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Insights Value Added Tax (VAT) Guidelines: United Arab Emirates

Value Added Tax (VAT) Guidelines: United Arab Emirates

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published on 6 April 2022

 

 

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »



1. The UAE as part of the GCC Countries

The UAE are part of the Gulf Cooperation Council (GCC), which is comparable to the European Union. On the basis of the common GCC framework legislation for the introduction of VAT in the GCC countries, the member states have agreed to implement the VAT by 1 January 2018 at the latest. However, so far, the VAT has only been introduced by the UAE and Saudi Arabia on 1 January 2018, and most recently by Bahrain on 1 January 2019 and Oman in April 2021. 

 

2. VAT Scope, VAT Rates and VAT Exemptions

The scope of the VAT covers generally most goods and services, including those which the VAT law designates as taxable supplies (deemed supplies) and the import of goods, unless exempted from VAT. 
 
The law also defines what is meant by the terms taxable supply, deemed supply and taxable person which are subject of the VAT scope:
  • Taxable Supply: A supply of goods or services for a consideration by a person conducting business in the state, and does not include exempt supply
  • Deemed Supply: Anything considered as a supply and treated as a taxable supply according to the instances stipulated in the VAT law
  • Taxable Person: Any Person registered or obligated to register for tax purposes under the VAT law.
 
The standard VAT rate is 5 percent. Certain services and goods are taxable at a lower rate of 0 percent.
 
Zero rated supplies, for example, are: 
  • Exports of goods and services
  • International transport of passengers and goods, including transport-related services 
  • Supply or import of investment precious metals
  • First supply of residential buildings within 3 years of its completion
  • Supply of crude oil and natural gas.
 
There are some rules for VAT exemptions as well.
 
VAT exempt supplies without input VAT deduction are, for example:
  • Financial services
  • Supply of resident buildings through sale or lease, unless it is zero-rated supply of bare land
  • Supply of local passenger transport. 
 
At present, it makes no difference whether goods and services are exported from the UAE to a GCC country or to a non-GCC state. Since not all GCC countries have introduced the VAT so far, transitional rules apply, accor­ding to which transactions between the UAE and GCC member states that have not yet introduced the VAT are equated with such transactions with third states. This approach will change and a stricter approach will apply once the Electronic Services System (ESS) is implemented in all GCC states.
 
At this stage it is not entirely certain when Qatar and Kuwait intend to implement the VAT as well. Discussions have been held since 2016.

 

3. VAT registration and simplifications

Whether an entrepreneur/company is required to register for VAT depends on its taxable annual turnover. In this context, the threshold for mandatory registration is AED 375,000 and the threshold for voluntary regis­tration is AED 187,500. The Federal Tax Authority (FTA) will provide a local tax registration number (TRN) and issue a VAT Certificate.
 
Where a person does not file his tax registration application despite being required to, the FTA shall register that person with effect from the date on which the person first became liable to be registered for tax and impose the necessary penalties in accordance with the Federal Law No. 7 of 2017 on Tax Procedures. 
 
The registration rules which apply to local entities do not entirely apply to non-local entities providing taxable supplies in the UAE. Where a Person is not a resident of the state and is required to register, the FTA shall register him with effect from the date on which he started making supplies in the UAE, whether or not he so notifies them of the liability to register for tax, or from such earlier date as agreed between the FTA and the person. 
 
There is a simplification rule to avoid a registration for VAT purposes in the UAE which is called the Reverse Charge Mechanism. In this case, the importer is treated as if he had supplied the goods to himself within the UAE. The VAT liability may be transferred to the recipient of the service and exempts the supplier abroad from the collection and payment of the tax and thus from the obligation to register in the country of destination. It is noted that several specific criteria have to be fulfilled in order to benefit from the RCM.
 
The FTA may exempt a taxable person from mandatory tax registration upon his request if his supplies are only subject to the zero rate. The FTA shall review the exception from registration application and either accept the exception from tax registration or notify the taxable Person that his application is rejected.
 
In the UAE, a tax agent may be appointed. The tax agent assumes the rights and obligations of the tax debtor in the name and on behalf of the tax debtor and represents the tax debtor in all tax matters. As a result, both the tax debtor and the text agent are individually and jointly and severally liable for all obligations of the tax debtor towards the FTA. It should be underlined that the appointment of a tax agent is not mandatory and is therefore voluntary. 

