All you need to know about Value Added Tax (VAT) in the UAE
The Valued Added Tax (VAT) was introduced in the United Arab Emirates back in 2018. It is part of the different UAE taxes imposed by the government and depends on the consumption of services and goods at every point of the supply chain in the country. VAT is an effective way for registered businesses to act as tax collectors on behalf of the Federal Tax Authority (FTA), with the end consumer ultimately bearing the VAT cost.
If you are new to the UAE and are unaware of how VAT works, read on to find out how it can affect you and whether you are eligible for refunds.
What is Value Added Tax?
Local governments implement taxes to generate revenue for public services such as hospitals, transportation and security. While there are different taxes, they can broadly be classified into two categories: direct taxes collected by the government and indirect taxes collected by an intermediary (like a retail store) on the government’s behalf.
Valued Added Tax, also referred to as a general consumption tax, is an indirect tax imposed on most services or products sold or purchased. VAT’s standard rate in the UAE is 5%, and it is the responsibility of the Federal Tax Authority to conduct audits and implement and ensure the collection of the tax. Besides a new income source, the implementation aims to reduce the country’s dependency on oil and other hydrocarbons for revenue.
VAT Registration for Businesses
As per the UAE VAT law, Value Added Tax applies to businesses operating in the UAE provided that certain conditions are met. According to the UAE government:
- Businesses with a yearly turnover exceeding AED 375k on taxable imports and supplies are required to register for VAT.
- Businesses that have a yearly turnover above AED 187.5k and under AED 375k have the option to register for VAT.
A business pays the government with the tax it collects from customers. Consequently, it also receives a refund from the government on the tax that is paid to suppliers.
Wondering how to register for VAT in the UAE? If you want to set up a venture in the country, learn how to register your business for VAT in the UAE.
How can businesses register for VAT?
Business can use the e-service section on the website of the FTA to register for VAT. For this, an online account needs to be created on the website.
What businesses can levy VAT?
The Value Added Tax applies to tax-registered businesses managed on the country’s mainland and in the free zones. However, if a free zone is a “designated zone” by the UAE cabinet, it must be considered outside the UAE for tax purposes. The transfer of goods is tax-free between designated zones.
- VAT-registered businesses are required to charge VAT on supplied taxable services or goods.
- They can reclaim any VAT paid to services or goods related to business.
- These businesses must relevant records to allow the government to check if everything is in order.
VAT filing in the UAE
Tax-registered businesses or “taxable persons” must submit a VAT return to the Federal Tax Authority at the end of each tax period.
A VAT return shows an individual’s VAT liability by summarising the value of the purchases or supplies he has made during the mentioned period.
What is VAT liability?
VAT liability is the difference between the input tax recoverable or VAT incurred on purchases and the output tax payable, or the VAT charged on the supply of services and goods.
If the input tax amount is less than the output tax, businesses must pay the difference to the FTA. If the output tax is less than the input tax, the taxable entity will be entitled to recover the excess input tax.
All tax-registered businesses in the UAE must record financial transactions and ensure their financial records are updated and accurate to avoid legal problems.
When must businesses file tax returns?
Taxable businesses have to file VAT returns with the FTA within 28 days of the tax period. This is how the tax periods are organised:
- On a monthly basis for businesses that have annual revenue of around AED 150 million or more.
- On a quarterly basis for businesses that have annual revenue below AED 150 million.
VAT Refunds for Tourists
Tourists can get a VAT refund in the UAE for all purchases made in the country. This can be carried out provided that they are at least 18 years of age and satisfy all eligibility requirements.
Recovery of payments is made via a fully integrated electronic system that connects retailers registered with the “Tax Refund for Tourists Scheme” on all entry and exit points in the country.
Visitors looking to claim VAT refunds on purchases must first fulfil certain conditions:
- The tourist must leave the United Arab Emirates within 90 days from the day products are purchased.
- They must buy products from retailers that are part of the UAE “Tax Refund for Tourist Scheme.”
- The tourist must export the purchased goods out of the country within three months from the date of supply.
- The export and initial procurement of goods must be done according to FTA requirements.
- Goods must not be excluded from the FTA refund scheme.
For more details regarding the airport tax refund, check out our guide on VAT refund for tourists in the UAE.
How and where can tourists claim VAT refunds for their shopping?
The Federal Tax Authority has designated different validation points where tourists can reclaim Value Added Tax. The reclaim process is fully electronic thanks to the FTA’s partnership with global operator Planet and is carried out on special devices placed in all entry points, i.e. seaports, border ports and airports in the UAE.
For example, those flying out of the country’s capital may reclaim VAT refunds at the Abu Dhabi International Airport. Documents to be submitted for a successful reclaim include tax invoices for the purchased items with copies of the visitor’s credit card and passport.
Once the documents are submitted, a tourist can get their refund amount in cash as UAE dirhams. They can also get the claimed amount transferred to their credit card. Visitors are eligible to receive 85% of the total VAT amount paid, while the remaining 15% is charged as an administration fee by Planet.
Zero-rated Sectors
The FTA has revealed sectors that are assigned zero-rated tax. VAT is charged at 0% on the following supply categories:
- International transportation and supplies.
- Supply of certain healthcare services in addition to relevant services and goods.
- Export of services and goods outside the Gulf Cooperation Council (GCC).
- Certain education services with relevant services and goods.
- New residential properties within three years of construction.
- Certain precious investments like silver and gold.
- Supply of certain types of land or sea transportation like ships and aircrafts.
Frequently Asked Questions
When should VAT be paid in the UAE?
Once you have registered your business for VAT, you will be required to file your VAT returns within 28 days of the tax period.
How does a company register for VAT in UAE?
The first step is to acquire an FTA-approved online e-service account from the official website of the Federal Tax Authority. You also need to provide details like banking information and business relationships, amongst others.
Which shoppers are eligible for VAT in the UAE?
Overseas tourists are eligible to receive a sales tax refund in the UAE. This means that they must not be legal residents in any of the Implementing States. Besides residents, flight crew members leaving an Implementing State are also not eligible for VAT refunds.
What is the time limit for customs approval?
According to Planet’s official website, the time limit for customs approval is 90 days.
What is the minimum spend for VAT refunds in the UAE?
The minimum spend is AED 250.
How do I find out what stores are eligible for the VAT scheme?
Retail outlets that are part of the Tax Refund Scheme can be identified with posters displayed on storefronts. If you want to conduct VAT verification in the UAE or check whether a service has charged VAT, verify the Tax Registration Number on the official Federal Tax Authority website.
Which sectors qualify for VAT exemption in the UAE?
Certain sectors are exempt from VAT as per FTA guidelines. For example, some real estate transactions are exempt from VAT.
Sectors that fall within VAT exemptions in the UAE include:
- Bare land
- Local passenger transport (including flights within the UAE)
- Sale or rent of residential properties after the first supply
- Supply of certain financial services
That’s a wrap on our guide to VAT in the UAE. If you are confused about how taxation works in the country, get in touch with any of the FTA-approved tax and VAT consultants in the UAE.
For more information on taxation in the country, stay tuned to our Rules Regulations section on MyBayut.
