Value Added Tax was introduced in UAE with effect from January 1, 2018. Business upon attaining specified criteria requires to register for VAT and comply with applicable laws and regulations. There are two schemes under which you can get your business register for VAT in UAE. Each scheme specifies different requirements and documents for completing the registration.
Key take away
- What are the different schemes of VAT registration?
- How should a business evaluate himself for VAT registration?
- Registration of Non-Resident Business.
- Steps in VAT registration
- Penalty for not registering.
Different scheme of VAT registration
Every natural person or legal person (hereinafter called Business) carrying out Business should evaluate himself for VAT registration. Depending upon their Turnover or expense, they can opt for VAT registration under the mandatory scheme or voluntary scheme.
Mandatory Registration
A business is mandatorily required to register for VAT if:
- Its Turnover exceeds AED 375,000 for the previous 12 months or
- It is expected that in the next 30 days Turnover will exceed AED 375,000
Here Turnover includes all the taxable supply (excluding exempt supply) + Imports made into the UAE.
A business should apply for registration within 30 days of being required to be registered.
Example: 1
As of January 1, 2018, Happy Business LLC, a resident business in UAE made a taxable supply of AED 250,000 (i.e. supply taxable at 5% or 0% in the UAE) in the previous 12 months. It also made an exempt supply of AED 500,000 in the previous 12 months.
Here, assuming that there is no import of goods and services to the UAE, the total taxable supply of the previous 12 months is less than AED 375,000. Hence Happy Business LLC is not required to register for VAT mandatorily.
On January 31, 2018, Happy Business LLC sold services worth AED 200,000 to a UAE customer.
Now the taxable supply is more than AED 375,000, and Happy Business LLC will require to mandatory register for VAT in UAE. The registration application should be submitted to the Federal Tax Authority within 30 Calendar days from January 31, 2018, March 2, 2018, Friday.
Example: 2
As of January 20, 2018, New Startup LLC won a contract of AED 1,000,000/-. The agreement requires a 40% invoice to be issued within the next 15 days form the date of signing the contract.
Here, New Startup LLC can expect to make a taxable supply of AED 400,000 in the next 30 days. Hence it should apply for registration within 30 calendar days.
Voluntary Registration
A business can Voluntarily register for VAT if:
- Its Turnover or taxable expenses exceed AED 187,500 for the previous 12 months or
- It is expected that in the next 30 days Turnover or taxable expenses will exceed AED 375,000
Turnover includes all the taxable supply (excluding exempt supply) + Imports made into the UAE.
The taxable expense includes all expenses incurred for Business which are subject to the UAE VAT.
Example 3:
As of January 1, 2018, Happy Business LLC, a resident business in UAE made a taxable supply of AED 250,000 (i.e., supply taxable at 5% or 0% in the UAE) in the previous 12 months. It also made an exempt supply of AED 500,000 in the previous 12 months. Here, assuming that there is no import of goods and services to the UAE, the total taxable supply of the previous 12 months is more than AED 187,500. Hence Happy Business LLC can apply for VAT registration Voluntarily.
Non-Resident VAT registration
Value Added Tax is a consumption-based tax on goods and services. Hence when a good or service is consumed in UAE, then VAT should be applied. A non-resident person who is providing goods or services will require to register for VAT in UAE. If the following conditions are satisfied:
- He does not have a place of establishment or Fixed Establishment in the State and usually does not reside in the State.
- Makes supply of goods or services in the State and
- No other person is obligated to pay the Due Tax on the supplies.
It is important to note that all the above conditions should be achieved to make a non-resident liable for VAT registration in the UAE. Also, note that the threshold of AED 375,000 or AED 187,500 is not applicable. Hence even an AED One supply in UAE shall make a non-resident liable for VAT registration in UAE, provide above conditions are satisfied.
Example 4:
International Co. Ltd, a company in KSA, sells accounting software to UAE customer. During the current month, he made two suppliers
- He sells his accounting software to a freelancer in UAE, not registered for VAT.
- He sells his accounting software to a trading company registered for VAT in UAE.
In the case of selling accounting software to freelancers, the International Co. Ltd shall be liable to register for VAT in UAE because the freelancer is not registered for VAT and cannot pay the due tax to the FTA.
However, in the case of the sale of accounting software to the trading company, the non-resident will not be liable to register for VAT in UAE. The trading company is registered for VAT; it can discharge the VAT liability due on the import of services through its VAT return. International Co. Ltd is not required to register for VAT.
Steps in VAT Registration in UAE
VAT registration is an online process that needs to be followed for obtaining VAT Registration number called the TRN – Tax Registration Number.
Following are the step by step process of submitting a VAT registration application on FTA portal.
2. It will direct you to Sign up page as under, fill the form with the details required.
3. You will receive an email from FTA for activating the account. Important to note that the link is valid for only 24 hours. Hence in case, you failed to start then the process above process need to follow again.
4. Upon activating the link in the email, you can come again to the https://eservices.tax.gov.ae/en-us and log in using the email id and password you have registered.
5. Your Dashboard
6. Start your registration process by clicking “VAT 101 Register for VAT.”
7. It will direct you to the VAT Guide page; you have all the details required to proceed for VAT registration here. Once you have read and understood, you can confirm and proceed.
8. It will direct you to a page where you have to enter and submit a VAT registration application.
Each box or the column you may call has an “i” information button. At any time, you can refer those and update your information or attach the documents as required. Its is difficult to explain in a blog each box or attachment required. In case you are stuck, you can book a free 30 minutes consultation with us.
9. Upon completion of all the pages, you can review and submit.
10. FTA takes 20 business day to review and approve or ask for additional information or reject the application.
Consequences Late registration of VAT:
As per Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE – The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law shall be liable for a fine of AED 10,000/-. This penalty is over and above penalties which may be due because late submission of VAT return and delay in payment of VAT.
Conclusion:
Every Business should assess their VAT registration criteria and apply for VAT registration within the law’s time limit. Once registered for VAT, you have to embed the VAT requirement to your Business and process. You will also be required to submit VAT Return as per the tax period allocated to you.
Business can go for voluntary registration, which will enable to recover VAT on their expenses; And have cash flow advantages when purchasing goods from outside the UAE (by being able to use the reverse charge). However, one should also keep in mind that the compliance requirements are the same for a business who is registered for VAT under the voluntary or mandatory scheme.