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What you need to know about VAT in the UAE

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VAT in the GCC eBook

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VAT Infographic

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10 facts about VAT

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Sage VAT Solutions

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How can Sage help with VAT compliance?

The UAE and Bahrain recently implemented VAT for the first time. For many businesses, VAT compliance can be daunting and overwhelming – and most underestimate the time and resources needed to get their systems VAT ready.

Sage makes VAT compliance easy for businesses of all sizes, across all industries. We’re ready to help you with:

  • The compulsory preparation and storage of VAT invoices, debit and credit notes, and VAT exempt and zero-rated supplies;
  • Accurate VAT calculations, every time; and
  • Hassle-free VAT return submissions.

Our portfolio of fully-compliant, flexible, and customisable software solutions has been designed to meet the needs of growing businesses like yours. This, combined with our more than 30 years’ experience in helping businesses across the globe to streamline their accounting and payroll functions, makes Sage the preferred partner in VAT compliance.

Upgrade to Sage and start your painless VAT compliance journey today. You’ll be glad you did.

If you’d like to speak to a Sage consultant about VAT in the UAE, click the ‘Call Me Back’ icon to the right of your screen.

 

What is VAT in the United Arab Emirates?

Value Added Tax (VAT) is an indirect tax that is paid by consumers when they buy most goods and services. VAT was introduced in the Gulf Cooperation Council (GCC) as a way to diversify member nations’ economies and uncover new revenue streams.

Businesses in Saudi Arabia, Kuwait, the United Arab Emirates (UAE), Qatar, Bahrain, and Oman with an annual turnover of AED 375,000 must comply with the new VAT laws. This involves collecting a standard tax rate of five percent (5%) at each stage of the supply chain, on behalf of the government.

How does VAT work?

Businesses are charged VAT on goods and services they purchase (input tax). They then charge VAT on the goods and services they sell to end-customers (output tax). The difference between the input tax and output tax is paid to the government.

The diagram below shows how the VAT process works in the UAE. It follows the journey of a product from the supplier to the factory, wholesaler, retailer and, finally, the end-customer. Input and output tax is applied at each stage of the supply chain, at a rate of 5%.

When was VAT law applied to the UAE?

VAT became effective for UAE states on 1 January 2018. This significantly changed the way business is conducted in the Middle East.

Dubai was one of the first countries to implement VAT in the UAE in 2018, as was Saudi Arabia. However, some countries have delayed implementation until 2019 and even 2021.

This table outlines the current state of VAT in the GCC:

Country VAT laws?  Date of Implementation VAT rate
Dubai Yes January 2018 5%
Bahrain Pending January 2019 5%
Kuwait Pending 2021 (but 'sin'tax expected to be introduced sooner) 5%
Oman Pending 'Sin tax' introduced mid-2018. Full VAT implementation
 expected in 2019		 5%
Saudi Arabia Yes January 2018 5%
UAE Yes January 2018 5%
Qatar Pending 2019 5%

Where is VAT applicable in the UAE?

Saudi Arabia and Dubai already have VAT. Other GCC nations, like Bahrain, Qatar, and Oman have delayed value added tax implementation until 2019. Kuwait will implement VAT in 2021.

VAT is charged on certain products, property, and services. Certain sectors, like medical fees, education, local and air transport, medicines, residential property rentals and sales, and public schoolbooks, will be exempt from VAT, but these may differ between member countries.

On Products

VAT is levied on most retail products. In the UAE, VAT is calculated as a percentage of the retail price of a product. For example, a computer now costs 5% more in Dubai than it did before VAT was implemented.

Below is a list of VAT products in the UAE:

  • All non-essential consumer items and retail purchases, including food, beverages, and jewellery
  • Stationery, after-school activities, recreational school trips, school uniforms, and private schoolbooks
  • Medicines and medical equipment not listed by the member countries
  • Cars, rentals, oil and gas
  • Electronics and smartphones
  • Second-hand goods
  • Imported products, excluding investment precious metals
  • Health, motor, and property insurance and reinsurance
  • Water and electricity

On Services

GCC countries that have implemented VAT law will apply tax to services.

The following list of services will attract VAT in the UAE:

  • Plastic, cosmetic, or elective surgery
  • Education provided by private higher educational institutions
  • Fee-based financial services
  • Vehicle services and repairs
  • Hotel, restaurant, and catering services
  • All wired and wireless telecoms and electronic services, including mobile phone and broadband services

On real estate

In the UAE, VAT for real estate has been separated into two categories: commercial and residential.

VAT will be applied to commercial property transactions in the UAE, including rental and sale agreements. Property used for office, retail, or public parking space will be taxed, as will movable property, like mobile homes.

Hotels, motels, and other serviced accommodation will also attract VAT, as will residential property that is leased to non-residents on a short-term basis.

Bare land and residential sales and rentals will be exempt from VAT.

 

Are there VAT exemptions in the UAE?

Certain sectors will be exempt from paying VAT in the UAE. While each country will issue specific exemptions, the VAT law makes provisions for goods and services that are exempt or zero-rated.

Goods and services that are exempt from VAT in the UAE do not incur input or output tax. This includes life insurance, the sale and rental of bare land and residential property, and local passenger transport.

