1. What is Value Added Tax?
Value Added Tax (or VAT) is an indirect form of tax. In a country which has VAT legislation, it is imposed on most supplies of goods and services that are bought and sold.
2. What are the VAT rates in UAE?
A standard VAT rate of 5% is levied on all taxable supplies. Certain supplies are subject to VAT at zero rate or are exempt / out of scope from UAE VAT Laws.
3. Who can or will be able to register for VAT?
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. A business may choose voluntarily to register for VAT if its supplies and imports, or expenses (which are subject to VAT) are less than the mandatory registration threshold but exceed the voluntary registration threshold of AED 187,500.
4. What are the benefits of voluntary registration?
Obtaining voluntary registration assist businesses in recovering input tax on eligible business expenses from VAT authorities by continuing to remain in the VAT chain, which otherwise would form a cost.
5. What is Tax Group registration?
Two or more persons conducting a business can apply for tax group registration subject to certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties etc.). Accordingly, for UAE VAT law purposes, such persons shall be assessed as a single person – which leads to filing single VAT return for the tax group – and with anyone of the member person (as per the selection made by the applicant) being assigned a representative of such tax group while others are considered as members.
6. Will non-residents be required to register for VAT?
Non-resident persons that make taxable supplies in the UAE will be required to register for VAT unless any other UAE VAT registered resident person is responsible for accounting for VAT on such supplies.
7. All my supplies are zero-rated, do I still need to register for VAT?
Yes, if total value of zero-rated supplies exceed/will exceed AED 375,000 for previous 12 months or in next 30 days, a taxable person will be required to register, unless an exception from VAT registration has been applied.
8. When to submit VAT return?
A Taxable Person must submit a VAT Return within 28 days from the end of tax period. Periodicity of VAT Return may be monthly/quarterly as decided by the Federal Tax Authority (FTA) at the time of registration.
9. What kind of records are businesses required to maintain, and for how long?
A taxable person is required to maintain records which will enable FTA to identify the details of the business activities and review transactions. In general, the taxable person must retain the required records for a minimum of 5 years after the end of the tax period to which they relate. Where the taxable person owns real estate, the taxable person should retain the required records relating to the real estate for a period of 15 years after the end of the tax period to which they relate.
10. Will there be any Input VAT that businesses are not allowed to claim?
Input VAT will not be recoverable in respect of expenses incurred for providing exempt supplies. Furthermore, Input VAT cannot be recovered if it is incurred for certain blocked / non-business purposes such as entertainment, motor vehicle expenses where such vehicle is available for personal use of employees and certain other personal expenses.
11. Is there any benefit for UAE nationals under UAE VAT Law?
Where a UAE National owns or acquires land in the UAE on which such individual builds or commissions the construction of their own residence, such individual is entitled to request refund from the FTA in respect of VAT incurred on certain expenses related to such construction of new residence, subject to conditions stated under UAE VAT Law.
12. Is there any VAT relief on occurrence of bad debts?
Yes, there is a VAT relief on occurrence of bad debt. A registrant will be required to reduce its output VAT liability in its VAT return to the extent of VAT pertaining to such bad debt amount which has been written off by the registrant, subject to conditions.
13. Do tourists in the UAE pay VAT?
Tourists must pay VAT when making purchases within the UAE, however, they can avail refund on VAT on departure from UAE on certain purchases. However, such refund is only provided when purchases are made from retailers who are participating in the “Tax Refund for Tourists Scheme”, subject to other conditions.
14. What is Reverse Charge Mechanism (RCM)?
If Taxable Supplies (Goods or Services) are imported into the UAE, VAT is levied on such Supplies under RCM. The Recipient of supply is responsible to discharge all VAT obligation in relation to such imports. Further, corresponding Input VAT related to Output VAT accounted under RCM is available for recovery, subject to conditions.
15. When should an entity apply for VAT de-registration?
A person registered under VAT can apply for Tax De-registration in the following two cases:
- The person stops making taxable supplies and does not expect to make any taxable supplies over the next 12-month period OR
- The person’s taxable supplies or taxable expenses incurred over a period of 12 consecutive months is less than the voluntary registration threshold (AED 187,500) and such person does not anticipate crossing this threshold in the next 30 days
Note that a person who has voluntarily registered under VAT cannot apply for de-registration in the 12 months following the date of registration.
16. Is there a time limit within which VAT registration is mandatory? If yes, what is the prescribed penalty in case of delay in making such application?
