Faqs

Will businesses be required to pay CT tax in advance? Are there any consequences for non-compliance under the CT regime?

UAE businesses will not be required to make advance UAE CT payments.
Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime.
Further information on the UAE CT compliance obligations and applicable penalties will be released in due course by FTA.

How often will UAE businesses need to file a UAE CT return? Will it need to be filed electronically?

Only one CT return will need to be filed per financial period .No provisional or advance CT filings will be required. A financial period is generally a year.
The CT return will need to be filed electronically. Further guidance will be issued in this regard in due course.

What is the withholding tax rate under the UAE CT regime? Will foreign CT paid on UAE taxable income be recognised under the UAE CT regime?

Withholding tax is tax collected at source by the payer on behalf of the recipient of the income  Withholding taxes exist in many tax systems and are typically used in respect of dividends, interest, royalties and similar payments. UAE withholding tax will not be applicable on domestic and cross-border payments of any nature under the UAE CT regime.
Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.

Will a group of UAE companies be able to form a “fiscal unity” for UAE CT purposes?

A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met
A UAE tax group will only be required to file a single tax return for the entire group.

Will the UAE CT regime allow prior year losses to reduce future taxable income?

The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods. A loss for CT purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total taxable income for the relevant financial period.
Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met.
Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met.
Further information on the group loss utilisation rules will be provided in due course by FTA.

Will the oil and gas sector and other extractive industries be subject to the UAE CT regime? Will the banking or real estate sector be subject to the UAE CT regime?

Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of the UAE.
Banking operations will be subject to UAE.
Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CT.

Will a free zone business be subject to UAE CT?

Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.

A company established in a free zone will be required to register and file a CT return. Further details on the compliance obligations will be provided in due course

Will a foreign company or individual be subject to UAE CT? Will income earned by a foreign investor be subject to UAE CT?

If a foreign company or individual is engaged in a business in the UAE in an ongoing or regular manner, they will be subject to UAE CT.
UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns

Will intra-group transactions be exempt from UAE CT?

Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met

Will anyone or any income be exempt from UAE CT? 

Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT.
Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT.

If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE CT amount payable? 

The CT liability will be calculated as follows:

i. Taxable income of AED 0 – AED 375,000 at 0% = AED 0
ii. Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 – AED 375,000 = AED 25,000) at 9% = AED 2,250
iii. The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250
iv. The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income.

Will the income earned by a freelance professional be subject to UAE CT? Will income earned by an individual from bank deposits be subject to UAE CT?

UAE CT will generally apply to income earned from activities carried out under a freelance license / permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000.
Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.

Will an individual be subject to CT on investment returns?

Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity

Will an individual who invests in UAE real estate be subject to UAE CT?

The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE.

Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT?

Business income earned under a commercial license will be within the scope of UAE CT.

Will an individual’s salary income be subject to UAE CT?

UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector).

What are UAE CT rates? 

The CTA rate are:
i. 0% for taxable income up to AED 375,000;

ii. 9% for taxable income above AED 375,000; and

iii. A different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project.

How do you determine whether an individual has a “business” that will be within the scope of UAE CT?

This would generally be done by reference to the individual having (or being required to obtain) a business license or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE.

How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?

All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT

Who will be subject to UAE CT? Will foreign entities and individuals be subject to UAE CT?

UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation.
Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner.

What will be the role of FTA ? What will be the role of the MoF? 

The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT.
The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes.

Will UAE CT be applicable to businesses in each Emirate?

The UAE CT is a Federal tax and will therefore apply across all Emirates.

When will the UAE CT regime become effective?

The UAE CT regime will become effective for financial years starting on or after 1 June 2023.

Is the UAE the first country to introduce CT?

Most countries in the world have a comprehensive CT regime, including most of the GCC Member States.

Why is the UAE introducing CT?

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives. Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.

What is Corporate Tax?

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as Corporate Income Tax or Business Profits Tax in other jurisdictions.

What is a remittance?

A remittance is a payment of money that is transferred to another party. Broadly speaking, any payment of an invoice or a bill can be called a remittance. However, the term is most often used nowadays to describe a sum of money sent by someone working abroad to his or her family back home.The term is derived from the word remit, which means to send back.

Most remittances are made by foreign workers to family members in their home countries. The most common way of making a remittance is by using an electronic payment system through a bank or a money transfer service. People who use these options are generally charged a fee. Transfers can take as little as ten minutes to reach the recipient.

What happens if you fail to comply with the Digital Tax Stamp system?

In accordance with the FTA decision no. 33 of 2019 on violations of procedures to mark designated excise goods, penalties await those who fail to place the Digital Tax on the packaging of tobacco products. Some of the penalties on violation of Digital Tax Stamps regulation are as follow:

  • A penalty of AED 50,000 plus 50% of the amount of excise tax due, will be collected from a person possessing or supplying unmarked designated excise goods.
  • A penalty of AED 25,000 to AED 50,000 will be slapped on those people who allow the sale of unmarked Designated Excise Goods in their facilities. It will be AED 25,000 for the first instance of violation and 50,000 for repeated violations.
  • A penalty of AED 50,000 plus 50% of the amount of excise tax due will be levied if a person modifies or prints over Digital Tax Stamps fixed on designated excise goods.
  • In the event of failing to inform a transfer of designated excise goods, a penalty of AED 20,000 is levied for every time the breach is committed.

Know more about the Digital Tax Stamp Scheme.

Why was the Digital Tax Stamp system implemented?

FTA’s marking of tobacco and tobacco products is a new milestone in the excise tax system in the UAE. With the new tax managing program, the FTA is hoping to achieve the following goals:

  • The scheme is likely to safeguard the consumers from commercial fraud and low-quality products.
  • It will enable the FTA to tackle tax evasion in an efficient manner.
  • It empowers the FTA to collect and control taxes on all imported or locally made tobacco products sold in the UAE market.
  • The scheme allows the FTA to monitor and curb the sale of illicit products in the market as relevant authorities are entrusted with analyzing and auditing the supply chain.

Know more about the Digital Tax Stamp Scheme.

What is the Digital Tax Stamp system?

The Digital Tax Stamp system is a tax managing scheme introduced by the FTA in August 2019. The new excise tax scheme mandates that tobacco manufacturers and stakeholders are required to comply with FTA’s improved standards when they import and sell tobacco products in the UAE market.

