To Register Or Not To Register? Here Is Everything About The UAE VAT Registration.
The introduction of the latest Value Added Tax in the UAE has been carried out with an intention to help the government earn extra revenue and thus decrease the revenue dependency on traditional income sources such as taxes on oil and petrochemical products.
The UAE VAT, which is going to be effective from 1st January 2018, requires registration from enterprises and companies operating in the country, under certain conditions.
Let us take a look at the various terms and conditions of registration for the latest Value Added Tax.
1) Eligibility For Registration Of VAT
The registration for the Value Added Tax can be bifurcated in the following categories.
An enterprise that does not fall into the category of mandatory registration for VAT can register to pay their VAT on a voluntary basis. Here are some of the rules for voluntary registration.
- Their annual turnover is either Dh187,500 or less.
- In the last 12 months, the total amount of their taxable supplies or their taxable expenditures is more than Dh187,500, the minimum annual turnover as given above OR
- The enterprise expects or likely will have the amount of their taxable expenditures or taxable supplies for the next month, more than Dh187,500
An enterprise is expected to register for the UAE Value Added Tax if it satisfies the following conditions:
- Their annual turnover is either or above Dh375,000, which the minimum amount for the mandatory registration.
- For over 12 months, the taxable supplies of the enterprise, have a value way more than Dh375,000 OR
- The company expects to provide goods/services in the next 30 days that will amount to more than Dh375,000.
There is also a third provision for non-resident registrations, which states that a non-resident who has an enterprise doing business in the UAE is required to register for VAT irrespective of the above mentioned annual turnover thresholds.
Although the tax will come into effect from 1st January 2018, the online registration for VAT is slated to be implemented from the fourth quarter of 2017 on UAE FTA (Federal Tax Authority) website.
The rate for levying VAT is 5% for taxable goods and services. Also, the latest VAT rules will take into consideration the zero-rated and exempted categories for certain goods and services.
For zero-rated goods and services, the business gets paid for the VAT levied on the inputs of their products and services. The exempted category includes goods and services that will not be levied VAT. However the government will not pay them for the VAT that they pay on the inputs for their goods and services.
2) How To Register For VAT?
Registering for the new tax is a prerequisite if a company wants to be considered as a tax paying entity by the government. The registration process is fully online based and hence can be conveniently completed from the office.
The VAT registration process begins on 1st October 2017 by logging on the Federal Tax Authority’s tax registry portal and doing the following:
- Open the VAT registry portal on FTA’s official website and create a user account.
- After you have successfully created your account, they will send you a verification e-mail for verifying your user details and for activating your VAT registry account. Verify their e-mail and then log in again with your credentials.
- After logging in, open the VAT registry form and input all the valid information in every respective field in the form and complete the registration.
3) Which Documents Are Required For VAT Registration?
Depending on your status in the UAE, you are required to provide documents that validate your legality in the country. Most likely, you are a businessman who is a non-Emirati, and hence you will be required to provide the following documents for registration.
- A copy of your passport.
- Your Emirates ID.
- Trade License.
- Other important official documents that allow your company to legally conduct business in the country.
In addition to the above, you will also be required to provide the following information about your business:
- Turnover for the last 12 months.
- Values of exports and imports.
- A profile of your business.
- Anticipated turnover for the future.
On completion of your registration form, FTA will assign a TRN or a Tax Registration Number that identifies you as VAT registered business entity.
4) Timeline For Value Added Tax
The government of the UAE or more precisely, the FTA reached this decision through a series of deliberations and considerations. To the core of this decision is getting for the times when UAE’s oil reserves will drastically plummet, and hence the country’s dependence on oil will be bad for a sustained and stable tax income.
As it is predicted, the oil in the Gulf Region is on the brink of depletion, while on the other hand, researchers are going to electric vehicles and trying to replace petrochemical energy sources with renewables. Taking a cue from this steadily changing reality, the UAE government has now realised that the only way to sustain a sensible level of tax income for the state is by levying a VAT on commodities and services that do not fall under the ‘essentials’ category.
Let us take a brief look at how the government arrived at this decision with the help of this timeline.
- Dec 2015: Finance ministers from GCC economies agree on the provisions of the GCC VAT guidelines.
- Jan 2016: UAE’s Financial Affairs Minister Of State and Saudi Arabia’s Finance Minister confirm that the Value Added Tax will be applied GCC nations beginning from 2018 and UAE will be the first to implement from 1st January 2018.
- April 2016: Finance Minister from the various GCC economies working on the implementations decide that VAT will begin on 1st January 2018.
- October 2016: Framework for GCC VAT finally gets ratified.
In conjunction to this, it is also important to mention the following:
- If a company has an annual turnover of more than Dh150 million, the final date for VAT registration was 31st October 2017.
