VAT IN UAE

What is VAT?

It’s consumption tax, collected at each supply chain. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the “value add” throughout the supply chain.

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Registering for VAT

A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

VAT-related responsibilities of businesses :

All businesses in the UAE need to record their financial transactions and ensure that their financial records are accurate and up to date.

Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) are required to register for VAT.

Businesses that do not think they should be VAT-registered should maintain their financial records in any event, in case we need to establish whether they should be registered.

VAT-registered businesses generally :

• Must charge VAT on taxable goods or services they supply;

• May reclaim any VAT they’ve 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

If you are a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.

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

VAT in real estate :

The VAT treatment of real estate depends on whether it is a commercial or residential property. Supplies (including sales or leases) of commercial properties are taxable at the standard VAT rate (i.e. 5%).

On the other hand, supplies of residential properties are generally exempt from VAT. This ensures that VAT does not constitute an irrecoverable cost to those who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within three years of completion at the time of VAT introduction is zero-rated.

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