The UAE has a number of incredible benefits for the business owner. It’s why so many people choose to set up their company here.
With this in mind, it’s important to understand business law, particularly given the fairly recent changes around Value Added Tax (VAT). It’s a very common tax, found in most countries across the world. But how does it affect UAE business owners?
In this article, we will look at the new VAT rules that came in back in 2018 and what they mean for you in 2021. We will cover:
- VAT-related responsibilities of businesses
- What is the VAT rate in the UAE?
- VAT vs sales tax: What’s the difference?
- How is VAT calculated in the UAE?
- VAT exempted sectors in the UAE
- VAT refunds
- VAT refunds for tourists
- VAT in real estate
- Working with Creative Zone
VAT-related responsibilities of businesses
UAE businesses must, first and foremost, ensure they have up-to-date financial records. Examining those records, if your company exceeds the minimum annual turnover, then you must register for VAT. Your business must register for VAT if your taxable supplies/imports exceed the threshold of AED 375,000. There is a voluntary registration threshold of AED 187,500.
Generally speaking, VAT-registered businesses must:
- Charge VAT on taxable goods/services they supply
- Reclaim VAT they paid on business-related goods/services
- Regularly report the VAT they have charged versus the amount of VAT paid
As we will discuss below, there are a number of exemptions when it comes to who is liable for VAT.
What is the VAT rate in the UAE?
The UAE VAT rate is 5%.
VAT vs Sales Tax: What’s the difference?
It’s sometimes difficult to distinguish between sales tax and VAT. Essentially, it breaks down like this:
- Generally, sales taxes are imposed only on transactions involving goods – and only on the final sale to the customer.
- In contrast, VAT is imposed on goods and services (including those that are imported) and can be charged throughout the supply chain (including on the final sale).
How is VAT calculated in the UAE?
As the UAE VAT rate is 5% on invoice value, you simply multiply 5% by the cost price of the goods or services.
VAT exempted sectors in the UAE
There are a number categories where supplies will be exempt from VAT. These include:
- Some financial services
- Residential properties
- Bare land
- Local passenger transport
There are also zero-rated sectors where VAT will be charged at 0% regarding the main categories of supplies:
- Exports of goods/services outside the GCC
- International transport and related supplies
- Supplies of certain sea, air and land means of transportation
- Certain investment grade precious metals
- Newly constructed residential properties under certain circumstances
- Certain education services and relevant goods/services
- Certain healthcare services and relevant goods/services
A business may receive a refund from the government on tax that it has paid to its suppliers.
How to get a refund:
- Log on to the FTA’s e-Services portal
- Select the VAT tab, then the VAT refunds tab, then select VAT refund request
- Complete the request form
- You will receive an email from the FTA detailing the result of your application
VAT refunds for tourists
Tourists and visitors are able to claim a refund on VAT paid on purchases they made during their trip to the UAE. This is done through the ‘Tax Refund for Tourists Scheme’ which can be located at all UAE ports of entry/exit.
VAT in real estate
VAT depends on whether the real estate is commercial or residential. Supplies (including sales or leases) of commercial properties are taxable for VAT.
Supplies of residential properties are usually exempt from VAT. This ensures that VAT does not become an irrecoverable cost for those who buy their own properties.
Working with Creative Zone
Now is the time to work with a specialist to ensure you understand the new VAT rules, and that throughout 2021 and beyond you remain compliant.
In addition to helping you with your VAT, Creative Zone can help you with setting up your business.
While the setup process can be somewhat stressful, you can fast-track it by working with a company formation specialist. It’s the quickest way to get set up in the UAE, letting us take care of all the details and ensuring your application is free from errors.
We can also help you with opening a corporate bank account, and also offer important advice on the type of financial institution that would best suit your requirements.
Here at Creative Zone, we offer you the best solutions to start your company in the UAE. You get fast, reliable and unbiased advice on your unique business setup requirements. We can help you choose the right kind of license for your chosen business activity/activities and take you through the entire process from start to finish.
You can let us deal with the hassle of registering a company while you focus on your business. And working with us means you get the best budget friendly and cost-effective solution to help make your business dream a reality.
Over 10 years, Creative Zone has helped over 36,000 entrepreneurs set up their businesses. Whether it be a mainland business setup, offshore company setup, free zone company setup or issuing of trade licenses and any related activity for registering a company, Creative Zone is your one-stop-shop.