- If a company has an annual turnover of more than Dh10 million, the final date for VAT registration is 30th November 2017.
5) How To Register As A VAT Group?
Sometimes, two or more enterprises want to register together for taxes or other government-led formalities. The same rule applies for VAT.
The UAE Value Added Tax allows companies to register as a VAT group under the following circumstances.
- If a company has subsidiaries working under it as daughter entities with each company being a sub-company of a larger parental organisation, they can together apply as a VAT group.
- If there is a group of two or more independent companies that are managed by the same management with respect to its finances and other business decisions, they can register as a single VAT group.
The benefit of registering as a single VAT group will be that the management will not need to spend time on registering for every company independently and then manage their VAT related accounts separately. This will save time and effort to the management.
When an enterprise register’s its child companies as a single VAT entity, you get one TRN or Tax Registration Number number instead of one for every entity. The transactions done by the entities in between themselves will not be subjected to VAT given that they all constitute part of the same entity. However, any transactions done with entities outside this group will be considered viable for taxation.
Registering as a single tax entity is usually beneficial as it simplifies the tax calculation process, provided that the parent management maintains unified accounts for all the companies involved in the process. Applying for VAT for every entity separately will likely cause confusion and will also be a costly process since one will have to hire accounting firms to complete VAT procedures for financial quarters or year endings.
To put that in a nutshell, simplification of procedures is the ultimate benefit of registering as a single entity.
6) How To De-register From VAT?
As there are provisions for companies to register for VAT, there also are provisions to deregister, which can be accomplished provided certain conditions are met. Let us find out under what conditions an enterprise is allowed to deregister itself from UAE Value Added Tax.
- The registered person/entity does not make multiple supplies that are taxable by VAT.
- The total value of their taxable supplies is less than the bare minimum compulsory threshold of Dh375,000 for a period of 12 months consecutively.
- The total value of their taxable supplies is less than the bare minimum voluntary threshold of Dh1875,000 for a period of 12 months consecutively.
An entity that is registered on a voluntary basis and wants to deregister from a VAT should be registered for at least 12 consecutive months prior to their deregistration application.
Every member nation of the GCC can decide upon the minimum time VAT taxpayers should be registered for the tax. Henceforth, a minimum date will be set as a bare minimum time for tax payment, and taxpayers cannot deregister before the given date. According to the above-mentioned conventions in the timeline, the GCC member nations have the power to decide additional prerequisites for entities to deregister. Thus the UAE government may come up with additional rules that for deregistering.
After a company/person has applied for deregistration from the VAT, the government body will notify them whether an application has been accepted and if it has been accepted, from what date it will be effective.
The likely intention of the government to make provisions for companies and persons to deregister themselves from VAT is to protect loss-making ventures or low earning ones from further slipping into the financial abyss.
Frequently Asked Questions On UAE VAT
After going through the exhaustive and extensive information above that talks everything about VAT registration, we sure many of you must be having doubts that are not covered under the scope of this article.
This section tries to answer those Frequently Asked Questions about UAE Value Added Tax:
What Exactly Is The VAT And Why Has The UAE Government Decided To Levy It?
Value Added Tax is a 5% tax that is levied upon the sale of certain types of goods and services, mainly those that fall in the category of luxury and non-essentials. The UAE government has decided to go for VAT in order to gradually offset the effects of low tax returns on oil and petrochemical exploration in the country. It will begin on 1st January 2018.
How Far Will It Affect People’s Lifestyle?
Since it is levied only on luxury and non-essential commodities, the people it is most likely to affect won’t be affected to a significant degree.
Will VAT Be Applied To Tourists?
Yes, it will be since tourism forms an important sector in UAE’s revenue generation structure.
However, it is not going to be all-encompassing and uniformly applied to all the fields. The tourism sector can be deconstructed into various sub-categories such as education, luxury, medical, meetings, healthcare, exhibitions and events and other tourism niches. One can expect that education and healthcare will have zero-rated VAT. On the other hand, arrangements pertaining to events, trade exhibitions, conferences, hotels and other such much prominent sectors of tourism will be subjected to the VAT.
The FTA is conducting a VAT Tourism Refund Scheme, where tourists will be paid back the refund for certain goods and services that they avail in the UAE.
How Will The UAE Government Collect VAT?
Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
Will The UAE VAT Applicable To All The Products & Services?
VAT, as a general consumption tax, will apply to the majority of transactions of goods and services unless specifically exempted or excepted by law.
Will VAT Be Paid On Imports?
VAT is applicable on the goods and services purchased from abroad.
In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.
In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.
Best way to prepare your business for VAT is to start using a good accounting software. A VAT ready business accounting suite can help you calculate the VAT on your products and services with great ease and will save a lot of your time. You will be required to apply VAT on your invoices.
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