In line with the new excise tax system, the tobacco manufacturers are required to mark their products with the Digital Tax Stamp at their production facility after the packaging, if the production is done locally. The stamp must be put before importing if the products are imported.

The Digital Tax Stamp is in news again as the import of waterpipe cigarettes or e- cigarette not marked with Digital Tax Stamps will not be permitted to be sold across the UAE from 1st January 2021. The initiative of banning the import of waterpipe tobacco not marked with digital tax stamp is in line with the second phase of FTA’s Tobacco Products Scheme. The main aim of the DTS system is to combat commercial fraud and tax evasion. (Visit the site tax.gov.ae/dts)

You must register for the Digital Tax Stamp if you are:

  • A UAE based or international cigarette producer who imports products into the UAE for domestic sale or for duty-free outlets like airports and ports.
  • An officially licensed importer who will purchase cigarette products in bulk from an international or domestic producer to sell or distribute in the UAE market or duty-free outlets.
  • A distributor or supply chain agent or warehouse keeper who receives the imported goods for sale in the UAE market or duty-free outlet.

Know more about the Digital Tax Stamp Scheme.

For more questions on tax, whom should I contact?

If you would like to know more about the taxes applicable in the country, you can contact the Federal Tax Authority (FTA), the government entity that is responsible for implementing federal taxes such as VAT or excise tax. You can contact the FTA by calling them at 600-599-994.

On the other hand, if you require more information on the Tourism Dirham in Dubai, you can contact the Dubai Tourism authority at 600-555-559.

Meanwhile, you can find out more about the tourism and municipality fees in Abu Dhabi by contacting the Department of Culture and Tourism at 800-555.

What are the goods exempted from excise tax?

The excise tax will not be applied to the following goods in the UAE:
1. Ready-to-drink beverages (with at least 75% milk or milk substitutes).
2. Baby food or baby formula.
3. Beverages for special dietary needs as recognized under Standard 654 of the GCC Standardization Organization.
4. Beverages consumed for medical uses as recognized under Standard 1366 of the GCC Standardization Organization.

Which goods is excise tax applicable to?

For those wondering ‘what items have excise tax in the UAE’, this tax applies to the consumption of the following goods:
– Tobacco products
– Carbonated drinks (this does not include sparkling water)
– Energy drinks
– Electronic smoking devices and tools (and liquids used in these devices)
– Sweetened drinks

Is there a tourist tax in the UAE?

Yes, tourist tax is levied by restaurants, hotels, hotel apartments and resorts in the UAE. These tourist facilities may charge one or more of these taxes in the UAE:

– 10% on room rate
– 10% as service charge
– 10% as municipality fees
– City tax (which ranges between 6% –10%)
– 6% as tourism fee

Is there a social security regime?

The UAE does not impose social security on foreign workers.

The social security regime in the UAE applies to UAE and GCC national employees only. In most of the Emirates, and for a UAE national employee, social security contributions are calculated at a rate of 17.5% of the employee’s gross remuneration as stated in the employment contract. Out of the 17.5%, 5% is payable by the employee and the remaining 12.5% is payable by the employer (15% in Abu Dhabi, where the overall rate is 20%).

What are the conditions for refund for UAE’s VAT?

For a tourist to claim VAT refund on purchases he made in the UAE, he must fulfill certain conditions:

1. Goods must be purchased from a retailer who is participating in the ‘Tax Refund for Tourists Scheme’

2. Goods are not excluded from the Refund Scheme of the Federal Tax Authority

3. He must have the explicit intention to leave the UAE in 90 days from the date of supply, along with the purchased supplies

4. He must export the purchased goods out of the UAE within three months from the date of supply

5. The process of purchase and export of goods must be carried out according to the requirements and procedures determined by Federal Tax Authority.

Do tourists in the UAE also have to pay VAT?

Tourists will have to pay VAT when making purchases within the UAE, however, they can request refunds on VAT at their departure port when leaving the country. For instance, travelers to Dubai can request VAT refunds when flying out from the Dubai International Airport through self-service kiosks.

However, bear in mind that there are only VAT refunds for tourists in the UAE when they purchase from retailers who are participating in the “Tax Refund for Tourists Scheme”.

Why no income tax in levied in UAE?

This is simply because the government doesn’t need the money. This doesn’t mean there’s no tax at all.

The United Arab Emirates Government does not impose income taxes on companies and individuals living in the country. However, it levies corporate tax on oil companies and foreign banks. Apart from this, UAE derives its income from oil and from tourism, enough to not require an explicit income tax.

What is tax and what is VAT?

Tax is the means by which a government raises revenue to pay for public services, like hospitals, schools, defense etc. It is a compulsory payment of financial charge which is imposed on individual or entity by the governmental organization in order to develop various public expenditure. Non-payment of tax is punishable by the law.

Value Added Tax (VAT) is an indirect tax, which is imposed on most supplies of goods and services that are bought and sold. It is also known as a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.

Should I be charged VAT on a mobile top-up card?

The cost differs depending on whether it is purchased from the telecom provider or a retail store. Read More 

Can a company de-register from VAT without paying existing fines?

You cannot de-register from VAT without paying the fines first.

To solve this, you must submit the missed returns on the Federal Tax Authority portal immediately. Even if they are zero returns, this needs to be done to avoid further charges. I advise paying the existing fines, then completing a reconsideration form asking the FTA to waive the fines imposed.

The form can be found on the FTA website, but the form and all supporting documentation must be submitted in Arabic. To apply for reconsideration and de-registration, the FTA says you must have paid any outstanding tax and penalties first. Read More 

We started new LLC and have not registered for VAT till now?

Question : We started new LLC and have not registered for VAT till now? And the new company will join with our tax group on Q3 2019. Now one of our group company sold materials to new unregistered company for 1,70,000/- AED. I need to know the procedure to make invoice to the new company i.e with or without vat. Also if we raised tax invoice, the new company will eligible for Input tax credit on Q3 as per Articles 56 of UAE Vat Law.

