A Guide for VAT Registration in the UAE

Value Added Tax (VAT) was first introduced in the United Arab Emirates (UAE) on 1st January 2018 to diversify the country's economy by adding new revenue sources. Since then, VAT has become an integral part of the UAE's tax system, impacting businesses and consumers alike. 

As a business operating in the UAE, you might feel overwhelmed navigating VAT's complexities. That's why we have put together a series of articles covering VAT in UAE; continuing the thread, we will cover everything about VAT registration in the UAE this time.

Here, we will discuss why VAT registration matters, who needs to register, and the step-by-step process. We will also share a checklist of necessary documents for VAT registration and some quick tips to maintain compliance even after registration.

Understanding VAT in the UAE

VAT is an indirect tax applied to a product at each stage of the supply chain whenever there is a value addition, from the production to its final sale. 

You collect VAT for sales on behalf of the government and claim credit for VAT you pay on purchases. This credit mechanism ensures that you only pay tax on the value you add, ensuring a fair system for businesses of all sizes. Here is how it works –

Suppose, as a manufacturer, you buy raw materials for AED 100, and add a value of around AED 30 during the production process. The value of the product is now AED 130, and you apply 5% VAT (AED 6.5) and sell it to a retailer for AED 136.5.

The retailer also adds the value of AED 20. The product value has now become AED 156.5, and a 5% VAT (AED 7.82) is applied again. The retailer then sells the product to the end consumer for AED 164.32, who bears the final VAT cost. The VAT collected at each stage, minus the VAT paid on inputs, is remitted to the government.

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Importance of VAT registration

Here are some of the most important benefits of registering for VAT in the UAE:

• Legal compliance: First and foremost, having a VAT registration helps your business comply with UAE tax laws. If your company's supply threshold exceeds AED 375,000 and you fail to register this within 30 days, your business gets exposed to unwanted penalties. Avoiding these foreseeable risks is always a good idea for both financial prosperity and business reputation. 

• Enhanced financial management: VAT registration encourages a culture of meticulous financial record-keeping. In adherence to FTA regulations, maintaining precise records of your VAT-inclusive transactions—both purchases and sales—is essential. This practice enables accurate tax reporting on eligible supplies and imports, helping you manage your cash flow better and ensuring transparency.

• Government benefits: By registering for VAT, you also position your business to take advantage of potential tax refunds and various government incentives. Should your input tax exceed your output tax, your business could qualify for a VAT refund. This can significantly benefit your financial strategy by reducing overall tax liability.

Who should register for VAT in the UAE?

Local businesses and international corporations operating in the UAE must register for VAT within 30 days of their taxable supplies and imports crossing the mandatory registration threshold of AED 375,000. Enterprises not meeting this mandatory limit can still opt for voluntary registration.

A. Mandatory registration

You have to mandatorily register for VAT if your business’s taxable supplies exceed AED 375,000 within the past 12 months or if you anticipate surpassing this limit in the next 30 days. Taxable supplies cover all your sales within the UAE, including VAT. Failing to complete your VAT registration in the UAE under these circumstances can lead to penalties.

B. Voluntary registration

If the total value of your taxable supplies and imports exceeds the voluntary registration threshold of AED 187,500 but does not exceed AED 375,000, you can select this option. Voluntary registration for VAT in the UAE benefits startups and small businesses as it allows them to claim input tax credits on purchases.

VAT exemption in the UAE

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As per the the UAE Federal Decree-Law No. (8) of 2017, the following sectors are VAT exempted and need not undertake registration for VAT in the UAE or file the VAT returns:

• Bare Land: The supply of bare land, i.e., undeveloped plots, is not subject to VAT.
• Provision of Financial Services: Financial services that are not conducted for an explicit fee, discount, commission, rebate, or a similar consideration enjoy VAT exemption.
• Local Passenger Transport: Services providing passenger transportation within the UAE, such as buses, taxis, and metros are exempt from VAT.
• Residential Properties: The lease and sale of residential buildings, other than those specifically zero-rated, are exempt from VAT in the UAE.

VAT penalties in the UAE 

Non-compliance with VAT laws in the UAE can lead to penalties of up to AED 50,000. There can also be fines and legal action involved. For instance, a delay in VAT registration in the UAE can result in a penalty of AED 10,000.

Additionally, failure to make VAT payments on time can also result in a 2% penalty of the unpaid tax due immediately. This is followed by a 4% monthly penalty, which becomes due one month after the due date of payment. 

