A detailed guide to services of VAT registration in the UAE
Starting a company in the UAE is the main goal for many foreign investors. From a low tax rate to simple services of VAT registration in the UAE, Dubai offers multiple options to facilitate the business setup process. As a result, large and small companies seek to establish themselves here in order to enter into the most prolific financial and investment market in the Middle East.
In this article, you will learn everything about VAT registration services in Dubai. Likewise, you will read every detail about their functioning and how to access them. Let’s observe:
- What does VAT stand for in Dubai?
- How does VAT collection work in Dubai?
- What are the services of VAT registration in the UAE?
- What is the process for VAT registration in the UAE?
- Documents you will have to submit on the process for VAT registration in the UAE
- Benefits of VAT registration
- How can we help you in the process of VAT registration in the UAE?
1. What does VAT stand for in Dubai?
Contrary to general belief, in Dubai and across the UAE there is a minimum tax rate companies must pay according to their annual earnings. This additional charge is the Value Added Tax (VAT), an indirect fee added to products or services during each part of the supply chain that is lastly covered by the end consumer.
The VAT was introduced for the first time in the UAE territory in January of 2018 as an initiative of the Federal Tax Authority (FTA) to promote a new income method in the different Emirates. That is to say, under UAE tax law, this general tax rate seeks to prevent a decrease in the businesses’ and population’s purchasing power and to improve the local economy above all.
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On the other hand, UAE VAT remains low compared to the percentage rates in other countries. It is only a 5% charge rate. Therefore, it allows entrepreneurs to increase their profits and avoid losses generated by income, corporate, or trade taxes. Likewise, it provides companies the possibility to act as tax collectors on behalf of the government.
Moreover, VAT also aims to help in the improvement of public services, decoupling from oil or hydrocarbons as the main GDP, and diversifying the country’s economy.
1.1 What activities are VAT-exempted in Dubai?
Most business economic activities are linked to VAT fee payment. Nonetheless, there are some tax-exempt financial sectors in Dubai Free Zones and Mainland. These are:
- Food
- Export
- Construction services
- Education
- Precious metal investment
- Healthcare
- Gold
1.2 Why some areas of Dubai are VAT-Free?
Although in some cases it is mandatory to pay VAT, there are companies and Dubai areas that are exempted from doing it so. To clarify, let’s take a small company as an example.
By not being able to reclaim VAT fees, the small company will be forced to make their products more expensive in order to generate larger profits. However, this action could damage the brand and put at risk the original investment capital.
Therefore, to help small companies or start-ups avoid the VAT becoming a complication; there are multiple Dubai Free Zones that are tax-free. However, it is advisable to consult with a team of experts who can guide you on the ideal place to start your business in Dubai in order to avoid losses and get to know what are the best ideas for company formation nowadays.
2. How does VAT collection work in Dubai?
Now, to understand how the VAT collection works in Dubai, the best way is to use a real-life example.
For instance, if a farmer sells his vegetables to a processing company, he must add a 5% VAT fee to the original price of his products. Later, if the company processes that food and sells it to a distributor, another 5% tax charge needs to be added. This procedure will go on and on until it reaches end consumers.
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To clarify, the distributors will lastly supply the finished product to consumers, adding an additional 5% tax fee to the base price.
In this way, the final consumer is the one in charge of covering the final VAT fee when purchasing the product, while the collection of the tax is done during the supply chain through a company or individual on the government’s behalf. Nevertheless, part of this money collected will go to the FTA further.
On the other hand, VAT is charged as follows:
- On any of the products or services distributed by an organization
- When claiming VAT fees for any financial activity and the trade of services and goods
3. What are the services of VAT registration in the UAE?
VAT registration in the UAE is the means by which eligible businesses can collect taxes from the end consumer and pay the appropriate fee to the Federal Tax Authority. It also allows mainland and free zone businesses to obtain a refund from the government for tax paid to suppliers if requested.
One of the advantages of VAT registration in Dubai and throughout the UAE is VAT payment is not compulsory for all businesses. That is to say, VAT payment and collection will depend on the revenue a company generates annually.
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To clarify, the main criteria a company must meet to apply for VAT registration in the UAE correctly is that an organization must generate at least AED 375,000 in supplies and imports during one year. Nonetheless, companies that generate around or less than AED 187,500 annually are not forced to pay VAT.
3.1 What types of VAT registrations services are in Dubai?
In the same vein, there are two different kinds of VAT registration services in Dubai according to the taxable profits your company generates per annum. These are the Mandatory VAT registration service and Voluntary VAT registration service.
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Each one has its own criteria and conditions every business owner must know before applying as long as specific requirements. These are:
3.1.1 Mandatory VAT Registration services
The main requirement to apply for this type of VAT registration service is that the company generates more than AED 375,000.
