Other languages
The list of "Other" languages” listed above use Google Translate to create an automated translation of content for the purpose of display. Accuracy of automated content translation is not guaranteed.
—
Value Added Tax (VAT) was introduced across the UAE on 1st January 2018 at a standard rate of 5%. Since its introduction, VAT strengthened the federal budget and enhanced fiscal resources at the national level. Its impact has been reflected across individuals and businesses throughout the UAE. VAT serves as a new source of government revenue that supports the federal budget, helps maintain the delivery of high-quality public services, and enables the government to advance its strategic vision of economic diversification and reducing dependence on income derived from oil as the primary source of national income.
A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. They may also opt for voluntary registration if their taxable supplies and imports are below the mandatory 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.
All businesses in the UAE 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) are required to register for VAT. Businesses that are not required to register for VAT must maintain their financial records in an orderly manner that allows for future reference to determine whether registration becomes necessary for tax purposes. VAT-registered businesses must report the amount of VAT they are charged and the amount of VAT 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 a business collects more VAT from customers than it pays to its suppliers, it must remit the difference to the government. Conversely, if it pays more VAT than it collects, it is entitled to reclaim the excess amount.
The VAT treatment of real estate depends on whether it is a commercial or residential property. Supplies (including sales or leases) of commercial properties are taxable at the standard VAT rate (i.e. 5%).
On the other hand, supplies of residential properties are generally exempt from VAT. This ensures that VAT does not constitute an irrecoverable cost to those who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within three years of completion at the time of VAT introduction is zero-rated.
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 are 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.
Supplies made by government entities are typically subject to VAT. This ensures 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. Certain government entities are 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 depends 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 will remain the same even if it is provided to a government entity.
For any further information or enquiries, send us an email on taxenquiries@mof.gov.ae.
Value Added Tax (or VAT) is an indirect tax. Occasionally, it might be 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, as well as 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 tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the “value add” throughout the supply chain.
A simple illustrative example explaining how VAT works (based on a VAT rate of 5%):
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 VAT over sales taxes for a range of reasons. Importantly, VAT is considered to be 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.
You can help us improve by providing your feedback about your experience.
Have you recently used our services online or at our service centre?
We use cookies to improve your experience on our site. By using our website, you’re agreeing to the collection of data as described in our Privacy Policy.