Answer: The Group Company will have to raise Tax invoice on the new unregistered entity. The new unregistered company will be able to claim input tax credit as long as the goods purchased are used for taxable supplies post-registration i.e the goods must be in stock on the date the new entity is registered for VAT. In case of services obtained, they must be related to the taxable supplies being rendered by the new entity.

Can I avoid a Dh 22,000 penalty imposed by the FTA?

If you fail to file the return the FTA does not recognize any payments that you have made. Therefore you get fined not only a later filing fee but also interest on the amount of the tax due, until the point at which you file the return.

The penalty for missing the filing deadline is Dh 1,000 for the first offence and then Dh 2,000 for every subsequent missed deadline.

Read More.

What is the best way to make a VAT payment to the Federal Tax Authority?

Making payment should be the easy part of completing the VAT filing process but many people have experienced issues. Many of the well-known banks still do not recognize the GIBAN, which is the unique IBAN number allocated to every VAT registrant.

Read More.

My landlord has issued a backdated invocie for VAT for 2018, do I have to pay?

Question: My landlord have issued me a back dated invoice for the VAT for rental in 2018. I am obliged to pay, otherwise they will not renew my Tawtheeq for my company. Since the VAT invoice is for 2018 and 2019, I need to know if I am able to claim it for this quarters’ filing.

Answer: Since we do not have the details of the invoices and the current return period, we can only give a general feedback on the query.

In case of input VAT, the input VAT claim can be made for the previous and current return period only. You will not be able to claim for back dated invoices beyond previous return period.

How do I reclaim VAT as a business tourist in the UAE?

A foreign business visitor can claim for input tax based on the below requisites:

-Input tax recovery is not permitted for VAT paid on non-recoverable input tax such as, entertainment services, motor vehicles which are available for personal use, etc.
-The applicant is not eligible to claim VAT incurred in connection with undertaking activities as a tour operator (Non-resident tour operator).
-The foreign business cannot claim a refund if the business makes a taxable supply in UAE. (Other than the treatment of RCM).
-The foreign business is from a country in similar circumstances that provide tax refunds to UAE entities. (The approved countries with reciprocal arrangement with UAE Ministry of Finance (MOF) is mentioned at the end).
-The business should not have a fixed establishment and not carrying any business in UAE and is not a taxable person in the UAE.
-They are carrying on the business and are registered as an establishment with a competent authority in the jurisdiction in which country they are established.

Basic understanding

– Refund request period: 12 Calendar months
– Amount of Refund: The minimum claim should be 2000 AED
– Business visitor: Should be from an approved list of countries with reciprocal arrangements mentioned below.

Procedure to Refund VAT for Business Visitors in UAE

1. Sign Up with FTA portal.
2. Add company details in the registered mail id portal.
3. Submit the refund form.
4. All documents required for refund as discussed above should be sent to The Federal Tax Authority the document should reach within one month from refund request submission.
5. The refund form will be processed within 4 months by the FTA
6. Once the request is approved, the refund is expected to issue within 10 working days.

Read More.

Can my company claim back VAT for the cost of health insurance?

From the inception of VAT in the UAE it was somewhat unclear if employers could reclaim the tax charged on health insurance costs for employee families as well as direct employees. Many believed that if this was a company wide policy and included employee contracts, then they had fully met the requirements under Article 53 of the Executive Regulations. In September, the Federal Tax Authority issued a very helpful guide that clarified the position. This can found on the FTA’s website https://www.tax.gov.ae under the Getting Help Menu.

The VAT law mentions two circumstances where an employer is able to reclaim VAT on employee benefits. The first criteria is where there is a legal obligation to provide such benefits. Interestingly, in Abu Dhabi it is already a legal requirement for employers to provide health insurance benefits to employees and their families, so all input VAT may be recovered. Conversely in Dubai where there is no legal requirement to extend health insurance to an employee’s family, there is no automatic right to recover it.

Click here to know more

Is VAT applicable on the 3-month rent-free period offered by the landlord on a 12-month contract?

Many landlords offer rent-free periods as an inducement for a new tenant to occupy their property. While it is called a “rent free” period, it is effectively a discount, where the price for a 15-month period is discounted to the standard 12-month price.

The law says the value of the supply may be reduced in the case of a discount if two conditions are both met: that the customer has benefited from the reduction in price, and the supplier funded the discount.

We received an email from the FTA Communication with the subject 'Second Reminder to File and Pay your VAT Return'

Question
We received an email from the FTA Communication with the subject ‘Second Reminder to File and Pay your VAT Return’

However, we have filed all our VAT returns on time and all our in negative balance.

What does this email mean? Is this just a periodic automatic reminder from the FTA?

Answer 

This is a routine emailer where FTA is giving reminders so that the returns are submitted on time.

 

 

What is the time of supply in case of post -dated cheques? Will it be the cheque receipt date to cheque realization date ( bank clearance)?

The time of supply would depend on the type of supply. Normally it would be earlier of

  • Supply of goods and service completion
  • Invoice being raised
  • Payment received

In case of continuous invoices or periodic payments, it would be earlier of:

  • Invoice being raised
  • Payment made
  • Payment due date

How advance payment can be treated. Is proforma invoice acceptable? And which date to be considered for tax return?

Primarily VAT is payable on occurrence of any of the following events, whichever is earlier:

  • Goods or service being delivered
  • Invoice being raised
  • Payment being received

Based on the above, VAT is payable on advance being received. Tax Invoice is expected to be raised for VAT compliance, also this would ensure that the customer can take input VAT credit for the VAT paid.

The date of receiving the advance would be the reference date and it needs to be reflected in the corresponding return period. For eg: If the advance is received on 4th April and it is monthly return filing, it needs to be shown in the April return.

We are filing quatertly, for example end of each quater we have sales of USD 5 million, within a week of so we need to pay 5% tax without waiting for customer payment. These days credit terms customers are asking 60 days or more. Here we need to pay AED 917,500. Am I correct or can we wait for customers to make payment then pay tax?

Yes, you are right. The VAT payment has to be made on due date irrespective of the collection from the customers.

Do I need to re-register if my company's name has changed?

What the FTA has advised in this situation is that you file an amendment to your existing registration and update the registration with the new name and trade license.

They also require a letter on company letterhead, signed and stamped, that explains why you have changed your business name. Once approved, they will make an amendment to the VAT registration name to reflect the updated company branding. Read more.

