Business Setup & Formation
VAT Compliance
Value Added Tax (VAT) is a tax on the consumption of goods and services levied at every point of sale. It is an indirect tax applied in over 180 countries worldwide. The final consumer ultimately bears the cost. Businesses are responsible for collecting and remitting the tax to the government. VAT was introduced in the UAE on 1 January 2018 at a rate of 5%. Registered businesses are required to maintain proper records for a specified period and submit them for review, initially set at five years in the UAE.
1) VAT Registration
Companies that meet the minimum turnover thresholds are required to register for VAT. Upon registration, each company will receive a Unique Taxpayer Registration Number (TRN) from the Federal Tax Authority (FTA).
| Type of Registration | Turnover in Last 12 months |
| Compulsory | AED 375,000 and above |
| Voluntary | Between AED 375,000 and 187,500 |
| Not Required | Less than AED 187,500 |
Note: Exempt invoices are not included in the turnover calculation.
Groups of companies that meet eligibility criteria can register under a single VAT registration. Such groups are treated as a single taxable entity, which allows them to offset tax credits among member companies. Transactions within the group are not subject to VAT.
Taxable supplies include all goods and services provided by a business that are not classified as exempt. These supplies include both standard-rated and zero-rated items.
Zero-Rated Supplies
According to Article 45 of Federal Decree-Law No. (8) of 2017 on VAT, the following supplies are taxed at a zero rate (0%):
- Export of goods and services outside the GCC
- International transportation of passengers and goods
- Certain sea, air, and land vehicles
- Buildings specifically used by charities
- Precious metals
- Converted residential buildings
- Education services and related goods
- Healthcare services and related goods
Note: Although these supplies are zero-rated, they are still considered taxable. Records of all zero-rated supplies must be maintained in your VAT account and included in your tax return.
Exempt Supplies
Under Article 46 of Federal Decree-Law No. (8) of 2017 on VAT, the following supplies are exempt from VAT:
- Certain financial services as defined in VAT law
- Local passenger transport
- Bare Land
- Residential Properties
Note: If all your supplies fall under exempt categories, VAT registration is not required.
2) VAT Invoice
A VAT invoice is an official document issued by a VAT-registered supplier as proof that VAT has been charged on taxable goods and services. According to UAE VAT law, it must include:
- Supplier’s Company Name
- Company Address
- Tax Registration Number (TRN)
- Sequential or Unique Invoice Number
- Issue Date
- Description of Goods and Services
- VAT Rate Applied
- VAT Amount (AED)
- Unit Price of Goods or Services
- Customer Name and Address
Note: VAT invoices must be issued within 14 days of supplying goods or services.
3) VAT Return Filing
A VAT Return is a document submitted to the Federal Tax Authority (FTA) before the due date, either quarterly or monthly. It reports the output tax due and input tax recoverable, along with any other required information to complete the VAT Return (VAT201 form). The filing deadline is the 28th day after the end of the tax period, and payment must also be made to the FTA by this date. (Note: The FTA is not responsible if technical issues prevent receipt of payment on time.)
DO NOT: Skipping VAT Return filing will result in penalties imposed by the FTA.
4) VAT Record Keeping
Under UAE VAT Law, all VAT-registered businesses must maintain proper books of accounts and records for a minimum of five years, including:
- Records of all supplies and imports of goods and services
- Copies of all tax invoices and tax credit notes issued and received
- Records of goods and services disposed of
- Records of adjustments or corrections made to accounts or tax invoices
DO: Ensure your financial records are accurate and well-maintained, as the FTA may inspect them at any time.
5) VAT Audit Compliance
The government, either directly or through authorized agents, can request an audit of a company’s VAT returns. Businesses must maintain physical records of all purchases and supplies, along with complete registration details of both suppliers and customers.
Below are common VAT-related violations and their corresponding penalties:
VAT Registration & Financial Records Violations
Failure to maintain required records as per tax procedures and VAT law. Penalty: AED 10,000 for first-time, AED 50,000 for repeated violations.
Failure to submit records in Arabic when requested by the Authority. Penalty: AED 20,000.
Failure to notify the Authority of amendments to tax records. Penalty: AED 5,000 for first-time, AED 15,000 for repeated cases.
Failure to submit VAT registration application within the required timeframe. Penalty: AED 20,000.
Failure to apply for VAT de-registration within the specified timeframe. Penalty: AED 10,000.
VAT Compliance Violations & Penalties :
Not displaying prices inclusive of VAT: Penalty AED 15,000.
Failure to notify the Authority of margin-based taxation: Penalty AED 2,500.
Non-compliance with transfer of goods in designated zones: Penalty is higher of AED 50,000 or 50% of unpaid tax on the goods.
Failure to issue a tax invoice or alternative document for any supply: Penalty AED 5,000 per missing invoice/document.
Failure to issue a tax credit note or alternative document: Penalty AED 5,000 per missing credit note/document.
Non-compliance with electronic tax invoices/credit notes procedures: Penalty AED 5,000 for each incorrect electronic document.