Introduction to VAT in the UAE

Value Added Tax (VAT) was introduced in the UAE on January 1, 2018, as part of the government’s efforts to diversify revenue sources. VAT is an indirect tax levied on the supply of goods and services at every stage of the supply chain. Businesses in the UAE must comply with VAT regulations set by the Federal Tax Authority (FTA) to avoid penalties and ensure seamless operations.

1. VAT Rates in the UAE

The standard VAT rate in the UAE is 5%, applicable to most goods and services. However, certain categories fall under zero-rated VAT or are exempt from VAT.

Tax Categories:

Category	Description	VAT Rate
Standard Rate	Applies to most goods and services	5%
Zero-Rated	Essential goods/services like healthcare, education, and international transport	0%
Exempt	Financial services, residential properties, and local passenger transport	Exempt

2. Who Should Register for VAT?

Businesses operating in the UAE must determine if they are required to register for VAT based on their annual turnover.

VAT Registration Thresholds:

✅ Mandatory Registration: If annual turnover exceeds AED 375,000
✅ Voluntary Registration: If annual turnover exceeds AED 187,500

Businesses must apply for VAT registration via the FTA’s online portal and obtain a Tax Registration Number (TRN).

3. VAT Compliance Requirements

Registered businesses must comply with various VAT obligations, including:

🔹 Issuing Tax Invoices – VAT-registered businesses must issue tax invoices for taxable supplies.
🔹 Maintaining Proper Records – Businesses must keep records of sales, purchases, tax invoices, and VAT returns for at least 5 years.
🔹 Filing VAT Returns – VAT returns must be filed quarterly or monthly, depending on business size, through the FTA portal.
🔹 VAT Payment and Refunds – VAT payments should be made to the FTA before the deadline to avoid penalties. Businesses can also apply for VAT refunds if they are eligible.

4. VAT on Imports and Exports

Imports

📌 VAT is applicable on imported goods and services at 5%, and businesses must account for it using the reverse charge mechanism.
📌 Customs authorities ensure VAT compliance on imported goods.

Exports

📌 Exports to GCC VAT-implementing countries – VAT applies depending on the recipient’s tax registration.
📌 Exports outside GCC – Zero-rated at 0%, provided proper documentation is maintained.

5. Common VAT Mistakes and How to Avoid Them

Many businesses face penalties due to VAT errors. Here are common mistakes and ways to prevent them:

❌ Late VAT registration or deregistration → ✅ Register or deregister on time via the FTA portal.
❌ Incorrect VAT calculations → ✅ Ensure accurate VAT computation using automated accounting software.
❌ Failure to file VAT returns on time → ✅ Track VAT return deadlines and file before the due date.
❌ Not maintaining proper records → ✅ Keep financial records and invoices for at least 5 years as per FTA regulations.
❌ Incorrect classification of goods/services → ✅ Consult VAT experts to ensure correct VAT categorization.

6. VAT Penalties in the UAE

Non-compliance with VAT laws can lead to significant penalties imposed by the FTA. Some common penalties include:

Violation	Penalty
Late VAT registration	AED 10,000
Failure to file VAT returns on time	AED 1,000 (first offense), AED 2,000 (repeat offense)
Late VAT payment	2% immediately, 4% after 7 days, and 1% monthly
Incorrect VAT return filing	AED 3,000 (first offense), AED 5,000 (repeat offense)

7. How Accuvat Chartered Accountants Can Help

VAT compliance can be complex, but businesses can ensure smooth VAT registration, return filing, and compliance with the expertise of Accuvat Chartered Accountants. Our services include:

✔️ VAT Registration & De-registration
✔️ VAT Return Filing & Compliance
✔️ VAT Audit Assistance
✔️ VAT Advisory & Planning