 

4. Declaration requirements and penalty regime

The taxable person shall submit the tax return to the FTA at the end of each tax period declaring all supplies made and received during that tax period. The tax return and tax payment must be received by the authority no later than the end of the tax period concerned or by such other date as directed by the FTA.
 
The standard tax period applicable to a taxable person shall be a period of three calendar months ending on the date that the FTA determines. As an exception to this, the FTA may assign a person or class of persons a shorter or longer tax period where it considers that a non-standard tax period length is necessary or beneficial to: 
  • Reduce the risk of tax evasion
  • Enable the FTA to improve the monitoring of compliance or collection of tax revenues
  • Reduce the administrative burden on the FTA or the compliance burden on a person or class of persons.
 
Tax-related cases can be sanctioned by administrative penalties as well as by tax evasion under the VAT Law, tax procedure- and penal code. The FTA is vested with extensive powers under the tax laws to investigate irre­gu­larities in the collection and payment of VAT. While administrative penalties provide for the payment of fines, the penalties for tax evasion include both fines and imprisonment, which can be imposed simultaneously but also alternatively. 
 
According to the VAT law, the FTA shall issue an administrative penalty assessment to the person and notify the person of the same within five business days as of the date of issuance in any of the following cases:
  • Failure by the taxable person to display prices inclusive of tax
  • Failure by the taxable person to notify the FTA of applying tax based on the margin
  • Failure to comply with the conditions and procedures related to keeping the goods in a designated zone or moving them to another designated zone
  • Failure by the taxable person to issue the tax invoice or an alternative document when making any supply
  • Failure by the taxable Person to issue a tax credit note or an alternative document 
  • Failure by the taxable person to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes
 
If it is proven that a person who is not a registrant acquires goods, claiming that he is a registrant, he shall be considered as having committed tax evasion and shall be subject to the penalties provided for in Federal Law No. (7) of 2017 on Tax Procedures. 
 

5. VAT recovery

The recoverable input tax may be deducted through the tax return relating to the first tax period to the extent permitted by law in which the following conditions – and others cumulatively – have been satisfied: 
  • The taxable person receives and keeps the tax invoice as per the provisions, provided that the tax invoice includes the details of the supply related to such input tax, or keeps any other similar document in relation to the supply or import on which input tax was paid
  • The taxable person pays the consideration for the supply or any part thereof.
 
In addition to that, a person may also apply for recovery from input VAT incurred before tax registration if certain specific criteria have been met, such as:
  • Supply of goods and services made to him prior to the date of tax registration 
  • Import of goods by him prior to the date of tax registration.
 
In addition, the VAT law contains special cases for which tax refunds may be made for any supply received by or import carried out by any of the following: 
  • A citizen of the state in respect of the goods and services related to the construction of a new residence that is not part of the person’s business
  • A non-resident, who is not a resident of an implementing state and conducts a business and is not a taxable person
  • A non-resident, for goods supplied to him in the state and that will be exported
  • Foreign governments, international organisations, diplomatic bodies and missions according to treaties that the state is a party to
  • Any persons or classes listed in a cabinet decision issued at the suggestion of the minister.
 
There are certain cases where businesses may not recover VAT. For example: entertainment services, company car, other goods and services for employees or other associated goods or services determined by law.

 

6. Invoicing

There are several formal invoicing requirements which differ according to the operation and customers. 
 
The VAT law requires that the registrant:
  • making a taxable supply shall issue an original tax invoice and deliver it to the recipient of goods or recipient of services
  • making a deemed supply shall issue an original tax invoice and deliver it to the recipient of goods or services if available or keep it in his records if there is no recipient of goods or servicesshall issue a tax invoice within 14 days as of the date of supply. 
 
The taxable person may issue a tax invoice by electronic means provided that he must be capable of securely storing a copy of the electronic tax invoice in compliance with the record keeping requirements. 
 
The authenticity of origin and integrity of content of the electronic tax invoice should be guaranteed.
 

7. Others

Two or more persons conducting businesses may apply for tax registration as a tax group.

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