How to record UAE VAT on Services sold to customers in KSA and Bahrain?

The GCC member states of the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait have signed a common VAT agreement. Article 9 of this agreement set out how taxation on sales between these member states should be treated.

It says that if a taxable person in a member state receives taxable goods or services from a resident in another member state, then he shall be deemed to have supplied these goods or services to himself and the supply is taxable in accordance with the Reverse Charge Mechanism (RCM). Read more…

Can suppliers issue invoices without VAT?

Small businesses or start-ups whose taxable turnover is below the mandatory VAT registration threshold of Dh 375,000 do not need to be VAT registered.

A perfectly legal, licensed small business may never need to register, and this is fine. In this case, you would expect to be invoiced without any VAT added or mentioned anywhere on their invoices. It is each business’s responsibility to register for VAT when they are legally required to do so and as a customer, you would not expect to have visibility of total taxable sales. Read more.

I tried to de-register a year ago but now have Dh5,000 in fines.

The rules around de-registration are a little complicated. A person registered under VAT can apply to do this in two circumstances:

First, if you stop making taxable supplies and do not expect to make any over the next 12-month period. Second, if your taxable supplies or taxable expenses incurred over the last 12 consecutive months is less than the voluntary registration threshold of Dh 187,500 and you do not anticipate crossing this threshold in the next 30 days.

However, if you originally voluntarily registered for VAT; you are not allowed to de-register until 12 months have passed. Also, once you have registered, you are obligated to file quarterly VAT returns regardless of your turnover. Read more…

Should I pay tax on the sale of company assets?

Legislation states that VAT is charged on taxable supplies made in the normal course of your business. Some argue that selling fixed assets, such as furniture, is outside the normal course of business and is not vatable.

The purchase of assets used to generate taxable sales are part of most businesses’ normal activities. When you purchase the new office furniture you will be charged VAT on the purchase, which you can recover in full against your output VAT on taxable sales. 

How a company can claim a refund on excess VAT?

When a company files its tax returns, it is required to list the details of sales, purchases output VAT, and input VAT paid over the past three months.

The output VAT is the amount of tax collected on the company’s sales, and the input VAT is the amount paid to the supplier towards purchases and expenses.

If the output VAT is less than the input VAT, the excess balance will be deemed VAT refundable.

How to update VAT registration information that has expired?

VAT has now been in place for almost a year and therefore most registered companies will have renewed their trade license since they first registered for VAT. The FTA requires information uploaded at the time of registration to be updated each year as it expires. This includes the trade license and the passports and Emirates IDs of the company owners.

To start the amendment, click on the link on your FTA dashboard. Once you start an amendment you are prompted to re-enter your Emirates ID and passport even if the documents uploaded at registration are still valid. Then work your way through the amendment pages which follow the format of the initial VAT registration.

While the portal does not force you to update the annual turnover or upload your most recent year-to-date financial statements, several VAT experts suggest doing this as you need to certify on the last page that the information you are submitting is correct. Note the FTA request that the amendment is filed within five working days to avoid difficulties.

Click here to know more

Can I take on new orders without a TRN Number?

Once you have submitted your voluntary tax application on the FTA’s online portal you have to wait until they have reviewed the uploaded information and the registration is accepted before you can submit invoices with VAT included. Until that point, raise invoices that do not mention the words VAT or TAX and do not add VAT to the amount invoiced. Including VAT in the invoice is against the Decree Law and would result in fines and penalties if later identified during an FTA audit.

Between applying for your VAT registration and receiving your TRN, you should not lose customers, you just have to invoice them without VAT. However, as you don’t yet know the date you will received your TRN and the effective date of registration the FTA will give you, I suggest advising customers in advance that your invoice may or may not include VAT. If your customers are VAT registered, they should be indifferent to this as they can reclaim any VAT charged. Non-VAT registered customers will be most affected as they may get an invoice without VAT or pay 5 per cent more if you need to invoice them with the tax applied. What you want to avoid is raising invoices without VAT and the FTA backdating your registration to the start of the month. If that happens, you would have to account for the tax on the revenues already invoiced even though you have not charged it to your customers.

Click here to read more

A supplier failed to charge VAT in his invoice is there any penalty to the recipient/supplier?

Question

A supplier failed to charge Vat in his invoice. However, in the next month billing cycle he charged Vat for that month as well as VAT of earlier month (which was not charged). Payments are progressive based on certified value. Is there any penalty to the recipient/supplier?

Answer 

In case VAT is not charged and the returns are not filed, it can be adjusted in the next invoicing cycle within the same tax period.

Where the VAT is not charged and returns are filed:

  • If the value of VAT is less than AED 10k, it can be adjusted in the next invoicing cycle.
  • If the VAT value is greater than AED 10K, then there is the option of voluntary disclosure, which would have its own cost.

 

I am providing consultancy services to a company in Kuwait, which has no branches in UAE. Could you kindly clarify if the services are zero-rated?

Question –
I am providing consultancy services to a company in Kuwait, which has no branches in UAE. The services are provided by way of emails only. Could you kindly clarify the following:
1. Are the services zero-rated?
2. Is the place of supply Kuwait?

Answer –
As per Article 31(1)(a) of the VAT Executive Regulations, where the Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed, the services can be zero rated.

In the absence of agreement at the GCC level, the Implementing State condition is diluted to outside State (UAE).

The services described falls in the above criteria, hence it will be zero rated.

If Company A in UAE provides accounting services to Company B of USA. Is it taxable? Is it charged at standard rate of 5% or 0%?

In case of services given to customers outside UAE, it is a zero-rated VAT service. Tax invoice should be raised and reported in the VAT return.

What is GIBAN shown on my FTA tax page?

The GIBAN is a special bank account number created for every taxpayer by FTA to facilitate the payment of VAT via any UAE bank. You can add FTA as a beneficiary and use the GIBAN assigned to you as their IBAN (Account number). Now when you make a payment using this GIBAN to FTA, it will be credited to your account.

It is advisable that you check on the FTA site after 24 hours to ensure that the payment is reflected against your account. This can be viewed under Transaction History tab.

Do we declare drop shipment transactions in VAT Returns?

