The United Arab Emirates (UAE) introduced Value Added Tax (VAT) on January 1, 2018as part of a GCC-wide agreement to diversify revenue sources and reduce reliance on oil income.
Key Features of the UAE VAT System:
Standard Rate:
VAT is levied at a standard rate of 5% on most goods and services.
Zero-rated & Exempt Supplies:
- Zero-rated (0% VAT): Includes exports, international transport, certain education and healthcare services.
- Exempt: Includes residential real estate (post first supply), local public transport, and financial services (under specific conditions).
VAT Registration Thresholds:
- Mandatory Registration: Businesses must register if their taxable supplies and imports exceed AED 375,000 annually.
- Voluntary Registration: Available for businesses with taxable supplies or expenses over AED 187,500 annually.
- Non-resident businesses making taxable supplies in the UAE must register regardless of threshold (unless another party accounts for VAT).
Compliance Requirements:
- VAT-registered businesses must issue tax invoices, file VAT returns quarterly or monthly, and maintain proper accounting records.
- Returns and payments are submitted electronically via the EmaraTax portal.
VAT Recovery:
- Registered businesses can recover input VAT (VAT paid on business purchases) if the expenses are related to taxable supplies.
- Certain expenses (e.g., entertainment, motor vehicles for personal use) are non-recoverable.
Penalties:
- Failure to register, file, or pay VAT on time may result in significant administrative penalties, starting from AED 10,000 for non-registration.