UAE’s VAT registration opened on the 1st of October for all eligible businesses. VAT goes into effect on the 1st of January 2018 and registration deadlines are nearing in!

While end consumers generally bear the cost of the VAT, registered businesses collect and account for it through every step of the supply chain. The following illustration was posted by the FTA (Federal Tax Authority) to demonstrate how VAT works:

VAT applied will be at a rate of 5% on most goods and services, with some exceptions.

VAT will be charged at 0% in respect of the following main categories of supplies:

  • Exports of goods and services to outside the GCC States that implement VAT
  • International transportation, and related supplies
  • Supplies of certain sea, air and land means of transportation (such as aircrafts and ships)
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity)
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction
  • Supply of certain education services, and supply of relevant goods and services
  • Supply of certain Healthcare services, and supply of relevant goods and services

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The following categories of supplies will be exempt from VAT:

  • the supply of some financial services
  • Residential properties
  • Bare land
  • Local passenger transport

Mandatory Registration

Businesses that exceed the mandatory registration threshold of AED 375,000, are required to register for VAT.

Businesses are required to register if:

  1. The total value of taxable supplies made within the UAE exceeds the mandatory registration threshold over the previous 12-month period.

or

  1. They anticipate making taxable supplies with a value exceeding the mandatory registration threshold in the next 30 days.

Voluntary Registration

Businesses that exceed the voluntary registration threshold of AED 187,500, may register for VAT. Business may apply if they don’t meet the mandatory registration criteria and:

  1. The total value of their taxable supplies or taxable expenditure in the previous 12 months exceeds the voluntary registration threshold.

or

  1. They anticipate that the total value of their taxable supplies or taxable expenditure will exceed the voluntary registration threshold in the next 30 days.

Businesses need to ensure that their practices fully comply with the UAE VAT law, and to do so, some changes might need to be applied to the business’s operations, financial management and book-keeping, to align their business model with government reporting and compliance requirements. Companies that don’t take the appropriate measure are more susceptible to negative cash flow impact, reporting issues, and worse yet, hefty fines.

For VAT support, consultations, and inquiries contact us on tax@nuummite.com.

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