Question

I have a company in RAK Free Zone.
Some of my business includes drop shipping ie I order from my suppliers in China and then deliver directly to customers outside of the GCC.
In this case, how do I declare this income in my VAT return?

Answer
Drop shipment transactions would be out of scope and need not be reported in the returns. However the details of transactions should be maintained for audit trail and future reference.

VAT Return filing date

Question
I got a message from FTA – Please note that your VAT Returns are not due to be submitted this tax period. Please refer to your dashboard for information about your filing period. I send email to them but now more than one week I did not receive the message, please guide me what to do in this situation.

Answer
The message is coming as your return is not due.

VAT Liability in case of import/export of goods

Question

We are the free zone company and we are doing export to Saudi Arabia many time ( but when the material out from our works its show in import in the auto-populated column of the vat return ) please advise how I can reverse from the same. and also advise if we are exporting through consoled shipment then how we can prove that is the export outside the country because we didn’t have the border exit document with our name.

Answer

Our understanding is that you are getting the material into mainland using your import code. Hence the value gets auto-populated in box 6 of the FTA returns portal. We need to understand the modality of your business and then we can advise the solution.

Also regarding the export proof, there is the requirement to get the official evidence of export in order to treat the transaction as zero-rated. This might involve custom formality to seek separate inspection and documentation for proof of export.

What currency rate is to be used for conversion to AED?

In order to convert foreign currency to AED values for reporting purpose, it is required to use the currency rate on the date of supply.

The currency rates are published each week by the Central Bank of UAE specially for VAT purposes and may be accessed here

Disclaimer:
The listed foreign currency rates against AED (Arab Emirates Dirham) are published by the Central Bank of UAE only for the calculation of the VAT obligation of UAE business entities to the UAE Federal Tax Authority as per the requirement of Union Law No. 8 on Value Added Tax.

How to file VAT returns in UAE?

MCA has shared a very comprehensive guide on  How to File VAT Returns. Refer to this Returns Filing page on our website for more details

Is 2017 subjected to VAT when a contract is signed for a period of 2017-2018?

Question Asked By: Tina

I am invoicing a IT-support contract that covers support during 6 months in 2017, and 6 months in 2018. Is the period in 2017 subject to VAT. I have heard that services rendered in 2017 are not subject to VAT; but I cant find the relevant source.

Reply by Girish Chand, Director, MCA

Reference to your query, services rendered in 2017 is not subject to VAT in 2018 despite the invoicing being raised in 2018. This is covered in the transitional clauses in the VAT law.

Should we file the VAT returns after we receive the payments from our clients?

Question Asked By: Ahmed

We have received a PO for the supply of equipment in the UAE market. We imported some items from the US. We have to pay VAT along with customs.

We charged our client for 5% VAT on our invoice. Our invoice is 30 days credit terms. Our customer normally delays the payment for 60 days or even longer.

Should we file the VAT returns or this can be delayed till we receive the pending payments?

Reply by Girish Chand, Director, MCA

VAT payment to the authorities is triggered based on time of supply as per VAT laws. All VAT liabilities during the determined VAT filing period need to be settled on or before the VAT return filing date. It has no relevance and cannot be linked to customer settling the invoice.

Who are the registered tax agents for UAE?

As of March 18, 2018, the FTA website lists the following tax agents.  This list is subject to revision hence please visit the link below to view the updated list: https://www.tax.gov.ae/registered-tax-agents.aspx

Registered Tax Agents

Tax Agent NameRegistered DateTax AgencyTAANTAN
Asad Zuhair Sado Abbas13-02-2018Asad Abbas & Co. (Chartered Accountants)2002969030003776
Yaser Yasin Darwish15-02-2018Da Gate Hub Management Consultancies2001089830002554
Younis Ali Almulla15-02-2018Almulla For Accounting & Tax Services2001912130001572
Jadd Shalak15-02-2018Averyx Management Consultancies2003851930004899
Majid Abdulrahman Alshaikh15-02-2018Majid Alshaikh Consultancy2004093730000970
Hamdan Zakaria Awda20/02/2018Hamdan Awda Chartered Accountants2002460030001481
Yasser Atiyyeh22/02/2018XB4 Solutions(Dubai Branch)2001375130000657
Hamad Abdulla Alshamsi22/02/2018Prestige Auditing L.L.C2001324930003271
Mohamed Mostafa Kamel Yousef El Agha26/02/2018Osol Al Khebra Accounting & Bookkeeping LLC2004476430001200
Anssar Mohammed Ahmed Siddiq26/02/2018Verify Accounting & Consulting2003102730003537
Muhanned Anbari27/02/2018Becker for Financial Solutions LLC2003864230004279
Fuad Ibrahim Muflih Alomari27/02/2018Al Khaleej Tax Consultancy L.L.C2000922130004766
Ahmed Maher Mohamed Hassanien28/02/2018Ahmed Hassanien and Co Auditing of Accounts2001309030003727
Ratheesh Mekkat28/02/2018Al Mithaq Tax Consultancy2000809030001259
Abdel Hameed Zaitoun8/3/2018Genome Consulting2003252030000640
Ahmad Wafi Kanafani8/3/2018Kanafani Tax Services2000174930000863
Ghassan S. M. Jamoos11/3/2018Al Zarooni Tureva Auditing2003659630000343

What is the VAT on discounts and reductions?

The Federal Tax Authority (FTA) has said that the final reduced prices for goods on promotional offers must include the 5 percent Value Added Tax (VAT), which is to be calculated as included in the new price after reductions by the sales outlets or service providers themselves.

In a new awareness message issued today targeting consumers and service recipients in the UAE, the FTA said that in cases of discounts on regular sale prices, or during seasonal discounts and “buy one get one free” promotions, VAT must be included in the final amount to be paid after deduction includes VAT as per the reduced amount.

What is to be included in a Tax Return?

Tax Returns must include:

  • the value of standard-rated supplies made in the tax period and the output tax charged
  • the value of zero-rated supplies made in the tax period
  • the value of exempt supplies made in the tax period
  • the value of any reverse-charged supplies received in the tax period
  • the value of expenses incurred in the tax period (if the business in question is looking to recover input tax and the amount of recoverable tax)
  • the total amount of tax due and recoverable input tax for the tax period
    the payable tax (or repayable) for the tax period.

