Value Added Tax (VAT) was introduced in UAE on 1st January 2018. The Federal Tax Authority (FTA) is chargeable for all administrative and collection of taxes in the UAE.
UAE imposes VAT on tax registered businesses on a taxable supply of goods or services at each step of the supply chain.
A business must register for VAT if the taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Furthermore, a business may choose to register for VAT voluntarily where the total value of its taxable supplies and imports (or taxable expenses) is in excess of the voluntary registration threshold of AED 187,500.
We can say that every person who has a Place of Residence in the UAE or Implementing state and whose value of taxable supplies in 12 months exceeds or is expected to exceed the mandatory registration threshold has to register as per the UAE VAT Law.
If the taxable person fails to register the business within the time limit, then he will be liable to pay the late registration penalty of AED 20,000/- as per the Law.
To determine whether the value of supplies has exceeded the mandatory registration threshold limit or the voluntary registration threshold limit, the following needs to be considered.
Value of taxable supply of Goods and Services:
Taxable supplies refer to all the supplies of goods and services made in UAE on which VAT is levied at the standard rate of 5% including zero-rated supplies.
Value of reverse charge Supplies:
Reverse Charge Mechanism is applicable to the registered person on the import of goods and services in UAE. Under the reverse charge mechanism, the recipient is responsible for the payment of tax and reporting in the VAT return. The supplier will not responsible to pay VAT.
How to calculate the VAT Turnover threshold?
Amanda Clothing Center is a business in UAE, engaged in supply of Readymade Clothes and also unstitched clothes. They also import certain products from other countries and supply it to the customers in UAE as well as export it to other countries. The following are the different types of supplies made by Amanda Clothing Center.
|Type of Supplies||Turnover in AED|
|Taxable Supplies (Sale in UAE)||255,000|
|Exports (Zero-Rated Supplies)||98,000|
|VAT Registered Turnover||4,84,000|
To determine Amanda Clothing Center eligibility for registration in UAE, taxable supplies + exports (zero-rated supplies) + imports + reverse charge supplies should be considered. Exempt supplies will not be considered in arriving at the registration threshold.
The turnover of Amanda Clothing Center for VAT registration is AED 4,84,000 which has exceeded the mandatory registration threshold of AED 375,000. Thus, Amanda Clothing Center is required to mandatorily register under UAE VAT.
So as explained above only those who are residents in UAE or Implementing state, whose taxable turnover in the previous 12-month period or in the next 30 days exceeds the VAT registration threshold need to get registered in UAE. Such a person who is required to register for VAT must file a Tax Registration application to the Federal Tax Authority (FTA) within (30) days of being required to register. The VAT registration threshold mentioned as per UAE VAT Law is:
- Mandatory registration threshold is AED 375,000
- Voluntary registration threshold is AED 187,500