Value Added Tax in UAE

The standard VAT rate in the UAE is 5%.

As in other countries, there are supplies of goods and services that are taxed at zero rate and those that are exempt from VAT.

One of the most common types of supplies that are subject to VAT at 0% is the export of goods and services. 

At the same time, there are supplies of goods and services that are taxed at a zero rate, and there are supplies that are exempt from VAT.

Features of exempt supplies: 

• Do not entail the obligation to register as a VAT payer. 
• No need to submit reports. 
• Input VAT paid for the sale of exempt supplies cannot be claimed as a deduction.

The following supplies are exempt from VAT:

1. Certain financial services. This is a fairly broad category of services that includes, in particular, the payment of dividends, receiving interest on loans, bonds and deposits.
2. Sale of residential buildings (sale or lease). Exception: supplies taxed at 0%.

Sale of empty land plots.

Designated Free Zones

The tax authority has identified список free zones that are considered to be outside the UAE for VAT purposes. Imports and sales of goods within these free zones are not subject to VAT. A similar exemption applies to the sale of goods between companies located in such free zones.

Read more about free zones in our Free Zone Atlas

Among the Designated Free Zones:

• Jebel Ali Free Zone (JAFZA)
• Dubai Airport Free zone (DAFZ)
• Ajman Free Zone
• Umm Al Quwain Free Trade
• Hamriyah Free Zone
• Sharjah Airport International Free Zone (SAIF)

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The company is required to obtain a VAT number

if its taxable income and/or imports:

• exceeded 375,000 AED (~102,000 USD)

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for the previous 12 months, or

• will exceed this threshold within the next 30 days 

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A company can obtain a VAT number voluntarily

if it proves that its taxable turnover exceeded 185,000 AED (~ 50,000 USD):

• for the previous 12 months, or
• will exceed this threshold within the next 30 days

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Taxable supplies include both supplies within the UAE and supplies outside the UAE (export), which are taxed at a rate of 0%. However, recently the tax authority has changed its practice and, for some applications, refuses to obtain a VAT number if the company only has export supplies.

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A company that exclusively makes zero-rated supplies may apply for an exemption from mandatory registration.

Taxable imports are the acquisition of goods and services and their subsequent import. In the case of services, the place of supply must be the UAE.

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"If a non-resident has made a delivery to the UAE in favor of a resident importer, then the amount of the delivery must be taken into account by the UAE resident. This is called the “reverse charge” mechanism. In this case, the non-resident seller must issue an invoice without VAT, and the resident buyer takes into account the incoming VAT and includes it in the reporting" Artur Faniev, commercial директор

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VAT reporting and tax payment

After registration, taxpayers must:

• Indicate VAT on invoices sent to customers.
• Submit VAT returns (usually quarterly) that reflect the VAT payable.
• Pay VAT.

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VAT returns are usually required monthly or quarterly depending on turnover.

Quarterly

if the turnover is less than 150 million AED 

Monthly

if the turnover is more than 150 million AED

In this case, the tax authority may assign a longer or shorter period if it deems it appropriate.

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"VAT tax periods are indicated in the certificate. The report must be submitted before the 28th day of the month following the end of the reporting period. The tax is paid within the same period as the reporting submission" Ekaterina Kupreenkova, бухгалтер

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VAT deduction

A company can deduct VAT amounts paid on invoices to suppliers and on taxable imports. To do this, it must have a valid invoice issued by the supplier. 

A deduction is not allowed for supplies that are not part of the business. For example, entertainment expenses, meals, and the purchase or expense of automobiles for personal use are not deductible.

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Storage of VAT documentation

Taxpayers are required to keep tax, accounting and other records to confirm the data entered in the VAT declaration for at least 5 years from the end of the relevant tax period and 15 years for real estate activities. Under certain circumstances, the tax authority may extend these periods by another four years.

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“The main advantages of obtaining a VAT certificate are that: 1. A company registered as a VAT payer can deduct input VAT. This means that all the tax paid by the supplier can be returned (subject to the deduction conditions). 2. International counterparties often request a tax residency certificate. However, only companies that have a VAT certificate can obtain this document” Sergey Kovalkov, Head of International Practice инкорпораций