VAT tax in UAE was introduced on 1st January 2018 with a fixed rate of 5%. To avoid all the unnecessary penalties, it is important for businesses as well as individuals to clearly understand how VAT in the UAE works, what the basic rules are that must be followed, and how you can effectively stay compliant. After all, no one wants to lose their hard-earned money on fines. In this UAE VAT guide, we will explore the complete details of Value Added Tax in the UAE, covering registration, compliance, returns, Free Zone rules, and many other important information.

Understanding VAT Registration in the UAE 

Mandatory Registration: If a business’s taxable supplies as well as imports surpass AED 375,000 over the last 12 months, or are expected to do so in the coming 30 days, the company must register for VAT.

Voluntary Registration: A business can choose voluntary VAT registration if its taxable supplies or expenses have exceeded AED 187,500 in the past 12 months or are likely to exceed this amount within the next 30 days. This allows new businesses with significant startup costs to register and reclaim the VAT they pay on business expenses.

What Happens After the VAT Registration? 

Once your business is registered for VAT, you are required to:

• Apply a 5% VAT to all taxable sales of goods and services.
• Reclaim VAT that you have paid on business expenditures.
• Keep proper records of your sales, purchases, VAT collected, and VAT paid.

The business must regularly submit VAT returns to the FTA. These returns show:

• The amount of VAT that was obtained from clients
• The amount of VAT paid on company expenses

If a business collects more VAT from its customers (Output VAT) than it pays on expenses (Input VAT), it has to give the extra to the government. But if it pays more VAT than it collects, it can claim the excess amount paid on purchases in the form of a refund or credit to its tax account.

Deadlines for VAT Registration

Any business whose taxable turnover reaches the mandatory VAT threshold must complete VAT registration within 30 days of reaching that limit.

Under UAE VAT legislation, companies that do not register on time face severe penalties, which can consist of a fixed AED 10,000 fine plus additional administrative charges.

What Is a VAT Return? 

A VAT return is a formal summary document that a VAT-registered business submits to the tax authorities on a regular basis (usually quarterly or monthly). Its primary purpose is to report the total amount of VAT the business has collected from its customers and the amount of VAT it has paid to its suppliers during a specific accounting period.

Filing Frequency 

• VAT returns are generally submitted every three months by businesses in the UAE.
• Larger businesses, with high yearly sales, may have to file monthly instead.

The FTA decides your filing schedule when you first register for VAT, and this information is clearly stated in your VAT registration certificate.

When to Submit the VAT Return

Most businesses must submit their VAT returns every quarter, within 28 days after the tax period ends. The large businesses might be required to submit their VAT returns every month. You can submit your VAT return via the Federal Tax Authority’s EmaraTax Portal