VAT after UAE company formation plays a key role in how a new business operates in the country. VAT is applied to the final consumer as a consumption tax and is charged at every step in the supply chain, with businesses serving as intermediaries collecting VAT on behalf of the government. Understanding VAT regulations for operating in the UAE is critical to ensure owners of the new company properly plan for the company’s financial responsibilities and remain in compliance with laws governing VAT.
Businesses that generate over AED 375,000 must register with the Federal Tax Authority (FTA) according to the VAT laws of the UAE. There are numerous benefits to being listed as registered with the Federal Tax Authority including being able to reclaim your business expenses. However, many new business owners find registration to be highly complicated due to the large amount of documentation that needs to be completed. Therefore, having an understanding of VAT is a key component of guiding a new company through the process of its formation.
General Information about VAT on Starting a Business in the UAE
All businesses operating in the UAE will be subject to the current standard rate of 5% VAT for all business transactions. However, certain types of businesses may qualify for either a zero rating or an exemption on VAT. Therefore, business owners must educate themselves as to the proper classification of the different VAT types that apply to their business operations before beginning to conduct business in order to avoid penalties.
Circumstances that may Trigger Early VAT Registration in the UAE
Businesses that are below the VAT registration threshold may be required to register for VAT. The following cases often lead to early VAT registration:
Voluntary Registration
A business can opt for Voluntary Registration (VAT) to recover input tax on purchases and to enhance its financial position even though its annual turnover remains below the registration threshold.
Importation of Goods
When a business brings goods into the UAE, it must register for VAT because the tax treatment takes effect when the goods are imported, irrespective of the level of turnover.
Supply to VAT-Registered Persons
A business that provides goods/services to another business registered under VAT may also wish to register early to comply with the whole system, which will require proper compliance throughout the supply chain.
Government Contracting
Businesses providing goods/services under government contracts may need to register for VAT earlier, even if their income is below the standard VAT limit.
Guide to Register for VAT in the UAE for New Company
A new company in the UAE can complete the application process for VAT registration with a straightforward sequential process, which helps the company operate in compliance with the Federal Tax Authority’s rules.
Verify your Eligibility
You must determine whether your company meets all requirements for VAT registration. You should assess your taxable turnover and confirm that your turnover meets the minimum standard as established by the UAE VAT rules.
Gather required Documentation
In addition to the taxable turnover, you will need to have other Documentation, such as:
- A copy of your trade license.
- A Memorandum of Association.
- Emirates ID or the passports of any individuals with the authority to sign your company’s application.
- Banking information, including an active bank account number and proof of your business address and contact information.
Create an FTA E-Services Account
Go to the Federal Tax Authority (FTA) section of the FTA website and choose the registration option. You will then enter your email address, choose a secure password and confirm your email address. You will then be able to log into your new account for the first time once you have confirmed your email account.
Complete the VAT Application
Using the VAT section of the E-services account you just created, fill out the VAT registration form by carefully providing complete and accurate details of your business, including:
- Your business name.
- Your business contact information.
- Your business bank account information.
- Your estimated gross taxable sales for the next twelve months.
- Then, upload all additional documents that you collected.
Deliver your Application
Prior to the submission of the application, confirm that all the information is finished and correct; submit the finished application through the website before you hit submit.
Make Payment for the Registration Fee
The registration fee is calculated by the FTA and is based on the estimated amount of taxable sales and imports. To pay your fee, you must pay using one of the approved online payment methods.
Get the VAT Certificate
The FTA will review your supporting documentation as well as your VAT application, and once approved, your VAT Certificate and Tax Registration Number (TRN) will be sent to you.
Pay VAT and File your VAT Returns
You will begin to charge VAT on your taxable sales as they occur by providing your customers with a VAT-compliant invoice. You will be able to file your VAT return on your FTA online account, and you must file your VAT return on time.
Claim Input Tax Credit
The input tax credit for VAT paid on your business expenses is claimed on your VAT return through the input tax credit information section of the FTA online portal.
Keep Accurate Records
Maintain comprehensive records for each invoice and receipt (in respect of VAT) incurred. It will enable you to prepare accurate returns and be ready for a potential audit of your business by having adequate and accurate Documentation available.