Other conditions to fulfill are:
- If the business profits or imports were greater than AED 375,000.
- If the company’s projections are greater than AED 375,000 in the next 30 days.
However, there is a special condition. Those companies that comply with the above requirements and do not carry out the corresponding VAT registration in a period of time are subject to a fine payment of around AED 20,000.
3.1.2 Voluntary VAT registration services
Unlike mandatory VAT registration, this one is completely optional. Enterprises that can opt for this type of service are the ones whose taxable expenses and turnover are more than AED 187,500 but less than AED 375,000.
Companies with profits within this rank are not forced to apply for VAT registration. Nevertheless, they can do it voluntarily. Also, there is no risk of fines in case a company does not have a VAT registration in the UAE. Other conditions are:
- Your business profits and imports were more than 187,500 in the last year
- The company’s projection point that the taxable expenses will be more than 187,500
3.2 Other VAT registration services
Similarly, it is imperative non-exempted companies have a proper register in the VAT collecting system to keep a record of their tax collections so they can avoid misunderstandings with local activities. Likewise, other services of VAT registration in the UAE that can help you track your company’s taxable expenses are:
4. What is the process for VAT registration in the UAE?
Foreign investors and offshore business owners that share a vision to establish themselves in Dubai and meet the mandatory requirements must complete the process of VAT registration in the UAE to set up a business in the Emirati territory.
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The full process is through the Federal Tax Authority website. Likewise, it is simple, cost-effective, and quick. In the same vein, there are two parts of the process that must be completed for VAT registration to be successful:
- Creating an e-service account
- VAT registration procedure per se
4.1 E-service account creation
Firstly, the process to create an e-service account is very simple. Follow these simple steps:
- Enter the FTA website to create your e-service account and click on the “sign” tab
- Fill the required fields with your personal and company info
- Search the verification email in your inbox
- Lastly, log in with your verified credentials
4.2 Procedure of the VAT registration in the UAE
Secondly, what you must do for completing the process of VAT registration in the UAE successfully is:
- Firstly, click on the “Register for VAT” after logging in to the FTA website with your e-service account credentials
- Read the full guide “Getting Started Guide” to know everything about the VAT registration process. This step is fundamental. You must read the full otherwise you won’t be able to continue.
- Next, click the “click here to confirm you have read the getting started guide” button in order to continue.
- After clicking on the “proceed” tab, the page will open a form for VAT registration you must fill with the correspondent information. The form has eight sections in total
- Submit the filled form and requested documents before submitting. Be sure to check twice everything is in order and you did not miss any information boxes
- Lastly, click on “submit for approval” to finish
5. Documents you will have to submit on the process for VAT registration in the UAE
Additionally to the filled application form, there are some extra documents you must present in the process of VAT registration in the UAE. Amongst there are:
- Incorporation certificate
- Contact information
- Articles of Association (if needed)
- Partnership Agreement (if applicable)
- Details of your bank account
- Financial statements
- A detailed list of your enterprise’s business activities
- Custom details (if needed)
- Owner, manager, and senior management’s Emirates ID or Passport
- Expected values of exports and imports (if needed)
6. Benefits of VAT registration in the UAE
The registration process is done through the Federal Tax Authority’s website, making it easy, simple, and quick. In this way, small and large entrepreneurs can access VAT registration quickly, easily and from anywhere in the world with just a click.
Furthermore, other benefits you’ll enjoy are;
- Get a Tax Registration Number
- Have a record of your import and suppliers venues
- Opt for VAT refunds by the FTA
- Claim an input VAT on your organization’s expenses
6.1 What is the Tax Registration Number and how does it work?
After completing the process of VAT registration in the UAE process, your company will acquire a Tax Registration Number (TRN). It is a 15-digit unique number intended for the company can register its taxes and file them to the Federal Tax Authority further.
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In the same vein, TRN allows you to prove your business status, profits, and taxable earnings to the FTA authorities. It also facilitates the application for VAT refunds, returns, and the collection of sales tax.
7. How can we help you in the process of VAT registration in the UAE?
To sum up, VAT registration in the UAE allows big and small enterprises to track their expenses in an effective way. However, it is important you have an expert team to support you during the VAT registration process in Dubai. At Connect Zone we are more than ready to reach out to you.
With over 20 years of experience, our staff is ready to provide you with economical options during the company formation. Also, we offer a wide range of business centers available in case you want to establish in one of the Dubai Free Zone and Mainland.
On the other hand, you can access our Freelancer Visas or learn how to get a Golden Visa to settle yourself faster in the UAE.
Would you like to contact Connect Zone to help you with VAT registration in the UAE? In case you have any questions, call us on +971 43 316 688. Moreover, you can email us at contact@connectzone.ae, and you will talk to one of our representatives who will answer your questions.
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