INTRODUCTION OF 5% VAT IN THE UNITED ARAB EMIRATES (UAE) AS OF 01 JANUARY 2018

The UAE Government has established a ‘Federal Tax Authority’ (FTA) which will be responsible for administering, implementing and collecting Value Added Tax (VAT). The VAT regime is scheduled to start from 1 January 2018, at a standard rate of 5 per cent. All businesses must register for VAT if their taxable supplies exceed AED 375,000/- within a twelve month period.

Businesses with taxable supplies and imports that are less than the threshold but more than the voluntary registration limit of AED187,500/-  can optionally register for VAT. The deadline for submission of mandatory registration applications is 4 December 2017.

It is important to note that any services provided by companies in Free Zones (whether classified as a Designated Zone or not), to other Free Zone Companies or to mainland UAE companies, will be subject to VAT, in the same way as mainland UAE companies. Therefore, there is no difference at all in the VAT applicability for Companies providing Services, whether they operate from Mainland UAE or from any Free Zone in UAE.

As per the UAE Federal Cabinet Decision No. 40, the penalty for not registering a taxable person under VAT Law by the due date will be AED 20,000/- .To avoid these penalties please review your transactions carefully for the past twelve months and proceed with VAT registration if necessary as soon as possible.

 

Within a twelve month period the following sales and purchases are included in the calculation of the Registration Threshold of AED 375,000:

  • Value of sales of services and goods within UAE which are subject to 5% VAT
  • Value of sales of services and goods outside UAE which are subject to 0% VAT
  • Note – If the only supplies are zero rated a taxable person can apply for an exemption from registering for VAT. However a VAT application must still be made to the Federal Tax Authority in order to apply for the exemption.
  • Value of purchases of goods and services subject to the ‘reverse charge’ mechanism. This is when the place of supply has been shifted to the recipient’s country.

If we can be of any further assistance or you require clarification of any of the information in this announcement please do not hesitate to contact us.