Eligibility, Registration, and Compliance
VAT came into existence in the UAE on the 1st of January, 2018 introduced by the Federal Tax Authority (FTA). The companies are since then liable to tax accounting and maintain a healthy tax record. The VAT applies to various industries across the UAE dealing in taxable goods and services. Although the business enterprises are not concrete targets, as the consumers have to bear the taxation charges. For instance, the business is accountable to collect and account for the tax from the extended goods and services. Hence, VAT Registration is a big part of running a business in the UAE.
The business, therefore, is the agent to acquire are the account of the indirect taxation payable to the government. Furthermore, the VAT regulations are directed by the FTA and the audit authenticity is under the jurisdiction of the Federal Audit Authority (FAA).
VAT is relatively new in the country, although this form of taxation is prevalent in more than 150 countries across the globe for a long period. Thus audit of the same is a rising endeavour in the country.
As per FTA Norms, the normal VAT rate comes to around 5%.
The implemented VAT system contains certain guidelines that make a few businesses liable to the taxation, while others are exempt. The criteria are essentially based on the turn-over generated and a few other rules that resonate with the Double Taxation Treaty (DTT).
- Companies whose import and taxable articles exceed 375,000 AED must pay VAT.
- Companies whose supplies and imports surpass 187,500 AED can decide what to do on the same.
- The government recompenses a company on the funds that the company remunerated to its dealers and traders. This ensures a rather welcoming business milieu.
- Although the Free Zone License comes with a varied amount of benefits, the establishments in the zone are still liable to the payment.
Documents Required for VAT Registration in UAE:
- Emirates ID of the proprietor or the stakeholders of companies
- Photocopies of Business Trade License or Commercial License
- Passport copies of the proprietor or stakeholders of the company as deliberated on the license
- Memorandum of Association (MOA)
- Company Address Proof
- The Establishment’s Representative Contact
- Company Bank Details including International Bank Account Number (IBAN)
- Details of other establishment owned by the concerned proprietor or stakeholders of the company
- The income report for the preceding 12 months attested by the proprietor or the manager
- A detailed account of any export or import undertakings carried by the establishment.
- A photocopy of the Dubai Custom Code Certificate
- An attested list of all GCC countries the establishment has business relations
- The establishment is also liable to produce a detailed account of their business endeavour accounting for the preceding 5 years with all necessary milestones.
- If the company is dealing with any custom department that must be mentioned along with the
- VAT registration letters.
- If the establishment represents more than one enterprise then the establishment must specify if they would like to have one tax group number or they would like a separate number for each enterprise.
VAT registration in UAE is done via the online platform of the Federal Tax Authority (FTA). The establishment must create an account on the platform and upload the above-mentioned documents for initial registration.
VAT is based on the various turn-over thresholds, there it is important to indicate the category of businesses under which the establishment falls during the registration.
After the registration, the Federal Tax Authority will issue the Tax Registration Number (TRN) within three weeks.
Tax Residency Certificate:
Tax Residency Certificate is an eligibility proof for the establishment to receive a tax exemption under the Double Taxation Treaty (DTT).
The DTT is designed to appeal to foreign investors or businesses planning to establish themselves in the UAE which would complement the cash flow in the country and creates a business favorable environment.
The aforementioned tax exemption can be appealed by the foreign investors who are already accountable to pay taxes in their respective nations and jurisdictions and enables them to claim a 100% tax exemption.
Tax Residency Certificate/Tax Domicile Certificate is issued under the authority of the UAE Ministry of Finance only after confirming the eligibility of the applicant as per the norms of the Federal Tax Authority. Also, the Tax Residency Certificate holds validity only up to a year.
The eligibility criterion demanded by the FTA include that:
- The company must be functioning in the Mainland.
- Additionally, a branch of a foreign company or an offshore enterprise is not eligible for the exemption
- A Free Zone company can be an applicant for the certificate.
- Proof of employment or investing proficiency must be produced.
VAT Liability and Compliance in UAE:
The concept of Output Tax and Input tax governs the scenario of a company that is liable. Also, the Output tax indicates the VAT charged on the goods and services of the establishment which is owed to the government within the stipulated tax period. Meanwhile, the Input tax indicates the VAT charged on the procurements made by the establishment within the same tax period.
If the output tax surpasses the input tax, the establishment is liable to pay the difference to the FTA. Likewise, if the case is vice-versa the establishment can recover the excess input tax against the subsequent payment to the FTA.
The companies are accountable to file VAT within 28 days after the allotted ‘tax – period’.
- For establishments procuring a turn-over up to 150 million AED, the tax period is quarterly.
- For establishments obtaining turn-over more than 150 million AED, it is monthly.
A FEW PENALTIES AS – ISSUED BY THE FTA
- Not displaying costs inclusive of vat and excise – 15,000 AED
- Incorrect tax filing – 3000 AED
- First time offense – 1000 AED
- Repeated error in tax filing – 5000 AED
- Failure To Submit Deregistration Application – 10,000 AED
Also, while on the 10th of May, Saudi Arabia raised its VAT to 15%, UAE held the VAT at 5%, remaining a business-friendly country.
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