VAT Registration Fee in the UAE
VAT registration costs vary depending on the size of a business. For small businesses with annual sales of less than AED 100,000, the standard fee is AED 1500. The fees for larger companies vary according to their respective sales level and can go as high as AED10,000. VAT registration fee rates will be increasing and will also be dependent upon the changes in the regulatory environment for each year. Continuing to monitor for any amendments to or adjustments to the VAT registration fee is essential. A tax professional can assist you with making sure that your company is compliant with the Federal Tax Authority by paying the correct VAT registration fee, thereby ensuring compliance with all of the Federal Tax Authority’s regulations related to VAT.
How to Pay VAT in the UAE?
The VAT payment system in the UAE is entirely electronic. So the payment process will be fast and safe, and will show a clear audit trail.
Estimate Your VAT Liability
To estimate your VAT liability, you will need to determine how much VAT you owe on your sales and then subtract any VAT that you paid on your purchases and any VAT that you paid as an expense.
Complete Your VAT Return
To submit your VAT return online, you will need to access the eServices portal at the Federal Tax Authority. Be sure that you have your business’s VAT Registration Number, the total amount of Taxable Supplies made by your business, the total amount of Input VAT, and the total amount of Output VAT.
Review Your Return to Determine Your Tax Liability
When you complete your return, you will get a summary of your VAT liability and how much tax is due. If there is a tax refund owed to you, the FTA will process your refund.
Make the Payment
If you owe VAT, you must pay for it online through the FTA portal. You can choose from available methods of payment, including credit card, electronic funds transfer (EFT), or direct debit.
Obtain a Receipt of Payment
After you pay your VAT, obtain confirmation from the FTA of your payment. It will serve as your proof of payment.
Retain all Records of Payment
Retain all records of payment, including all payment confirmations, invoices, and bank statements. Keeping complete records is essential in the event of an audit or for future reference.
Which Goods and Services do not have VAT in the UAE?
Goods and services in the UAE that have zero VAT or a VAT exemption are advantageous to both businesses and consumers, as they minimize the degree of taxation on a business.
Zero-Rated Supplies
A number of supplies and services will be assigned a VAT rate of zero percent, which includes:
- Supplies that are exported to jurisdictions outside of the GCC.
- With respect to transportation in the global transportation markets.
- Transfer of crude oil and natural gas.
- Initial supply of home property.
- Health and educational services.
Exempt Supplies
Some goods and services, for example, specific financial services, as well as the supply of residential property, vacant land, and transportation to passengers travelling in the UAE.
UAE VAT Tax Group Registration
Tax group registration treats multiple entities as a single legal entity for VAT purposes, which makes VAT compliance easier and less burdensome for all entities within the tax group from an administrative perspective.
Related Companies
All companies in the tax group must be related through a common controlling shareholder or shareholders.
No Third-Party Interference
All management and control of the tax group must be performed exclusively by the members of the tax group. Members of the tax group must not have any involvement from third parties in the management or control of the tax group.
Same Financial Year
All entities in the tax group must have the same financial year and the same financial year-end date.
Same Accounting System
All members of the tax group must have and utilise the same accounting system for reporting purposes. Therefore, members must have uniform accounting procedures and utilize identical accounting tools.
How Al Riyady Can Help New Companies with VAT in the UAE
Al Riyady helps new companies in the UAE to understand and follow the process for VAT registration and compliance. Al Riyady also assists new companies in navigating their company’s structure to be eligible for VAT. By providing support in preparing required Documentation as well as submitting applications to the appropriate Federal Tax Authority (FTA) and ensuring such applications are submitted correctly for Federal Tax Authority approval.
Conclusion
VAT after UAE company formation is essential for new businesses to stay compliant with FTA rules. Businesses need to be aware of the various VAT rates, exemptions from them, and how to claim an input tax credit as a way of effectively managing their finances. Businesses are encouraged to maintain accurate records and create a proper registration for all VAT filing to ensure operational efficiency. It is also advisable that businesses establish a relationship with a VAT expert to assist them through the VAT process.