How to register for VAT in the UAE for a new company?

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Here is how you can apply for VAT registration in the UAE: 

1. Eligibility Check: You must start by determining if your business is eligible for mandatory or voluntary VAT registration. This depends on whether your annual taxable turnover crosses the specified limit as per the UAE VAT rules.
2. Document Preparation: Gather the necessary documents and information required for VAT registration in the UAE. This list of required documents includes

• A valid copy of your trade licence
• Passport copies or Emirates IDs of authorised signatories
• Proof of authorisation for the signatories (if applicable)
• Contact information for your business, including address and PO Box
• Bank letter verifying your company's bank account details
• Additional documents like Articles of Association or Partnership Agreement (if required)

3. FTA Account Creation: Visit the Federal Tax Authority's web portal to create an e-Service account. This will allow you to access the VAT registration form and other services.
4. Form Completion: Log in to your e-Service account and fill out the online VAT registration form. The form will ask for details about your business, including its activities, turnover, and bank details.
5. Application Submission: After filling out the form, review it for accuracy, then complete and submit the VAT registration application.
6. Payment: The FTA website provides clear instructions on the fee amount and payment methods available. Pay the VAT registration fee, if applicable.
7. Supporting Documentation: Provide the FTA with supporting documentation as required. These documents will help the FTA verify the information you provided in your application.
8. Application Review: The FTA will review your application and, if approved, issue a Tax Registration Number (TRN) and a VAT Certificate. This number and registration certificate are crucial as they identify your business for tax purposes. The VAT registration process typically takes around 30 days.

Documents required to complete registration for VAT in the UAE

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Here is a comprehensive list of documents required for VAT registration in the UAE: 

Organization-related documents

1. Trade Licence: A valid trade licence is required for the UAE VAT registration. This document serves as proof that your business is legally allowed to operate in the UAE.
2. Memorandum of Association (MOA): If you are registering a company, you have to provide the MOA. This document outlines the company's structure and the roles and responsibilities of its members.
3. Bank Account Details: The FTA will need details of your business's bank account for transactions related to VAT.
4. Email ID and Contact Details: Your business's email ID and contact details are needed for communication with the FTA.
5. Office Address: The physical address of your office is required. This helps the FTA verify your business location.
6. Yearly Turnover Report: A report of the yearly turnover of your business is needed. This helps determine your eligibility for VAT registration.
7. Customs Details: If your business is involved in import or export, you may need to provide customs details.
8. Emirates ID of Partners: Similarly, copies of the Emirates IDs of all the partners or owners are required.
9. Power of Attorney Documents: If someone else is registering on behalf of your business, you'll need to provide power of attorney documents.
10. Club, Charity, or Association Registration Documents: If you're registering a club, charity, or association, you may need to provide additional registration documents.
11. Other Documents: The FTA can request clarification at any time to complete your registration for VAT in the UAE. In such cases, please share the additional documents as soon as possible. 

How to maintain compliance post-registration?

Here are some best practices that businesses can follow to comply with post-VAT registration in the UAE:

• Charge VAT as requited: As a VAT-registered business, you must charge VAT on your taxable supplies. This involves adding the standard VAT rate (currently 5%) to your sales price and clearly displaying it on your invoices.
• Keep detailed records: You are required to maintain accurate records of your business income, costs, and associated VAT charges. These records help you calculate your VAT liability and are essential for completing your VAT returns. The FTA recommends keeping these records for a minimum of five years.
• Submit timely returns: You must submit timely VAT returns to the Federal Tax Authority (FTA). These returns summarise your VAT charges and deductions for a specific tax period.
• Issue VAT Invoices: You must issue VAT invoices for all taxable supplies. These invoices must include details like the date of issue, a unique identification number, your Tax Registration Number (TRN), and more.
• Comply with FTA Regulations: You must comply with all FTA regulations. This includes rules about invoice formatting, record keeping, and VAT return submission.

Streamline your VAT calculations

Filing accurate VAT returns in the UAE is crucial for compliance with tax laws. This process also requires you to monitor different aspects of the VAT registration responsibly.

One way to ensure accurate VAT calculation and avoid any issues later is using a spend management platform like Alaan. Alaan applies the correct VAT rate to each purchase and calculates the VAT owed on each invoice with precision. This automation minimises the risk of human error and ensures you have accurate data readily available for your VAT returns. 

If you are a business looking to automate VAT calculations, consider trying Alaan. We will be happy to walk you through the process in detail. To connect, please fill out the form here.