Although the UAE has positioned itself as a region full of job opportunities for foreign investors, all of them must comply with the different laws and regulations in order to operate legally in the country. The local government is quite strict when it comes to filing tax and VAT returns. For this reason, it is important to hire VAT consultants in the UAE to take care of all the procedures and ensure the successful conclusion of each one of them.
In this article, you will find information about the value added tax, what are the laws related to taxes in the Emirates, how you can register your company to comply with this tax, and more.
- What is VAT in the UAE?
- How to know if VAT applies to your company?
- How to register a business for VAT?
- Implications of value added tax
- How to declare VAT in the UAE?
- Why is it important to hire VAT consultants in the UAE?
- How can we help you with your company’s value added tax?
1. What is VAT in the UAE?
Value Added Tax (VAT) is one of the different taxes imposed by the UAE government. Introduced in 2018, it relies on the consumption of goods and services at every point in the country’s economic supply chain.
This tax is an effective way for those registered companies to assume the role of tax collectors on behalf of the Federal Tax Authority, with the final consumer assuming the cost of VAT.
If you are a new entrepreneur in the country and you do not have much knowledge about the tax laws and the different requirements that you must meet when setting up a business in the UAE, it is advisable that you hire the best VAT consultants to guide you and advise you throughout the process.
1.1 Aspects about value added tax in the UAE
The government imposed taxes to generate revenues for public services. For example, it is for security, transportation, and hospitals. Although there are different types of taxes in the UAE, they can be mainly divided into two categories:
- Indirect taxes collected by an intermediary (like a retail store) on behalf of the government.
- Direct taxes collected by the government itself.
Value Added Tax, also called General Consumption Tax, is an indirect tax imposed on most products or services purchased or sold. Generally, the VAT rate is 5%. Also, the Federal Tax Authority is the entity in charge of conducting audits and ensuring the implementation of this tax.
Besides a new source of income, the implementation of this tax helps the UAE to reduce the country’s oil dependence.
2. How to know if VAT applies to your company?
According to the UAE’s VAT law, this tax applies to all companies that meet certain conditions. The companies that must comply with this tax, according to the government, are the following:
- Companies with a yearly turnover exceeding AED 375k on taxable supplies and imports must register for VAT.
- Companies with a yearly turnover greater than AED 187.5k, but less than AED 375k have the option to register for VAT.
Businesses pay the government with the tax they collect from customers. Consequently, they also receive a refund for the amount they pay to suppliers.
3. How to register a business for VAT?
Those unregistered companies can do it through the online portal on the FTA. The VAT registration process is two simple steps.
The first is setting up an e-service account. Then, you must log in to your new account and complete your VAT registration.
3.1 Create an e-service Account
Creating an e-service account is a mandatory requirement for those companies that wish to successfully register for VAT. To start this process, visit the FTA website and follow these steps:
- Select the “sign up” button on the main page and enter data such as email ID, password, and a security code.
- After entering the required data, an automatic email will be sent to your registered email ID for verification.
- Once you have completed the above steps, you will be able to access your new E-service account with your password and username.
3.2 Register for VAT
When your e-service account is duly verified you will be able to enter it. After this, you will be asked to register for VAT.
Then, you will read the begin guide. This guide describes all the requirements related to VAT registration and is divided into sections that outline the data and the process necessary to complete it.
It is highly advisable that you hire the best VAT consultants in the UAE to guide you through the entire registration process and ensure a successful outcome.
However, if you prefer to do it alone, we recommend that you read the guide very carefully (to avoid mistakes). After this step, you can continue with the VAT registration form.
It is divided into eight sections that include the following:
- Details of the applicant
- Banking details
- Contact details
- About the applicant
- Business registration
- About VAT registration
- Review and submit
You must fill every section before moving on to the next. It is also recommended that you save your progress while moving forward as users are logged out after 10 minutes of inactivity.
After you fill in each section with the necessary information, click save and review. There, you can review your answers before submitting them.
Once you have reviewed your answers, the status of your application will change to pending. You will also get an email confirming that the FTA received your application
3.3 Documents required for a UAE VAT registration
To carry out the process of registering your company for VAT you will need to submit certain documents, which are the following:
- Bank account details
- Contact details of the company
- Nature of activities or performed businesses
- Emirates ID copy of the owners
- An income statement from the last twelve years
- Passport copies of the owner declared on the license
- Business trade license copy
- Memorandum of Association (MoA)
4. Implications of value added tax
4.1 Implication of VAT on individuals
Value Added Tax will apply to most transactions of services and goods; however, there are certain exceptions. As a result, the cost of living in the UAE is likely to increase slightly. However, this will depend on the individual’s lifestyle and spending behavior.