The time limit to submit application for VAT registration on mandatory basis is within 30 days from date of exceeding the revenue threshold limit of AED 375,000. A penalty of AED 20,000 would be levied on failure to apply for registration within the specified timeframe.
17. What is the time limit for making application for VAT de registration and applicable penalty for non-compliance?
Registrants are required to apply for VAT deregistration within 20 business days from the end of the month in which any of the following occurs:
- the taxable person ceases making taxable supplies; or
- the value of the taxable person’s taxable supplies made over a period of 12 consecutive months is less than the Voluntary Registration Threshold.
In case of non-compliance of above, a penalty of AED 10,000 is prescribed under UAE VAT law. Further, in case where a taxable person is not required to deregister mandatorily, the person may apply for a voluntary deregistration if the total value of the taxable supplies in the previous 12 months was less than the Mandatory Registration Threshold limit of AED 375,000. However, if the said person had originally applied for VAT registration on voluntary basis, such deregistration will not be possible until 12 months have elapsed since the date of registration on voluntary basis.
18. Is there a penalty on late payment of VAT liability?
Yes. Failure to make payment of VAT liability by specified due date would trigger penalty towards late payment. Key penal provisions are outlined below:
- (2%) of the unpaid tax is due immediately once the payment of Payable Tax is delayed.
- (4%) is due on the seventh day following the deadline for payment on the amount of unpaid tax.
- (1%) daily penalty charged on any unpaid amount one calendar month following the deadline for payment with upper ceiling of 300%.
19. Is there a penalty for failure to issue the Tax invoice, Tax Credit Note or an alternative document when making any supply?
Yes. AED 5,000 for each tax invoice / tax credit note / alternative document.
20. Where can I find UAE tax related information?
You may visit www.tax.gov.ae to access UAE VAT related material such as VAT Law, Executive Regulations, User Guides, Public Clarifications and Other References.
21. What services are provided by a registered tax agent in UAE?
A registered Tax Agent in UAE (who is qualified and registered with FTA) assists VAT registrants in undertaking all VAT related compliances, support in VAT technical matters, liaise with VAT authorities on behalf of registrants, represent registrants in matters involving authorities, etc.
22. Can PKF UAE act as a tax agent?
In addition to providing general VAT advisory and compliance support, PKF UAE is authorized to act as a tax agent for VAT registrants in UAE as it is registered as a tax agent with FTA.
23. Can PKF assist in obtaining registration / deregistration under UAE VAT law?
PKF UAE can assist in obtaining registration / deregistration under UAE VAT laws. It can assist with the following services:
- Assistance in compiling required documents and details for VAT registration/deregistration.
- Assistance in uploading required documents and details on FTA portal.
- Assistance in responding to queries raised by FTA during registration/deregistration process.
24. Can PKF UAE provide UAE VAT Advisory services?
Yes, PKF UAE has a qualified and experienced tax team to provide high-quality UAE VAT advisory support services. Businesses can approach PKF UAE in relation to any queries associated with UAE VAT laws.
25. Can PKF UAE act as retainer for UAE VAT services?
Absolutely. PKF UAE can work with clients in a retainership agreement as regards VAT. PKF can support and advise on the following matters as part of the retainer agreement.
- Advisory support service in relation to applicability of VAT on various revenue streams of the company and providing comments thereon.
- Advise on the applicability of VAT in respect of payments made by the company and on which VAT is payable under the reverse charge mechanism.
- Advise on exemptions and tax recoveries available under VAT legislations for computation of VAT.
- Advise on VAT compliances related to business transactions and contracts during the period of engagement.
- Advise on other VAT related compliances.
- Assistance in compiling of information for VAT returns.
- Assistance in preparing and filing VAT returns.
- Assistance in preparing and filing of Voluntary Disclosure, reconsideration request or any other support related to VAT returns.
26. Our Company’s in-house accountants undertake the necessary VAT related compliances and returns. However, I am concerned if their understanding of VAT rules is complete and there are no surprises. Can PKF assist in one-time review of VAT returns already filed and other related compliances and provide management the required comfort?
Yes, PKF can undertake UAE VAT related health check on returns already filed and related compliances being undertaken by the Company. Amongst others, PKF can undertake the following services:
- Review of key documentation.
- Review of supplies whether standard rated, zero rated, exempt or out of scope.
- Review of purchases / expenses to determine if input VAT recovered comply to provisions of UAE VAT Law.
- Advise on exemptions, adjustments, and tax recoveries available under VAT legislation for computation of VAT.
- Submit a report to cover the entire review with related recommendation for any gaps.
