VAT (Value Added Tax) in the UAE is a consumption tax levied on goods and services at each stage of the supply chain. Implemented on January 1, 2018, the standard VAT rate is 5%. Here are eight major points about VAT in the UAE:
The standard VAT rate in the UAE is 5%.
Certain goods and services are exempt from VAT or zero-rated. Zero-rated supplies include education, healthcare, and certain financial services. Exemptions apply to residential properties, bare land, and local passenger transport.
Businesses with a taxable supply exceeding AED 375,000 in a 12-month period must register for VAT. Voluntary registration is available for businesses with supplies or expenses exceeding AED 187,500.
VAT returns are typically filed quarterly. Businesses must file their VAT returns and make payments to the Federal Tax Authority (FTA) within 28 days after the end of the tax period.
Businesses can reclaim the VAT they pay on business-related goods and services (input tax) against the VAT they collect on sales (output tax).
Businesses must maintain proper records and documentation for a minimum of five years. Non-compliance can result in penalties.
Certain free zones in the UAE are considered designated zones. Supplies within these zones can be treated as outside the scope of UAE VAT, subject to specific conditions.
For certain transactions, especially involving imports, the reverse charge mechanism applies. The recipient of the goods or services accounts for the VAT instead of the supplier.