The United Arab Emirates (UAE) implemented Value-Added Tax (VAT) on January 1, 2018, marking a significant milestone in the country’s taxation system. VAT is a consumption tax levied on most goods and services, and businesses operating in the UAE are required to comply with VAT regulations, including filing VAT returns (VAT compliance). Timely and accurate VAT return filing is crucial for businesses to maintain compliance and avoid penalties (VAT fines).

Read this article to learn about the VAT (Value Added Tax) filing process for a business established in Dubai.

What is Value Added Tax (VAT)

Value Added Tax (VAT) is a consumption tax charged on a wide range of goods and services. More than 160 countries use a VAT system. In addition, most industrialized countries that are a part of the Organization for Economic Co-operation and Development have a VAT system.

The current VAT regime in the United Arab Emirates started in 2018. The VAT rate is five percent and applies to most goods and services , with some goods and services subject to a zero rate or an exemption from VAT.

UAE VAT registration

A company must register for VAT in the UAE if a business’s taxable supplies and imports exceed the mandatory registration limit of AED 375,000 (USD $102,000) per annum. Companies can register for VAT voluntarily if their supplies and imports exceed AED 187,500 (USD $51,000) per annum.

Startups and small-scale companies can register voluntarily if their expenses exceed the voluntary registration threshold, qualifying them for a tax credit.

Companies can register online for VAT via the UAE Federal Tax Authority (FTA). The process takes approximately 45 minutes, and the Federal Tax Authority takes about 20 days to review and complete the application.

UAE VAT-exempt and zero percent rated sectors

The below categories are zero-rated, which means there is no VAT charged:

• Specific education and healthcare supplies.
• Goods and services exported outside the Gulf Cooperation Council region.
• International transportation.
• Certain precious metals

The below categories are exempt from VAT:

• Certain financial services
• Residential properties
• Undeveloped land
• Life insurance
• Local passenger transport

VAT Return Filing Requirements in Dubai

Who needs to file VAT returns?

All businesses registered for VAT in the UAE, regardless of their location within the country, must file VAT return (new VAT return) with the Federal Tax Authority (FTA). This includes businesses based in Dubai and those operating in other emirates. These businesses are considered as the taxable person under the VAT law.

Deadline for filing VAT returns

The deadline for filing VAT returns in the UAE varies depending on the tax period. For monthly filers, the deadline is the 28th day of the following month. For quarterly filers, the deadline is the 28th day of the month following the end of the quarter.

Preparing for VAT Return Filing

A. Gathering necessary documentation and records

Businesses must maintain accurate records of their sales (taxable supply), purchases, VAT charged (output tax), and VAT paid (input tax). These records should include invoices, receipts, and other supporting documents. Having proper documentation streamlines the VAT return filing process and ensures accurate calculations.

B. Calculating VAT due or VAT refund

Based on the records, businesses must calculate the VAT due or VAT refund for the relevant tax period. The VAT due is the difference between the VAT charged on sales (output VAT) and the VAT paid on purchases (input VAT). If the input VAT exceeds the output VAT, the business may be eligible for a VAT refund.

C. Using VAT return filing software, VAT service, or online portals

The FTA offers an online portal (e-Services) for filing VAT returns. Businesses can also use VAT return filing software, VAT service, or accounting service with VAT functionality to streamline the process. These tools can automatically calculate VAT and generate the required forms.

UAE VAT return filing

VAT returns for the United Arab Emirates are all filled online, as there are no paper-based options. VAT returns must be filled with the FTA regularly and usually within 28 days of the ‘tax period’ end. A ‘tax period’ is a specific vat return period for which the payable tax shall be computed and paid.

The standard tax period is as follows:

• Quarterly – businesses with an annual turnover below AED150 million (USD $40.8 million)
• Monthly – businesses with a yearly turnover of AED150 million (USD $40.8 million) or greater.

Step-by-Step Guide to Filing VAT Returns in Dubai

A. Accessing the Dubai Federal Tax Authority (FTA) e-Services portal

Businesses must register for the FTA’s e-Services portal to file VAT returns online. This involves creating an account and obtaining login credentials from an authorized signatory.

B. Completing the VAT return form

After creating the Federal Tax Authority account and successfully logging in, the next step is to provide various inputs to the fields in the vat return form, the name of the firm, address, and tax registration number. In addition, information regarding the VAT sales and expenses in the financial year must be included in all filings Details like zero-rated service and exempt service must also be included.

The VAT return form requires businesses to enter details such as the tax period, taxable supplies, VAT charged on sales, VAT paid on purchases, and the net VAT due or refund (VAT liability).

C. Uploading supporting documents (if required)

The last step of the online VAT filing process is a declaration of the financial details provided.

Depending on the specific circumstances, businesses may need to upload supporting documents along with their VAT return. This could include invoices, purchase orders, or other relevant records.

D. Making VAT payments (if applicable)

If a business owes VAT for the tax period, they must make the necessary payment through the FTA’s e-Services portal or other approved payment channels.

The VAT due amount will usually be higher than the recoverable amount that must be paid. However, if the recoverable amount is higher than the VAT due, the amount can be refunded to the company by the FTA.

E. Submitting the VAT return

Once the VAT return form is completed, and any required payments are made, businesses can submit their VAT return through the e-Services portal.

Late or incorrect VAT return filing

A penalty of AED 1000 (USD $272) will be charged to companies who fail to file the UAE VAT return on time. And if the company repeats the offense within the next 24 months, the penalty increases to AED 2000 (USD $544).

An incorrect Value Added Tax return filing in the UAE can cause a fixed penalty of AED 3000 (USD $817) for the first time and AED 5000 (USD $1361) for the second time. In addition, a percentage-based penalty will be charged on the amount unpaid due to the error.

Hire experts to help you with VAT

Accurate and timely VAT return filing is crucial for businesses operating in Dubai and the UAE. It ensures compliance with VAT regulations, avoids potential penalties (VAT fines), and maintains good standing with the FTA.

Businesses are advised to maintain detailed records, stay updated with VAT regulations, and seek professional assistance from a VAT consultant, tax consultant, chartered accountant, or tax agent if needed. Additionally, businesses should be aware of other tax obligations, such as the UAE corporate tax, excise tax, and the process for VAT deregistration.

If you want to avoid the hassle of filing your VAT and making mistakes, you can turn to professional services that can give you advice as well as do all the processing for you. As always, our seasoned consultants are happy to give you guidance even if you are just exploring all your options.

Related Article: Corporate Tax in the UAE