VAT in UAE
In UAE it was introduced in January 2018 (at a rate of 5%) which is smallest in the world.
The Federal Tax Authority (FTA) overseeing VAT in the UAE. It was established under Federal Law by Decree No. 13 of 2016. The authority takes charge of managing and collecting federal taxes and related fines, as well as distributing tax-generated revenues and applying the tax-related procedures in the UAE. FTA will work alongside with Ministry of Finance in its drive to achieve economic diversification in the UAE, with a focus on profits derived from non-oil sources. It will work towards enhancing the financial stability of the UAE, and will provide guidance and assistance to businesses and consumers to ensure they meet their liabilities and understand fully the application of taxation in the country.
The FTA is committed to providing extensive support and guidance to assist with this, however the responsibility lies with the business to make sure that any required compliance obligations are fulfilled. The FTA does have the power to conduct audits on taxable persons and subsequently impose penal measures on those that are not compliant with the law.
To fully comply with the UAE VAT law, businesses may need to make some changes to their core operations, financial management and book-keeping, technology, and perhaps even their human resources.
VAT implementation in coordination with other GCC countries
The UAE is part of a group of countries which are closely connected through “The Economic Agreement between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognize that such a collaborative approach is best for the region.
Registering for VAT
Only VAT registered businesses will need to charge and account 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 FTA need to establish whether they should be registered.
What are the VAT-related responsibilities of business?
All businesses in the UAE will 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) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.
*** Accordance to Emirates Commercial Companies about Law No. 2 of 2015, entered into force on July 1, 2015, ALL companies, have to apply international accounting standards and practices, i.e. accounting in Dubai or another emirate should now meet international standards
ER (36) of Federal Law No (7) Article (2)
- The General ledger
- Statement of accounts payable (invoices received),
- Statement of accounts with customers (issued invoices),
- Statement of credit and debit and income statement
- Expenses and Receipt of money resources
- Purchases and sales
- Income & expense
- Balance sheet/ STATEMENT OF FINANCIAL POSITION
- TRIAL BALANCE
- Payroll accounting
- Fixed asset accounting
- Inventory accounting
- Other dates/credentials
Data storage from 5 to 15 years.
ER (40) of Federal Law No (7)
Violation leads to Penalty!
The failure to keep the required records and other information:
10 000 AED – first time
50 000 AED – in case of repetition.
The submittal of an incorrect Tax Return:
3 000 AED – first time
5 000 AED – in case of repetition + percentage-based penalty.
Penalties for non-compliance Tax invoices:
Supplier: AEG 5,000 for EACH invoice;
Customer: AED 3000 for EACH invoice + 150 % of the amount.
How to keep accounts and store records?
The taxpayer is obliged to keep the documentation for at least 5 years (15 years in real estate) in paper or electronic form (subject to data security)
Penalty: AED 10 000 (20 000 repeatedly)
If not registered, do I need to keep records?
Yes, the FTA may want to make sure you are eligible not to be a VAT payer
Penalty for late registration
AED 20 000 + risk of recognition of "evasion".
Fines and penalties FTA (Ex. Regulation #40)
Failure by the Taxable Person to issue the
Tax invoice or an alternative document
when making any supply or getting an
5 000 – for each tax invoice
Failure by the Taxable Person to issue a
Tax Credit Note or an alternative document
5 000 – for each tax credit note
The submittal of an incorrect Tax Return by
3 000 – first time 5 000 – in case of repetition + penalty (from 5% up to 50% of unpaid or undeclared tax. )
A Person not accounting for any tax that may be due on import of goods as required under the Tax Law.
50%– of unpaid or undeclared tax.
The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law.
1 000 - first time 2 000 - in case of repetition within (24) months