How long should we keep accounting records?

Accounting records are to be kept in a format that enables the Authority to verify that person’s tax obligations, for a period of five years after the end of the tax period.

The Taxable Person shall keep the following records: Records of all supplies and imports of goods and services; all Tax Invoices and Tax Credit Notes, or alternative documents related to receiving goods or services; all Tax Invoices and Tax Credit Notes, or alternative documents issued; records of goods and services that have been disposed of or used for matters not related to business, showing taxes paid for these goods and services.

All businesses must retain accounting and business records, the FTA noted, which include the balance sheet, profit and loss account, payroll accounts, fixed assets records and.

How to verify supplier TRN?

To verify the TRN number provided by your supplier is authentic you can check it on the Federal Tax Agency portal at the following URL:

https://eservices.tax.gov.ae/en-us/trn-verify

Enter the TRN number provided to you, and then enter the security code. You will get the result as the Company name in English and Arabic.

What are the penalties for tax violations?

The Cabinet Resolution No. (40) Of 2017 on ‘Administrative Penalties for Violations of Tax Law in the UAE’ has been issued. The document outlines the penalties to be imposed on violations of the UAE VAT Law including registration, timeliness of filing returns and accuracy of computing tax payable. To view details, visit: http://goo.gl/gjsLaS

Will tourists also pay VAT?

Yes, tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale for items that are consumed while in the country. However, duty free items at airport have been exempted, and tourist will have the facility for a tax refund if they self-carry the items with them while leaving the country. The exact process for tax refund is yet to be announced.

What is a Tax Invoice?

The Ministry of Finance in the Executive Regulation for the Federal Decree Law No. 8 of 2017 Value Added Tax has laid down the guidelines for the preparation of a TAX INVOICE and a SIMPLIFIED TAX INVOICE.

As per the law the definition of a Tax invoice is: A written or electronic document in which the occurrence of a Taxable Supply is recorded with details pertaining to it.

TAX INVOICE

  • A Tax Invoice shall contain all of the following particulars:
    1. The words “Tax Invoice” clearly displayed on the invoice.
    2. The name, address, and Tax Registration Number of the Registrant making the supply.
    3. The name, address, and Tax Registration Number of the Recipient where he is a Registrant
    4. A sequential Tax Invoice number or a unique number which enables identification of the Tax and the order of the Tax Invoice in any sequence of invoices.
    5. The date of issuing the Tax Invoice.
    6. The date of supply if different from the date the Tax Invoice was issued.
    7. A description of the Goods or Services supplied.
      1. For each Good or Service, the unit price, the quantity or volume supplied, the rate of Tax and the amount payable expressed in AED.
      2. The amount of any discount offered.
      3. The gross amount payable expressed in AED.
      4. The Tax amount payable expressed in AED together with the rate of exchange applied where currency is converted from a currency other than the UAE dirham.
    8. Where the invoice relates to a supply under which the Recipient of Goods or Recipient of Service required to account for Tax, a statement that the Recipient is required to account for Tax, and ato the relevant provision of the Decree-Law.
  • Simplified Tax Invoice

    A simplified Tax Invoice shall contain all of the following particulars:

    1. The words “Tax Invoice” clearly displayed on the invoice.
    2.  The name, address, and Tax Registration Number of the Registrant making the supply.
    3. The date of issuing the Tax Invoice.
    4. A description of the Goods or Services supplied.
    5. The total Consideration and the Tax amount charged.

    What is VAT all about?

    Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
    VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods, and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore, and Malaysia.
    VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
    A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on the tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
    We can draw link to our animated explanation of VAT here

    Do business selling across the GCC register in each country?

    A business selling across the GCC will only be required/entitled to register for VAT in another member state if the nature of its supplies of goods and services requires it to be (e.g. the place of supply is in another GCC member state and the reverse charge mechanism cannot be used).

    Source: Deloitte

    Will there be a common system of VAT registration so you can check whether you are dealing with a taxable person?

    The GCC Agreement envisages an electronic matching system for intra-GCC systems. In practice, we do not think this system will be available for a while and so it is likely a VAT number checking system will be made available country by country.

    Source: Deloitte

    Will there be group registration for companies in the GCC?

    Based on the GCC Agreement, member states do have the discretion to implement VAT groups. The UAE and KSA laws indicate that grouping will be available for groups of legal persons established in these respective countries, depending on control requirements being met.

    Source: Deloitte

    Will associations of persons (e.g. open consortium) be considered as a taxable person?

    Whilst the GCC Agreement does make reference to companies being able to form VAT groups, it does not specifically confirm the legal form required to be VAT registered.

    Source: Deloitte

    If only residents can be VAT registered, does this mean that offshore companies cannot be VAT registered?

    There is a requirement for non-residents to register for VAT in the GCC, in the event that they need to pay VAT on supplies made by them in a GCC member state (e.g. the place of supply is in the GCC and the customer is not able to self-account for the VAT due under the reverse charge mechanism).

    Source: Deloitte

    Will zero-rated supplies count for the registration threshold?

    Yes, the taxable supplies including zero-rated supplies count for the registration threshold. However, note that it might be possible that some GCC member states will allow, under certain conditions, a company which only makes zero-rated supplies to be excluded from the mandatory registration on request. The UAE and KSA have indicated that they may allow such exclusions in certain cases.

    Source: Deloitte

    What do we know about the establishment VAT registration requirement?

    If an entity has a Permanent Establishment (PE) for corporate tax purposes in a member state, then it is very likely to also have an establishment for VAT purposes in that country. The bar for a PE is arguably higher than that for having an establishment for VAT purposes. Where it is unclear which establishment of a legal entity (i.e. the head office or the PE) has made the supply then an analysis would be required as to the establishment most closely connected with the supply. Where such a PE is considered to be making taxable supplies, a VAT registration would be required.

    Source: Deloitte

    What will be the language used for registration?

    The expectation is that the registration platform will be available in English. This is confirmed to be the case for KSA and the UAE.

    Source: Deloitte

    What is the method of registration for VAT?

    VAT registration is expected to be largely online. Additional documentation may be requested offline (likely to vary by GCC member state).