In other words, if the individual only spends on things that are relieved from VAT, they are very unlikely to notice any difference.
The government will include rules that will ask the different companies to clarify how much VAT an individual must pay for each transaction. According to this information, individuals can decide whether to buy something or not.
4.2 Involvement in businesses
All companies registered for VAT must be responsible for documenting their costs, incomes, and associated these charges. Merchants and registered companies must charge value added tax to all their customers at the prevailing rate and incur VAT on the services and goods they purchase from suppliers.
Note that the UAE government will pay or claim the difference between sums.
4.3 VAT registered businesses generally…
- May reclaim any VAT they paid on services and products related to the company.
- Must charge VAT on taxable services or products that they offer.
- Will keep the business records, which will allow the government to check that the company carries out its activities according to the legality of the United Arab Emirates.
Businesses registered for VAT must report how much they have charged for it and how much they have to pay to the government regularly. It must be a formal submission and you must do the report online.
If the company has charged more value added tax than they have paid, they must pay the difference to the government.
If, on the other hand, the company has paid more than they have charged, then they can claim the difference.
5. How to declare VAT in the UAE?
At the end of each tax period, companies registered for VAT must submit a VAT return to the FTA.
A vat return is a summary of the value of purchases and sales that a taxpayer has made during the tax period, and shows the taxable person’s VAT liability.
5.1 Liability of VAT
The liability of VAT is the difference between the input tax (VAT incurred on purchases) recoverable in a specific period and the output tax payable (VAT charged on supplies of services and goods) for the same period.
When the output tax exceeds the input tax, you must pay the difference to the FTA. Contrarily, when the input tax exceeds the output tax; the person who pays this tax will receive the difference back.
5.2 How to file a VAT return?
To file a VAT return, you must do it electronically through the FTA online portal. Before filling out this form, make sure you meet all the requirements.
5.3 When should a business file a VAT return?
Tax-paying companies must file the VAT return with the FTA regularly. Usually, you do this within 28 days of the end of the tax period.
The tax period is a specific time for which the tax to be paid must be calculated and delivered. The standard period is the following:
- Companies with an annual turnover of less than AED 150 million must submit VAT quarterly.
- Companies with an annual turnover of AED 150 million or more must submit it monthly.
Note that the Federal Tax Authority may, at its option, request a different tax period from certain types of companies.
If a company does not comply with the tax period and does not deliver the VAT, it can be sanctioned.
6. Why is it important to hire VAT consultants in the UAE?
The support and guidance of VAT consultants in the UAE are of utmost importance for those companies that want to maintain a credible and law-abiding reputation. The knowledge of these professionals about tax laws and the latest amendments will prevent you from making any mistakes or having any issues during the process.
Some of the reasons why you should hire the best VAT consultants in the UAE are the following:
Hiring this service, instead of carrying out the process yourself, is cost-effective in many ways. By deciding to hire a VAT consultant, the requirement of a supervisor, a worker, an additional manager, or tax formalities can be avoided.
6.2 Accurate reports
Accounting and reputed audit firms in the United Arab Emirates use the most advanced software to calculate value added tax, which prevents any mathematical errors.
Also, you must take into account that the wrong VAT filling can bring you problems with the UAE authorities.
6.3 Timely advice
In addition to the support of value added tax calculations, VAT Consultants in the UAE can advise you depending on the latest updates in government policies and global trends.
7. How can we help you with your company’s value added tax?
Every entrepreneur who decides to form a company in the UAE will, at some point, come across laws, regulations, and obstacles to overcome. From the simplest procedures to processes that require more time and knowledge, it is advisable to hire an agency specialized in business setup, such as our firm, to ensure that each step is carried out successfully.
Here, in Connect Zone, you will find the best VAT consultants, we can help you with the entire VAT registration process, we will offer you consultancies if you need them, and we can even help you with your company’s bookkeeping.
Would you like to receive more information about the services we can offer for your company? You can contact us at +97143316688 or also via email at email@example.com where one of our advisors will answer any questions you may have.
Additionally, if you are looking for the best employment opportunities in the UAE and many other countries, make sure to visit thetalentpoint.com. You may also send us your CV through firstname.lastname@example.org