Businesses in the UAE have had to contend with value-added tax (VAT), a 5% levy on consumer goods and services, since 2018. From production to retail, it influences every step of the buying and selling process. To maximise financial operations and prevent penalties, businesses must be familiar with the rules, duties, and methods linked to VAT compliance. VAT is collected and sent to the Federal Tax Authority by businesses, but the cost is ultimately passed on to the consumer.
How Does VAT Work?
With registered businesses charging VAT for goods and paying VAT for purchases, the UAE’s VAT system functions as a chain of tax credits. While certain transactions are zero-rated or exempt, the majority of products and services are subject to a 5% VAT charge. Companies are unable to recoup input VAT. Businesses must add 5% to the value of their taxable products or services to compute VAT, which yields a net VAT amount of AED 25.
VAT Registration and Compliance Obligations
If a business’s taxed sales and imports total more than AED 375,000 in a year, they need to sign up for VAT. You have 30 days to register or you will have to pay an official fine of AED 10,000. People who bring in and sell goods that are taxed for between AED 187,500 and AED 375,000 a year can freely register. Invoices must be VAT-compliant. For deals over AED 10,000, full invoices are needed, while reduced invoices are needed for less than that amount.
VAT Returns and Payment
VAT-registered firms must submit their VAT returns using the FTA’s EmaraTax system. The frequency of filing is determined by yearly turnover: individuals earning more than AED 150 million must submit monthly, while others file quarterly. VAT returns, which describe taxable, input VAT, zero-rated, and exempt supplies, must be filed within 28 days of the tax period’s conclusion. The VAT payment is performed by subtracting input VAT from output VAT, and the net amount is paid using a variety of methods, including bank transfer, eDebit, credit card, and e-Dirham.
Record-Keeping Responsibilities
VAT compliance requires extensive and accurate record-keeping. Businesses must keep track of tax invoices, credit notes, supply and purchase information, export transactions, non-business use of products and services, and any accounting changes. These records must be kept for at least five years and readily available in the event of an FTA audit.
Input Tax Recovery and Refunds
The VAT system permits registered enterprises to recover input VAT on purchases; however, some circumstances, such as employee amusement or exempt products, are not recoverable. Businesses must allocate input VAT claims proportionally. If input VAT exceeds output VAT, enterprises may carry the excess forward or request a refund. Registered enterprises use the reverse charge method for imported items.
VAT on Cross-Border Transactions
The UAE’s VAT policy focuses on local consumption, with zero-rated exports and services to countries outside the GCC. Imports are subject to VAT, and registered enterprises report via the reverse charge system. Services imported from outside are subject to a 5% reverse charge. Trade with GCC nations is classified as an export; therefore, digital service providers may be required to register for VAT.
Sector-Specific VAT Considerations
The UAE’s VAT system mostly taxes goods and services used in the country, but it doesn’t tax exports or services sent to places outside the GCC. Imports are subject to VAT, and registered enterprises disclose this via the reverse charge method. There is a 5% reverse fee on services brought in from other countries. When you trade with GCC countries, it’s regarded as an export, and digital service providers may have to pay VAT.
The Future of VAT: E-Invoicing
Starting in July 2026, the UAE will require all VAT-registered enterprises to use e-invoicing for business-to-business and business-to-government transactions. Federal Decree-Law No. 16 of 2024 makes this possible by making e-invoices permissible for reporting VAT and getting back input VAT. E-invoicing is supposed to make things clearer, make it easier to follow the rules, and cut down on tax evasion. Businesses can be ready by modernising their invoicing systems and educating their finance personnel.
Following the VAT regulations in the UAE with GPA ACCOUNTING LLC
Businesses that want to operate legally and effectively in the UAE need to know about VAT. The system is meant to be fair yet stringent, from registering and sending invoices to submitting returns and getting back input VAT. Staying up to date and following the rules not only helps you avoid fines, but it also makes your business more credible and your finances more open.
At GPA Accounting, we specialize in helping businesses in the United Arab Emirates navigate VAT regulations with assurance. Whether you’re starting a new company, managing VAT returns, or preparing for the upcoming e-invoicing mandate, our team of experts offers tailored assistance to ensure total compliance with the Federal Tax Authority. GPA Accounting LLC is your reliable partner for smooth VAT administration because of our thorough understanding of regional tax regulations and dedication to accuracy.
Working with experts like GPA Accounting can provide your company with the competitive advantage it needs to remain ahead of the curve as the UAE improves its VAT infrastructure, particularly the transition to digital tax systems.