    Source: Deloitte

    When to use your VAT number?

    A customer VAT number will be needed to enable a supplier of goods and services to a recipient in another GCC country to invoice without VAT. In the long run, a portal to enable the checking of VAT numbers is expected to be made available.

    Source: Deloitte

    Which countries will implement VAT on 1 January ?

    The issue of local laws in the KSA and United Arab Emirates (UAE) confirms earlier announcements by these countries that VAT will be introduced domestically in January 2018. It is unclear when the rest of the countries will implement currently but this is expected to progressively happen through 2018.

    Source: Deloitte

    Do you think that there will be much variance in application of the rules between member states?

    There will be a level of variance in application of the rules across the GCC member states. Similar to the EU, there are some provisions which are compulsory, and others which are optional, and others where there is a choice to be made on treatment at a local level. How each member state approaches the implementation of these provisions is likely to depend on their individual policy settings, economy, etc.

    Source: Deloitte

    Will businesses established in one GCC member state and providing services to individuals (i.e. nontaxable persons) in another member state be required to register for VAT in that second member state?

    It is unlikely that a second registration would be required. The place of supply for services supplied to individuals is normally the country of the supplier, which would require the supplier to charge VAT from the country in which the supply is made.

    Source: Deloitte

    Can we ‘VAT group’ establishments in different GCC states?

    We do not expect that it will be possible to ‘VAT group’ entities across GCC member states (e.g. grouping a KSA and a UAE entity), however, we do expect the majority of member states to adopt local VAT grouping provisions as best practice.

    Source: Deloitte

    Which supplies will be subject to standard rate?

    The standard rate of 5% VAT will be applied across the GCC countries. This is expected to apply to substantially all of the domestic supplies made in the normal course of business.

    Source: Deloitte

    Also determine whether the supplies are under zero-rated or exempt supplies list.

    View More

    Where can I view more information about VAT registration?

    You may view the VAT Registration presentation released by the MOF to provide information about the implementation of VAT in consumer business by clicking here.

    How do I access general information about VAT?

    Kindly visit the site providing information about VAT and how it is implemented in the UAE.

    You can view details by clicking here.

    View more details here on mof.gov.ae

    What is the difference between VAT and Sales Tax?

    A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.
    Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.

    How will the government collect VAT?

    Businesses will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

    Will VAT cover all products and services?

    VAT, as a general consumption tax, will apply to the majority of transactions of goods and services unless specifically exempted or excepted by law.

    Will the cost of living increase?

    The cost of living is likely to increase slightly, but this will vary depending on the individual’s lifestyle and spending behaviour. If your spending is mainly on those things which are relieved from VAT, you are unlikely to see any significant increase.

    What sectors will be zero rated?

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

    • Exports of goods and services to outside the GCC;
    • International transportation, and related supplies;
    • Supplies of certain sea, air and land means of transportation (such as aircraft’s 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.

    What sectors will be exempt?

    The following categories of supplies will be exempt from VAT:

    • The supply of some financial services (clarified in VAT legislation);
    • Residential properties;
    • Bare land; and
    • Local passenger transport

    How will insurance be treated?

    Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.

    How will financial services be treated?

    It is expected that fee-based financial services will be taxed but margin based products are likely to be exempt.

    How will Islamic finance be treated?

    Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

    To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products will be aligned with the treatment of similar standard financial services.

    How will Government Entities be treated for VAT purposes?

    Supplies made by government entities will typically be subject to VAT. This will ensure that government entities are not unfairly advantaged as compared to private businesses.

    Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely certain government entities will be entitled to VAT refunds – this is designed to avoid budgeting issues and provide a level playing field between outsourced and insourced activities.

    For the supplies provided for government entities, the treatment of such supplies shall depend on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment would remain the same even if it is provided to a government entity.

    Why is VAT in UAE being implemented?

    The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide the country with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

    Why does the VAT in UAE need to coordinate with other GCC countries like KSA?

    The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as we recognize that such a collaborative approach is best for the region.

    When was UAE VAT into effect and at what rate?

    VAT was introduced across the UAE on January 1, 2018 at the rate of 5%.

    How can someone access UAE Tax Law?

    Tax Laws and the related Executive Regulations can be viewed by clicking here.

    What other taxes is the UAE considering?

    As per global best practice, the UAE is exploring other tax options as well. However, these are still being analyzed and it is unlikely that they will be introduced in the near future. However, the UAE is not currently considering personal income taxes.

    Will this impact economic growth of the UAE?

    Our analysis suggests that it will help the country strengthen its economy by diversifying revenues away from oil and will allow us to fund many public services. This is a sign of a maturing economy.

    What measures will the government take to ensure that businesses don’t use the VAT implementation as an excuse to increase prices?

    VAT is intended to help improve the economic base of the country. Therefore, we will include rules that require businesses to be clear about how much VAT you are paying for each transaction. You will have the required information to decide whether to buy something or not.

    How can one object to the decisions of the Authority?

    Any person will be able to object a decision of the Federal Tax Authority.

    As a first step, the person shall request the FTA to reconsider its decision. Such request for reconsideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.

    If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.

    As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision

    What kind of records are businesses required to maintain, and for how long?

    Businesses will be required to keep records which will enable the authorities to identify the details of the business activities and review transactions. The specifics regarding the documents which will be required and the time period for keeping them will be communicated in due course.

    How long must a taxable person retain VAT invoices for?

    Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

    Will there be bad debt relief?

    VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business. The legislation will include the conditions and limitations concerning the use of this relief.

    Will there be a margin scheme?

    To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. The legislation will include the details of the conditions to be met in order to apply this mechanism.

    How will partial exemption work?

    Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.

    In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.

    Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.

    What are the cases that would lead to the imposition of penalties?

    Penalties will be imposed for non-compliance.

    Examples of actions and omissions that may give raise to penalties include:

    • A person failing to register when required to do so;
    • A person failing to submit a tax return or make a payment within the required period;
    • A person failing to keep the records required under the issued tax legislation;
    • Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

    Will there be any special schemes for SMEs?

    No special rules are planned for small or medium sized enterprises. However, the FTA will provide materials and resources available for these entities to assist them in their enquiries.

    Will there be transitional rules?

