
The UAE may introduce schemes allowing UAE nationals to reclaim VAT paid on residential construction subject to conditions.
Q22. What’s is Reverse Charge Mechanism for VAT?
Under the reverse charge mechanism, VAT on imported goods and services is accounted for by the recipient rather than the supplier. The recipient may reclaim the VAT as input tax where eligible.
Q23. What are the conditions to be eligible for bad debt relief for VAT in UAE?
Bad debt relief applies when:
- VAT has already been accounted for and paid to the FTA
- The consideration is written off in business accounts
- More than six months have passed since the date of supply
- The customer has been notified of the written-off amount
Q24. What is the mechanism for claiming bad debt relief in UAE?
Bad debt relief adjustments are made during VAT return filing. Only the VAT amount is adjusted and classified per emirate where applicable.
VAT Compliance & Penalties FAQs
Q25. What Records should be Kept?
Businesses must maintain records such as:
- Balance sheets
- Profit and loss accounts
- Fixed asset records
- Salaries and wages records
- Accounting books
Q26. What is the Deadline for Businesses to Submit their VAT Returns?
VAT returns must be submitted within 28 days from the end of the tax period unless otherwise determined by the Authority.
Q27. What are the most common violations of businesses related to VAT in UAE?
Common violations include:
- Failure to display VAT-inclusive prices
- Non-compliance with excise goods transfer procedures
- Failure to submit VAT deregistration applications on time
- Failure to provide VAT records when requested
Q28. What is the Penalty for Evading VAT?
VAT evasion may result in imprisonment and/or a fine not exceeding five times the amount of tax evaded.
Final Note
We know VAT in UAE can be a complicated subject. If you have additional questions not covered here, consult a certified tax professional or reach out to a regulated VAT consultant for proper guidance.
Disclaimer
This content is provided for general information only and does not constitute legal or tax advice. VAT laws and regulations may change, and professional consultation is recommended for case-specific matters
