Guide to Register for VAT in UAE
VAT registration is an important step for start-ups and existing companies to comply with the VAT law and avoid penalties. This complete guide helps you understand how to register VAT including the importance of VAT and being compliant in one hand by IRHA Businessmen Services.
Golden Visa Enhancements
Value Added Tax (VAT) was implemented in the United Arab Emirates on 1 January 2018 at a standard rate of 5%. VAT is a type of indirect tax that is imposed on the consumption or use of goods and services. VAT is ultimately paid by the end consumer, but it is collected by businesses on behalf of the government.
Importance of VAT Registration
VAT registration is not only legal compliance but an essential characteristic of so-called white business. Being registered for VAT means that businesses could:
To culminate this stage, claim back input VAT on all business purchases so it reduces the cost burden.
Increase business credibility and reputation.
Avoid heavy fines and penalties for non-compliance.
Simplify business transactions for other businesses that do dealings only with VAT-registered companies.
Who Should Register for VAT in the UAE?
If a company’s yearly taxable supply and imports exceed AED 375,000, they must register for VAT. Individuals that import and supply taxable goods worth between AED 187,500 and AED 375,000 are allowed to voluntarily register. Registration is required for:
Commercial enterprises and companies.
Freelancers and self-employed if turnover exceeds the statutory limit.
Online businesses engaging in e-commerce activities.
Foreign entities conducting business in the UAE.
VAT Exemption in the UAE
Residential properties, except for the first supply of newly constructed properties.
Bare land and local passenger transport.
Some financial services (depending on the nature of the fee structure).
Businesses dealing exclusively in exempt supplies are not required to register for VAT.
VAT Penalties in the UAE
The Federal Tax Authority (FTA) instantly penalizes non-compliance, which includes:
Failure to register for VAT: AED 20,000.
Late submission of VAT returns: AED 1,000 for the first offense, AED 2,000 for subsequent offenses within 24 months (about 2 years).
Incorrect tax return filing: 5%-50% of the unpaid tax.
VAT Registration process for Startups in the UAE
Documents you should keep in hand while VAT Registration:
Trade license.
Passport copies of the business owner/partners.
Emirates ID of the owner/partners.
Proof of business address (e.g., tenancy contract, utility bill).
Bank account details.
Financial statements or audit reports (if applicable).
Details of business activities and projected revenue.
How to Maintain Compliance Post-Registration
Maintaining compliance is as critical as the initial registration. Here are some key practices:
Keep Records up to Date: Keep an accurate record of all sales, purchases, expenses, and VAT ‘collected’ and ‘paid.’
Timely Filing of VAT Returns: VAT returns must be filed according to the period specified in law quarterly or upon the request of FTA. Submit timely and correct or risk penalties.
Reconciliation: Reconcile your VAT accounts periodically to confirm that they match the records of your books and VAT returns.
Seek Expert Advice:
Consult with VAT experts/ consultants who will help you better navigate the murky waters of complex matters and constant compliance.
Make your VAT Calculations Easier
Software solutions could drastically reduce tax calculation and compliance headaches in terms of VAT. VAT calculation features: Most accounting software tools have a function that you use to calculate the VAT on your sales and purchases automatically – if your solution has this, then you should be levying a much larger percentage of accuracy.
FAQs
What is the threshold for mandatory VAT registration in the UAE?
Businesses must register for VAT if their taxable supplies and imports exceed AED 375,000 per annum. Voluntary registration is available for those with supplies and imports between AED 187,500 and AED 375,000.
Can I register for VAT voluntarily?
Yes, businesses with taxable supplies and imports between AED 187,500 and AED 375,000 can opt for voluntary registration.
What is the penalty for not registering for VAT?
The penalty for failure to register for VAT is AED 20,000. Other penalties include fines for late submissions and incorrect filings.
Are there any exemptions from VAT in the UAE?
Yes, certain supplies such as residential properties, bare land, local passenger transport, and specific financial services are exempt from VAT.
How long does it take to get a VAT registration number (TRN)?
The process can take a few weeks, depending on the completeness of the submitted information and the FTA’s verification procedures.
What documents are required for VAT registration?
Key documents include the trade license, passport copies, Emirates IDs, proof of business address, bank details, and financial statements.
In conclusion, registering for VAT in the UAE is a fundamental process for businesses operating within the region. By understanding the requirements, following the correct procedures, and maintaining compliance, businesses can avoid penalties and benefit from the VAT system. Professional assistance and advanced software solutions can further streamline the process, ensuring a smooth and efficient VAT registration and compliance journey.
