VAT & TAX CONSULTANCY

WELCOME TO OUR COMPREHENSIVE GUIDE

Welcome to our comprehensive guide on VAT compliance in Dubai and the UAE. Did you know that the Middle East does not levy taxes on individuals but rather on oil companies and foreign banks? This is great news for entrepreneurs looking to establish a business in Dubai. However, it’s important to note that as of January 1, 2018, Dubai implemented a value-added tax (VAT) on the majority of goods and services.

As a business owner, you’ll be required to charge VAT on almost all goods and services, ranging from food at restaurants to hardware tools. If you’re unfamiliar with VAT and eager to learn more, you’ve come to the right place. Our guide will provide you with a comprehensive understanding of VAT in Dubai.

Why should you consider starting a business in Dubai? Apart from the government’s funding initiatives and vibrant economy that accelerates business growth, tax benefits are undoubtedly a top attraction. The Middle East maintains a zero tax rate on personal and corporate income, and the only tax businesses need to pay is the low 5% VAT rate.

By setting up your business in a free zone, you can benefit from a 0% corporate and income tax rate, no customs duties, and the freedom to repatriate 100% of your business’s profits.

So, what exactly is value-added tax (VAT)? Unlike income taxes, VAT is a consumption-based tax that applies to the purchase of goods and services. It is added at every stage of the manufacturing and distribution process where value is added to the product. Customers pay the VAT, and businesses are responsible for collecting and remitting it to the government. Failure to comply can result in penalties or even criminal charges.

VAT is the most common type of consumption tax, implemented by over 150 countries worldwide, including European Union members, Canada, and New Zealand.

VAT was introduced in Dubai in 2018, applicable to both online and traditional store purchases received within Dubai. The UAE government mandated businesses to register for VAT and collect and remit the amounts to the government. This marked the first time VAT was implemented in the Middle East.

To ensure a successful business formation in Dubai, it is crucial to understand your VAT obligations, register as required, and promptly pay your VAT dues. Failing to do so can lead to substantial penalties and interest charges, which can reach up to 300% of any unpaid VAT liability.

Here are seven key points to know about VAT in Dubai:

1. VAT in Dubai is levied at a flat rate of 5% on taxable supplies of goods and services, including imports. Certain services are exempt from VAT, so it’s essential to determine if your supply falls under the taxable or exempt category.
2. Some services have a 0% VAT rate, such as goods and services exported outside the Gulf Cooperation Council (GCC) member states, international transportation, supply of investment-grade precious metals, and certain areas like healthcare and education.
3. Exempt services, on the other hand, are entirely exempt from VAT and include financial services, the supply of residential property, vacant land, and local public transportation.
4. VAT registration becomes mandatory for businesses making taxable supplies or imports worth AED 375,000 or more annually. However, businesses with taxable supplies or imports exceeding AED 187,500 have the choice to register for VAT voluntarily.
5. As a business owner, you have the opportunity to reclaim VAT paid on certain goods and services through Input Tax. Input Tax refers to the VAT paid when purchasing goods for your business. However, it’s important to note that you cannot recover VAT if you provide exempt services.
6. VAT registration with the Federal Tax Authority (FTA) is obligatory. You need to create an e-service account and complete the registration process, providing necessary information and attaching relevant documents.
7. Convenient Online Payment Options : At the conclusion of each tax period, it is mandatory to submit an online VAT return to the Federal Tax Authority (FTA). This return serves as a comprehensive summary of the total taxable supplies made during that period, outlining the amount of VAT that should have been collected and is now due to the government.VAT returns must be filed and any outstanding VAT must be paid on a quarterly basis, no later than the 28th of the following month. Failure to file the returns on time can lead to penalties. Missing the deadline will result in an initial penalty of AED 1,000, with subsequent instances incurring a penalty of AED 2,000 for each occurrence of late filing.Late payment of VAT can attract significant penalties. For the first 7 days, the penalty is 2% of the unpaid VAT amount, which increases to 4% after the initial 7 days. If the VAT amount remains unpaid for an entire month, a penalty of 1% per day will be imposed until it reaches 300% of the outstanding VAT amount.Even if your supplies are zero-rated, it is still necessary to file your VAT returns. Failure to do so will subject you to the same penalties for late filing.Whether you have VAT payable or VAT owing, you can conveniently make online payments through the official FTA website. Payment options include credit card, eDebit, or bank transfer, which can be done locally or internationally.

   Paying your VAT should not pose difficulties, but it is crucial to ensure timely payment to fulfill your obligations. The flexibility in payment methods enables you to settle your VAT conveniently and without hassle.

   ARE YOU READY TO START YOUR BUSINESS IN DUBAI?

   Now that you are well-versed in the VAT requirements in Dubai, which were introduced in 2018, remember the importance of fulfilling your reporting, collecting, and remitting obligations under VAT when embarking on your new business venture.

   Having gained comprehensive knowledge about VAT in Dubai, it is now essential to consider all the costs associated with starting a business. Allow us to assist you in calculating the expenses involved in order to help you prepare for any eventualities.