    Special rules will be provided to deal with various situations that may arise in respect of supplies that span the introduction of VAT. For example:

    • Where a payment is received in respect of a supply of goods before the introduction of VAT but the goods are actually delivered after the introduction of VAT, this means that VAT will have to be charged on such supplies. Likewise, special rules will apply with regards to supplies of services spanning the introduction of VAT.
    • Where a contract is concluded prior to the introduction of VAT in respect of a supply which is wholly or partly made after the introduction of VAT, and the contract does not contain clauses relating to the VAT treatment of the supply, then consideration for the supply will be treated as inclusive of VAT. There will, however, be special provisions to allow suppliers to charge VAT in situations where their recipient is able to recover their VAT but where there is no VAT clause.

    Can UAE nationals claim VAT?

    VAT Refund for UAE National is a special refund scheme available in the UAE VAT law for supporting the UAE Nationals. There are various VAT Refund Schemes available under the UAE Vat Law wherein even unregistered persons can also get benefit out of it. Vat Refund Scheme for UAE Nationals are available to those who are building new residences in the UAE.
    United Arab Emirates (UAE) nationals are entitled to a refund of Value Added Tax (VAT) incurred on the construction of a new residence for own use. To claim this refund, applicants are required to submit a refund form to the Federal Tax Authority (FTA) via email along with supporting documentation.

    Eligibility Criteria for VAT Refund for UAE Nationals on New Residences In order to claim a refund of the VAT incurred on the construction of a residence, the following conditions must be satisfied:

    • The applicant should be a natural person who is a UAE national;
    • Only for a newly constructed building;
    • The building should be solely used as the residence of the person or the person’s family; and
    • The claim cannot be made if the building to be used as a hotel, guest house, hospital or for any other purpose not consistent with it being used as a residence by him or his family.

    How quickly will refunds be released?

    Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

    Will FTA issue rulings or provide tax advice?

    In the course of its interaction with taxpayers, the FTA may provide its views on various matters in the law. Taxpayers may choose to challenge these views. It should be noted that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.

    Will it be possible to issue cash receipts instead of VAT invoices?

    A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.

    Will VAT be paid on imports?

    VAT is due on the goods and services purchased from abroad.

    In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

    In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.

    Will Businesses have to report on their business in each of the Emirates?

    It is expected that businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate. Guidance will be provided to businesses with regards to this.

    It is expected that the rules will be relatively straightforward for most businesses and will be based, for example, for B2C transactions, on the location of the transaction (e.g. in a retail environment, the location of the shop).

    Where can I learn more about the UAE’s plan to implement VAT?

    The government has launched an awareness and education campaigns to educate UAE residents, businesses, and other impacted groups. The aim is to help everyone understand what VAT is, how it works, and what businesses will need to do to comply with the law.
    Kindly visit the FAQ section on tax.gov.ae
    Additionally, a telephone hotline has been set up so that you can call and get answers to your questions directly on 600599994.

    Who can or will be able to register for VAT?

    A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

    Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.

    Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.

    Will all businesses need to register with the government for VAT?

    No, not all businesses will need to register for VAT. In simple terms, only businesses that meet a certain minimum annual turnover requirement will have to register for VAT. That is, many small businesses will not need to register for VAT. We have made this decision to safeguard small businesses from the extensive documentation and reporting that a system like VAT requires. Also, businesses may not need to register with the government if they only provide goods and services which are not subject to VAT.

    How often are registered businesses required to file VAT returns?

    Registered businesses will be expected to submit VAT returns on a regular basis. It is expected that the default period for filing VAT returns will be three months for the majority of businesses.
    Registered businesses will be able to file their returns online using eServices.

    Can businesses offset customs duty against VAT payments?

    VAT shall be payable in addition to the customs duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.

    How will real estate be treated?

    The VAT treatment of real estate will depend on whether it is a commercial or residential property.

    Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).

    On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on the construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.

    Will there be any VAT that businesses are not allowed to claim?

    VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.

    Do we need a VAT expert or advisory company to prepare for VAT in UAE?

    Concerned businesses will have time to prepare before VAT will come into effect. During that time, businesses will need to meet requirements to fulfil their tax obligations. Businesses could start now so that they will be ready later. To fully comply with VAT, We believe that businesses may need to make some changes to their core operations, their financial management and book-keeping, their technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT now and once the legislation is issued make every effort to align their business model to government reporting and compliance requirements. We will provide businesses with guidance on how to fully comply with VAT once the legislation is issued. The final responsibility and accountability to comply with law is on the business.​​

    What are the VAT-related responsibilities of businesses?

    All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.

    VAT-registered businesses generally:

    • must charge VAT on taxable goods or services they supply;
    • may reclaim any VAT they’ve paid on business-related goods or services;
    • keep a range of business records which will allow the government to check that they have got things right

    If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.

    If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.

    How should a business determine the place of supply?

    The place of supply will determine whether a supply is made in the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.

    For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross-border supplies).

    For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross-border supplies between businesses).

    Will there be VAT grouping?

    Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. For some businesses, VAT grouping will be a useful tool that would simplify accounting for VAT.

    Under which conditions will businesses be allowed to claim VAT incurred on expenses?

    VAT on expenses that were incurred by a business can be deducted in the following circumstances:

    • The business must be a taxable person (the end consumer cannot claim any input tax refund).
    • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
    • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
    • The goods or services acquired are used or intended to be used for making taxable supplies.
    • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

    Will non-residents be required to register for VAT?

    Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.

    Will the goods exempt from customs duties also be exempt from VAT?

    Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.

    Will visiting businesses be able to reclaim VAT?

    It is intended that we will allow foreign businesses to recover the VAT they incur when visiting the UAE. This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries (where the rates are a lot higher).

    What are the penalties for not complying with a business’s VAT responsibilities?

    There are various types of non-compliance which will attract penalties.

    Entities which are within the VAT threshold will face a steep penalty of Dh20,000 if they fail to register within the specified time.

    For more information on penalties click here.

    What is the criteria for registering for VAT?

    A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum. It is optional for businesses whose supplies and imports exceed AED 187,500 per annum. A business house pays the government, the tax that it collects from its customers. Businesses can register online using eServices.

    Click here to read the guide on getting started with VAT.