VAT In Dubai, UAE

Value Added Tax or VAT is a tax on the consumption or use of goods and services levied at each point of sale. VAT is a form of indirect tax and is implemented in more than 180 countries around the world. The end-consumer is ultimately bearing the cost. Businesses collect and account for the tax on behalf of the government.

Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5 percent. VAT will provide the UAE with a new source of income which will be continued to be utilized to provide high-quality public services, and help the government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

Threshold Limit

All companies with an annual turnover greater than Dh375,000 must mandatorily register and account for VAT, while businesses with an annual turnover of between Dh187,500 and Dh375,000 can voluntarily register.

Computation of turnover threshold limit for VAT registration

In order to determine if the value of supplies has exceeded the mandatory or voluntary registration threshold limit, the following factors ought to be considered: –

The Computation of threshold limit for VAT registration can be better understood from the following illustration: –

Type of Supplies

Turnover in AED

Taxable Supplies (Domestic sale)

500,000

Imports

50,000

Zero-Rated Supplies

200,000

Reverse Charge Supplies

42,000

Exempt Supplies

30,000

Let us compute the threshold limit for the above illustrated case: –

To determine taxable turnover, taxable supplies + zero-rated supplies + imports + reverse charge supplies should be considered. Exempt supplies will not be considered in arriving at the registration threshold.

VAT registration turnover of the abovementioned illustration totals to AED 792,000 which has exceeded the mandatory registration threshold of AED 375,000. Thus, in this case the Company is required to mandatorily register under UAE VAT.

Exclusions for VAT turnover threshold calculation

  • Acquisition of Existing business

In situations of acquisition of business, the taxable supplies prior to the acquisition period need not be considered for the computation of threshold limit for VAT registration i.e., Taxable supplies pertaining to period subsequent to the acquisition date that belong to the current owner only to be considered for calculation purpose. All other norms for calculation of turnover for VAT registration will be as discussed above.

Guidelines to VAT-registered businesses generally:

  • must charge VAT on taxable goods or services they supply
  • may reclaim any VAT they have paid on business-related goods or services
  • keep a range of business records which will allow the government to check that they have got things right.

VAT-registered businesses must report the amount of VAT they have charged and the amount of VAT they have paid to the government on a regular basis. It will be a formal submission and reporting will be done online.

If they have charged more VAT than they have paid, they have to pay the difference to the government. If they have paid more VAT than they have charged, they can reclaim the difference.

Penalty for failure to Register for VAT

    • Penalty for Failure to display prices inclusive of VAT -AED 15,000
    • Penalty for Failure to notify FTA about the charge of tax based on margin.AED 2,500
    • Penalty for Failure to comply with maintenance of the record of goods within designated zones or moving them to other designated zones – AED 50,000 or 50% of chargeable tax
    • Penalty for Failure to issue a tax invoice or an alternative document when making supply – AED 5000 for each tax invoice or alternative document
    • Penalty for Failure by a taxable person for issuing a tax credit note or an alternative document – AED 5,000 for each tax credit note or alternative document
    • Penalty for missing the filing deadline is AED 1,000 for the first offence, and then AED 2,000 for every subsequent missed deadline.
  • Penalty for non-registration of VAT – AED 20,000 

VAT Registration for UAE nationalities

VAT Refund for UAE Nationals is a special refund scheme in the UAE VAT lawfor supporting the UAE Nationals who are building new residences in the UAE.

If a person constructs a residential building, that person has to pay tax for the expenses incurred during construction which includes contractor’s bill, building materials, services of contractors, etc. The special Vat Refund Scheme for UAE nationals’ states that the tax paid for constructing the new residence can be refunded on certain conditions, explained below: –

  • The person should be a natural person and a UAE national.
  • The building should be a newly constructed one.
  • The building should be only used as the residence of the person or the person’s family.

Procedure for the submission of the application

  • Submit the Refund form duly filled along with the necessary supporting documents including the details of the applicant and the property only through the email homebuilders@tax.gov.aein not more than 10 MB
  • After the review, the FTA will provide a reference number to the applicant if eligible.
  • The applicant may submit additional information if asked by FTA for clarification.
  • If eligible, the amount will be refunded to the applicant.

The Refund Form should be submitted either when the UAE national starts staying in the new residence or on receiving the Building Completion Certificate whichever happens first. The VAT Refund application should be submitted within 6 months from the date of the first event.

Cost of materials eligible for refund for UAE Nationals

    • Cost ofSupervisory services
    • Cost ofServices of builders /architects/engineers
    • Cost ofBuilding materials like, bricks, cements, tiles, timber, etc.
    • Cost ofCentral air conditioning and split units
    • Cost ofDoors & Decorating materials, like paint, etc.
    • Cost ofDust extractors and filters
    • Cost ofBoundary Fencing erected permanently
    • Cost ofFire alarms and smoke detectors
    • Cost ofFlooring excluding carpets
    • Cost ofGuttering
    • Cost ofheating systems
    • Cost ofKitchen sinks, work surfaces and fitted cupboards
    • Cost ofLifts and hoists
    • Cost ofPlumbing materials
    • Cost ofPower points
    • Cost ofSanitary units/Shower units
    • Cost ofWindow frames and glazing
  • Cost ofWiring when embedded inside the structure of the building

Expenses that are excluded for considering the Application

    • Furniture like, sofas, tables, chairs, bedroom furniture, curtains, blinds, carpets
    • All electronic, electrical and gas appliances, including cookers
    • Things for landscaping, such as trees, grass and plants
  • Garden furniture and ornaments and sheds

The Role Of CDA In Vat Registration Threshold Computation In Dubai, UAE

CDA has been playing a noteworthy role in providing the accounting and taxation services for businesses regardless of its size. CDA experts are observant of the implementation procedures of the VAT in UAE. They know the accurate procedure to be followed for the VAT registration.

We diagnose the importance and need for VAT Services for every business in the UAE. We deliver a wide range of VAT services, which include: –

  • VAT registration
  • VAT deregistration
  • VAT compliance and control
  • VAT filing and payment
  • Data entry and management

CDA also delivers a wide range of business services that include CFO Services, Auditing Services, Accounting & Bookkeeping Services, Accounting Software services, Due Diligence Services and Tax filing Services.

If you have any queries regarding VAT Computation or VAT Registration or any other queries about your current business, feel good to discuss with us. CDA is there for your assistance!

Our expert will give you one-hour Free Consultation to drive your fears away!