According to the Federal Decree-Law No. 8 , the UAE has previously imposed a value-added tax (VAT) of five %. The tax was introduced on January 1, 2018. During the whole period, small and medium enterprises (SMEs) and freelancers need to comply if their taxable supplies amount to more than AED 375,000 per year.
If their turnover or expenses exceed AED 187,500, they can voluntarily register. This guide provides the FTA requirements and the documents that are necessary for you to keep your business compliant and not incur expensive administrative penalties.
In the United Arab Emirates, the Federal Tax Authority administers the Value Added Tax and has set the VAT rate at a basic rate of five percent. VAT is an indirect tax that is applied to the amount of goods and services consumed at every sale.
The FTA’s management of VAT is through a standard rate of 5% across the board in the UAE. Regular visits by the authority are required for the independent contractors and small-to-medium enterprises (SMEs) not only to ensure compliance with VAT but also to keep track of their transactions and pay taxes.
Recognizing VAT registration requirements in UAE is the first step to legitimate business. It doesn’t matter if you are a digital consultant based in a Dubai free zone or a small-scale manufacturer in Sharjah; the law applies according to your annual taxable turnover and not your business type.
The UAE has a fiscal threshold that determines whether and when a person or business must register for VAT. This threshold is based on the value of the “taxable supplies” made by the business or person, which includes not only the goods and services supplied at the standard rate, but also goods and services supplied at zero percent VAT and the value of all goods and services imported.
Freelancers generally have the wrong idea that taxes do not apply to them because they are sole proprietors. However, the FTA considers every individual with a freelance permit or license as a taxable person if their annual taxable turnover reaches the AED 375,000 mandatory threshold.
Even if you only have international clients who pay at a 0% VAT rate, your earnings from those clients are still included in your total turnover, thus making registration a legal requirement once the limit is reached.
Besides VAT, freelancers will have to take into account Corporate Tax as from June 2023. In case of an individual/freelancer, you will have to apply for Corporate Tax registration only if your annual turnover from business activities exceeds AED 1,000,000. If you exceed this limit, a tax rate of 9% will be imposed on net profits over AED 375,000, but Small Business Relief may be available for parties with revenue under AED 3 million.
One of the main advantages of VAT registration is the right to reclaim “Input VAT.” Simply put, you can offset the 5% tax you pay on expenses that are related to your business (like rent for the office, equipment, and software) from the VAT you collect from your customers. However, you need to make sure that you issue and receive valid “Tax Invoices” that comprise:
In order to kick off the registration process through the EmaraTax portal, applicants have to assemble a certain collection of digital documents. The correctness of these documents is paramount because otherwise the FTA could reject or delay the application.
The following documents which are required for VAT registration in UAE are usually considered necessary:
After you have amassed the documents necessary for VAT registration in UAE, the application is then sent through the online platform of the FTA. According to present laws, the FTA usually takes 20 business days to review applications, but this might change according to the difficulty of the case.A Tax Registration Number (TRN) is granted to the business after it is approved. Starting from this date, the SME or freelancer has to apply VAT on taxable sales and also submit VAT returns quarterly or monthly depending on the FTA’s decision.
Tax-registered entities are then required to:
Failure to comply with the VAT registration requirement in UAE may lead to huge losses in terms of money. Under Cabinet Decision No. 40 of 2017 (and its amendments), certain penalties are imposed for the most common errors.
For instance, if a registration application is not filed during the mandatory 30-day period after reaching the compulsory threshold, then an administrative fine of AED 10,000 is applied.In addition, if someone does not maintain the required financial records, a fine of AED 10,000 will be imposed for the first offence.
| Violation | Penalty amount |
| Late VAT Registration | AED 10k |
| Late VAT Return Filing | Fine: 1,000 AED (for the first time); 2,000 AED (for the second time within 24 months)
|
| Late Tax Payment | 2% immediate; 4% monthly thereafter (on unpaid tax) |
| Failure to Keep Records | Fine: 1,000 AED (for the first time); 2,000 AED (for the second time |
| Failure to Issue Tax Invoice | AED 2,500 per detected case |
| Incorrect Tax Return | Fixed penalty of AED 1,000 + percentage-based penalty on the tax difference
|
Adherence to VAT rules is the core of running a successful SME or freelance business in the UAE. Once businessmen know the VAT registration process, they can effortlessly move into the tax system by having all documents ready for VAT registration in the UAE.The tax scene of the UAE is constantly changing, hence the necessity of regular checking of FTA’s official announcements.
Yes, if the total amount of your taxable supplies (including zero-rated exports of services) is more than the AED 375,000 limit, then you must register. The registration still applies even if the tax rate is zero%.
The FTA usually issues a decision regarding the application within 20 working days on the condition that all documents needed for getting VAT registration in UAE are duly submitted and no further information is asked.
The UAE has uniform registration thresholds and service document requirements across all Free Zones irrespective of the rules for goods in “Designated Zones” in Free Zones.