It is mandatory for most businesses to complete the UAE VAT registration in the country in which they operate. And it happens the same in the UAE, which is why you must learn about this process if you’re an investor. You will realize that paying this fee is an essential element to make your company operate in this country.
In this article, you will learn everything you have to know about the process to register your company for VAT. Besides, you can also find important information about the updated rules and regulations related to this fee in the UAE. On the other hand, we will also provide you with information about the way how this tax works. Let’s observe:
What is the VAT (Value Added Tax) and why is it important in the UAE?
If you want to have a business setup in Dubai mainland and other freezones, you will probably need to carry out the UAE VAT registration. These acronyms stand for Value Added Tax, referring to a fee that the UAE charges to companies and traders. And the main reasons why the authorities charge this tax are all important to benefit the nation itself.
For example, one of those reasons is that the VAT in Dubai and other emirates helps to finance public services. And this method is also useful for financing government expenditure and getting a different income source for the nation. This way, it makes it possible to reduce the dependence on other income sources, such as oil and related hydrocarbons.
However, it is important to consider that the UAE has one of the lowest VAT rates in the entire world. As a result, many investors and entrepreneurs from all around the world choose this country to operate their companies. This country is popular because its VAT rate is only 5 percent, while in other countries it’s a two-digit number.
For instance, the VAT rate in a country like Russia is 18 percent, and in France and the UK, it’s 20 percent. And other countries like China and Sweden have VAT rates that range between 17 percent and 25 percent. On the other hand, there are other elements regarding the UAE VAT registration that you should always keep in mind.
How does the VAT work in the UAE?
The best way to understand how the UAE VAT law works is by using a real-life example. For instance, let’s think of a fisherman who sells different types of fish and seafood. When he sells his product to a factory, he must collect the VAT by adding 5 percent of its price.
After that, the factory acquires the product, manufactures it for finished goods, and sells them to retail chains afterward. And just like the fisherman did, the factory must charge the VAT fee when selling its finished products to retailers. Similarly, it only has to add 5 percent of the product’s price.
And lastly, the retail chains that bought these products have to sell them to the final customers. These customers must pay both the product’s price and the VAT fee, which the retailer must include. To summarize, final consumers are the ones who cover this fee completely, while the government collects it through traders.
Why not all Companies must pay for this tax in this country?
There is a rule that states that not all businesses operating in the UAE must complete the FTA VAT registration. In fact, there is a condition that allows some small businesses to get an exemption from paying this tax. And that condition is that the company must have taxable supplies and imports that exceed AED 350,000.
This decision of the Federal Tax Authority UAE also states that companies that exceed AED 187,500 can opt for voluntary disclosure. However, voluntary disclosure is optional, so it could be considered as a benefit or a disadvantage for the company. Therefore, it is highly suggestible to consult this matter with a specialist before making any decisions.
Is it true that not all Goods & Services are Subject to VAT?
Some companies do not need to pay for VAT registration UAE fees due to the kind of goods they offer. And due to this VAT exemption that they enjoy, they cannot charge their customers this fee or claim it back. Now, let’s take a look at some cases in which you don’t have to pay for VAT fees in the UAE:
- If your company offers healthcare and education services, this tax is not mandatory.
- You don’t have to pay it if you work in sectors related to bare land, residential property, or local passenger transportation.
- And also, companies that carry out activities like exportation outside de GGC or investment-grade precious metals shouldn’t pay for VAT.
Although it isn’t necessary to complete the UAE VAT registration process in these cases, there’s a thing these companies must do. And it is regarding the company’s VAT record-keeping; the owners must record all of these zero-rated supplies. Most importantly, the reason behind this is that the law requires companies to count these services/goods as taxable at 0%.
How Can You Complete the Registration Process for VAT in the UAE?
If your business meets the condition we previously mentioned, you need to register it for paying VAT in the country. And in order to complete the UAE VAT registration, you must follow some simple steps, which are the following ones:
- Firstly, you need to visit the FTA website and create an e-service account there. After that, you will get an email to verify the data you entered.
- Once you receive this email, you can log in to the system by using your credentials. Next, you have to click on the option that says “register for VAT”.
- You will now access a guide named “Getting Started Guide”, which you need to read in order to continue. And after you read this document, you must click on “click here to confirm you have read the getting started guide”.
- Now, you have to open and complete the UAE VAT registration form by clicking on the “proceed” option. Remember that it is necessary to complete all eight sections to finish this stage of the registration process.
- Lastly, you can submit all of the documents required for UAE VAT registration by clicking on “submit for approval”.
What are the Penalties Of Late Payment of this Tax?
You must know that the government used to apply certain penalties to companies for not paying this fee on time. For example, the late payment penalty from the due date of the original VAT return until day 6 was 2% of the underpaid tax.
And as time passes, the worse it gets for the company. The late payment from day 7 until day 30 was the penalty of 4% of the underpaid tax. And another penalty was from day 31, which means 1% per day of the underpaid tax.
Besides, there was also a penalty for those who’d not pay VAT on time even through voluntary disclosure. And this penalty would range from AED 3,000 and AED 5,000, depending on certain conditions. But luckily for all companies that pay VAT, there is now a new law that is more flexible and friendly.
On April 28th of this year, the authorities issued a new resolution that became effective two months later. This new law is regarding the late payment of the VAT, which is now more favorable for companies. Currently, it’s not applicable the penalties from the due date of the original VAT return until day 30.
And the penalty from day 31 is paying the nil provided penalty within 20 days of filing the receipt of tax assessment. However, if the taxable person or company does not meet this requirement, there’ll be a penalty of 4% per month. But compared to the previous penalties, these new ones are definitely more flexible.
Also, the penalties can range between 5% and 40%, depending on when the taxable person or company submits the voluntary disclosure. On the bright side, there are some benefits that these new regulations offer to companies with VAT verification.
What are the benefits of VAT registration in UAE?
The UAE VAT registration and the new tax penalties resolution have brought many advantages to all registered businesses. And the most outstanding one regarding the late payment penalties is that they were reduced from 1% daily to 4% monthly. This allows companies to save a lot of money even when they have to pay a penalty like this.
And there is another benefit for those companies that pay VAT under voluntary disclosure. They do not have to face any penalties if they pay after 20 days of their voluntary disclosure submission.
To conclude this section, it is important to highlight that the authorities also introduced an amnesty scheme. With this scheme, it is possible to reduce unpaid past penalties by 70 percent, relieving many companies with it.
How can Connectfz help you obtain More Information About UAE VAT registration
You can understand the UAE VAT registration rules better and speed up the process by requesting help from a specialist. And Connectfz can help you get the guidance you need to go through this process more accurately and quicker. Besides, you can also get help with other elements regarding the business setup process in the country.
Our tax advisory services are among the most recommendable services for foreign investors who desire to work in the UAE. With them, they can fully understand the tax system of this country and how to manage it as they should. And it also helps them to avoid legal issues in the long term and make their businesses thrive.
Besides these services, we also offer other ones to help you for having Business Setup in UAE Freezone. Also, we can provide you with several business packages that include the licenses and visas that your business needs. As for our services, you can request recruitment services, staff outsourcing, payroll, and many others.
Kate WilliamsSkills in Communication, Interpersonal Skills, Time Management, Teamwork, and Customer Experience. She is an enthusiastic self-starter with a passion for building relationships with people.
