Value Added Tax (VAT)

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

Furthermore, a business may choose to register for VAT voluntarily if its 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 its 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-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 VAT-related business records (e.g. Tax invoices);

report their taxable supplies and purchases in periodic VAT returns.

Businesses will need to meet certain requirements to fulfil their tax obligations. To fully comply with VAT, businesses will need to consider the VAT impact on their core operations, financial management and book-keeping, technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT and make every effort to align their business model to government reporting and compliance requirements.

A Person required to register for VAT needs to submit a registration application to the FTA within 30 days of being required to register.

Registration applications shall be submitted via the e-Services Portal on the FTA website

Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period.

The Tax returns shall be filed online using e-Services.

Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them are prescribed in Federal Law no. (7) of 2017 on Federal Tax procedures and Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No. (7) of 2017 on Tax Procedures.

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT legislation will apply), or outside the UAE for VAT purposes.

For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross-border supplies).

For the supply of services, the place of supply should generally be where the supplier is established with special rules for certain categories of supplies (e.g. for the supply of catering services, the place of supply shall be where the services are actually performed).

No. VAT is payable in addition to applicable customs duties. VAT is computed on the value that includes the customs duties.

The VAT treatment of real estate will depend on whether it is a commercial or residential property.

Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).

On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons 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 (through sale or lease) within 3 years from their completion will be zero-rated.

VAT will be charged at 0% in respect of the following main categories of supplies:

Exports of goods and services to outside the GCC;

International transportation, and related supplies;

Supplies of certain sea, air and land means of transport (such as aircraft and ships);

Certain investment grade precious metals (e.g. gold, silver, of 99% purity);

Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;

Supply of certain education services, and supply of relevant goods and services;

Supply of certain healthcare services, and supply of relevant goods and services.

The following categories of supplies will be exempt from VAT:

The supply of some financial services;

Residential properties (excluding the first supply of newly constructed residential property which qualifies for the zero-rating treatment);

Bare land; and Local passenger transport.

Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. VAT grouping would generally simplify accounting for VAT.

VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business. The legislation includes the conditions and limitations concerning the use of this relief.

To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the sale price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No.(8) of 2017 on Value Added Tax.

Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.

In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable supplies.

Businesses will be expected to use input tax (ratio of recoverable input tax to total input tax incurred) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.

Penalties will be imposed in cases of non-compliance with tax legislation.

Examples of actions and omissions that may trigger penalties include:

A person failing to register when required to do so;

A person failing to submit a tax return or to make a payment within the required period;

A person failing to keep the records required under the issued tax legislation;

Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

No special rules are planned for small or medium sized enterprises. However, the FTA is providing through its website material and resources for these entities to assist them with their enquiries.

There are special rules that deal with various situations that may arise in respect of supplies that span the introduction of VAT. For example:

Where a payment is received in respect of a supply of goods before the introduction of VAT but the goods are actually delivered after the introduction of VAT, this means that VAT will have to be charged on such supplies. Likewise, special rules apply with regards to supplies of services spanning the introduction of VAT.

Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply is treated as inclusive of VAT. There are, however, special provisions that allow suppliers to charge VAT in situations where the recipient is able to recover the VAT even if there is no VAT clause in the contract.

Generally, insurance (vehicle, medical, etc) is taxable. Life insurance, however, is an exempt service.

Fee based financial services are subject to VAT while margin based products are exempt.

Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products is aligned with the treatment of similar standard financial services.

Scheme has been introduced to allow UAE nationals to reclaim VAT paid on goods and services relating to constructing new residences which will be privately used by the person and his family. This will allow the recovery of VAT incurred on such expenses including contractor's services and building material.

Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

In the course of its interaction with taxpayers, the FTA may provide its views on various matters in the law. Taxpayers may choose to challenge these views. It should be noted that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.

A registered taxable person must issue a valid VAT invoice for its taxable supplies. To be considered as a valid VAT invoice, the document must include certain particulars as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned in the legislation.

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

The business must be a taxable person.

VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).

The business must hold documentation showing the VAT paid (e.g. valid tax invoice).

The goods or services acquired are used or intended to be used for making taxable supplies.

VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies.

VAT is due 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 need to be paid before the goods are released to the person.

Supplies made by government entities will typically be subject to VAT. This will ensure that government entities are not unfairly advantaged as compared to private businesses.

Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely that certain government entities will be entitled to VAT refunds.

For the supplies provided for government entities, the treatment of such supplies shall depend on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard rate, the treatment would remain the same even if it is provided to a government entity.

Businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate.

Further detail on this can be found in the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.

No. Imported goods may be exempt from customs duties but still be subject to VAT.

Yes, the invoice should be issued on the date the goods are collected in person by the tourist at a physical store, and the Tax Free Tag issued and attached to it on the same day. If the tourist pays online, the invoice must clearly state that it is an advance / deposit / booking fee and when collecting the goods the actual sales invoice is issued on the day. Otherwise it is not possible to purchase online and claim tax free refunds.