Zero-rated goods and services in the UAE incur an output tax of 0% (instead of 5%). Suppliers can claim input tax on expenses incurred in the supply of these goods and services, which include certain education and healthcare services, supplies of crude oil, natural gas and investment precious metals, exports, margin-based financial services, supply of services to GCC countries that have not implemented VAT law, international transportation, and newly constructed residential properties.

 

VAT registration in the UAE

Company VAT registration is free of charge and can be done online via the FTA’s e-Services portal.

To register for VAT online, you will need:

  • Applicant details (entity and activity details, trade license(s) and manager details)
  • Contact information (address, contact details)
  • Authorised signatory documents (including scanned copies of your Emirates ID and passport)

Bear in mind that full transition can take between 9 and 12 months.

 

VAT return submissions

You will need to regularly submit a VAT return with the FTA (quarterly or for a shorter period, should the FTA decide so) within 28 days after the end of the tax period. You can pay VAT online, via the FTA’s e-Services portal.

To submit accurate returns, you will need to keep records of all your transactional data for up to five years. To ensure compliance with UAE Vat law, you might need to make changes to your accounting systems and processes.

For automatic compliance, use software that is already VAT complaint, immediately updated with any law changes, and lets you easily calculate VAT.

Learn how to become compliant with Sage

UAE VAT FAQs answered by an expert

VAT is an efficient and sustainable way for governments to generate revenue that is transparent for both consumers and businesses. This revenue is used to pay for and maintain public services, such as schools, hospitals, and police services.

VAT operates according to a system of self-assessment, with businesses required to record, assess, and report all VAT transactions in accordance with the tax law.

VAT is levied and collected by businesses for the government at each stage of the supply chain. These businesses add VAT to the value of their goods and services. This may be reclaimed, if these goods and services are acquired for business purposes.

The cost of VAT is incurred by consumers and is not a business tax.

The introduction of VAT in the UAE will affect all businesses financially, initially with the cost of preparing and updating their business operations so that they are VAT compliant, and then on an ongoing basis as tax is collected and reported on.

The Gulf Cooperation Council (GCC) has approved a common legal framework for VAT implementation. Each member state will decide how best to implement the terms of this framework, using local laws to create its own national VAT legislation. These may differ subtly in each country.

To successfully prepare for VAT, business owners need to register their companies and then develop a comprehensive implementation plan to ensure all business operations are compliant.

This plan must address:

  1. The key areas of the business that will be impacted, and if any changes need to be made to core operations.
  2. Internal resources that can be used, including business analysts and project and IT managers.
  3. External resources that will be required, for example, a VAT specialist.
  4. The impact VAT will have on financial management and bookkeeping, including how transactions across GCC borders will affect business expenditure, supply chains, customers, pricing, and vendors.
  5. Human resource management and staff training.
  6. The adaption of existing technology and IT systems to ensure VAT compliance.

Eligible companies that do not file VAT returns face severe penalties, including prosecution and fines of at least AED 500 and up to five times the amount of VAT that would have been payable for the period in question. 

At 5% VAT, this puts your maximum risk at 25% of turnover. 

Both VAT and Sales Tax are consumer taxes, which means they’re paid by the consumer when they purchase a product.

VAT is an indirect and multilevel tax, meaning it’s levied at each stage in the supply chain and is paid to the government at each stage.

Sales Tax is a direct tax that is charged at the time of purchase, on the total value of the sale. It is only paid to the government at the final stage of the sale.

Zero-rated goods and services are taxed at 0%. This means that the customer is not charged VAT on the final sale (output tax) but the businesses selling the goods may still claim input tax.

Businesses that supply goods or services that are VAT exempt may not charge or recover VAT. Each country will issue specific exemptions.

Once you’ve registered as a VAT vendor, you will be issued with a Tax Registration Number (TRN). You need a valid TRN in order to collect VAT from your customers and suppliers. This number must also reflect on all your tax invoices and tax returns.

You can access your TRN, and also check the validity of another business’ TRN, by logging into the FTA’s e-Services portal.

Yes, VAT will be levied on goods imported into the UAE. VAT-registered businesses will pay VAT on the reverse-charge basis. Since the supplier is outside the UAE, the importer will be required to pay tax on the import. This can be reclaimed as input tax. 

All imported goods will be taxed, except precious metals, which are zero-rated.

The law sets administrative penalties for businesses that :

  • Fail to register as a VAT vendor ;
  • Fail to submit tax returns or other required information when requested by the FTA ;
  • Deliberately provide false information ;
  • Fail to keep records of transactions for the stipulated period. This includes general ledgers, invoices issued and received, credit notes, debit notes, and annual accounts, as well as information pertaining to imported and exported goods and services, and goods and services that have been disposed of.
  • Deliberately destroy documents they were meant to send to the FTA.

Penalties are set at a minimum of AED 500 and up to five times the amount of VAT that would have been payable for the period in question.

At 5 % VAT, this puts your maximum risk at 25 % of turnover. 

 

Calculating VAT with Sage

It's essential that your business prepares for VAT implementation as soon as possible.  Let us help you.

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