Known for its business-friendly policies, the UAE has a vast ecosystem that welcomes tourists for its business setup initiatives. Fortunately, the tax system of the UAE is well-aligned with global standards and is highly transparent. VAT registration in the UAE is an inevitable factor for businesses to prevent any possible penalties.
If you’re running a business in the UAE and are clueless about the documents required for VAT registration, fret not, this blog can help you. We have compiled a brief list of all the documents you need to streamline your VAT registration process. Before diving into these details, let us first explore the basic meaning of VAT and the purpose of VAT registration for your business.
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What is VAT?
VAT or Value Added Tax is an indirect tax, which is transaction-based and levied at every phase of the supply chain. It is charged whenever value gets added to the product across the entire supply chain, ranging from production to the point of sale.
Businesses don’t pay VAT, instead, it is paid by consumers in the price of goods, and businesses collect them, which makes it an indirect tax. Businesses then report this to the government. While VAT feels the same as the general sales tax for the end users, it is a more sophisticated tax and eradicates different challenges that impact the general sales tax.
What is VAT Registration?
VAT Registration ensures the business listing with the government to represent that the company is active in sales and production. Once a business does the VAT registration, it can reclaim any VAT paid for the company purchases, and be responsible for the following:
- Imposing VAT on all goods and services sold
- Submission of VAT returns
- Keeping a VAT account and records
VAT Registration will be submitted via an online portal to FTA. Businesses registered for VAT will be issued a TRN, i.e.; a Tax Registration Number. This number should be present on all sales invoices of your business. Every business should adhere to certain VAT registration requirements and have a TRN (Tax Registration Number).
Mandatory Vs Voluntary VAT Registration
Mandatory VAT Registration in the UAE
A business “must” register when the sum of its imports and taxable supplies exceeds the threshold as of the previous 12 months, or businesses anticipate that the sum of the combined value of the imports and taxable supplies will exceed the registration threshold in the subsequent 30 days. The mandatory registration threshold value is AED 3,75,000– however, this value doesn’t apply to foreign businesses.
Voluntary VAT Registration in the UAE
A business can apply to register if it doesn’t fit in the mandatory registration requirements and under the following circumstances:
The total of taxable supplies and imports or the taxable expenses over the previous 12 months overpowers the voluntary registration threshold, else, the business anticipates that the sum value of taxable supplies and imports or taxable expenses shall take over the threshold in the subsequent 30 days. The value of the voluntary registration threshold is AED 1,87,500.
Importance of VAT Registration
As a business owner in the UAE, you should register for VAT. This verifies compliance with legal regulations and lets businesses fix the right VAT amount. It also lets businesses reclaim VAT on purchases. VAT reclaim is a significant saving for businesses that make a huge turnover. Voluntary registration provides a competitive edge to businesses and shows that you are a professional business that follows strict compliance with the tax laws in the UAE. Voluntary registration in the UAE also makes it easy to do business with other VAT-registered businesses.
Companies that fail in VAT registration or in filing VAT returns in the UAE are subject to fines. Any business that operates without getting VAT registration will be imposed a fine of AED 10,000 and an additional AED 1000 for every tax period for which no VAT return was filed. Additionally, the non-registered companies can’t earn input tax credits.
Therefore, VAT registration in the UAE is important to stay away from unwanted penalties. If you are running your business in the UAE, top VAT consultants or VAT registration services providers can help you be clear about all the tax obligations.
What Are the VAT Registration Requirements in Dubai, UAE?
To get a Tax Registration Number or TRN, you should submit all documents necessary for VAT registration. The following are the documents required for online VAT registration:
- Copy of trade license (shouldn’t be expired);
- The copies of passports that belong to owners/shareholders/managers who own the non-expired license.
- Copies of Emirates ID of the owners/shareholders/managers who own the non-expired license.
- Contact details of the company including the P.O. box and the detailed address with building, area, etc.
- Memorandum of Association (MOA) – not necessary for sole establishments;
- Contact details of the concerned person, including the mobile number, email ID, and designation;
- Company’s bank details which include Account Name, Account Number, IBAN, Branch Name, and Bank Name;
- Turnover declaration of the past 12 months, which should be signed and stamped by the company’s owner and should be printed on the letterhead;
- Sample of signed and stamped sales/purchase invoices;
- Attached customs letter in case the business deals with the customs department.
The documents essential for VAT registration will be submitted to the Federal Tax Authority (FTA) online. After applying for online VAT registration, FTA would take about 2-3 working weeks to review the application and finally issue a TRN (Tax Registration Number).
VAT Registration Requirements for Tax Group Registration
Businesses in the UAE can also register for a tax group. Different businesses of varying natures can also form a tax group. According to the Federal Tax Authority (FTA), when an individual has over 50% shares in more than one company, that person can form a tax group of the companies. The FTA issues a unique TRN that covers the entire group of companies.
Final Note
While dealing with VAT registration in Dubai, businesses have many alternatives, such as online form completion. VAT registration services in Dubai make your registration process hassle-free, especially with services from reputed VAT consultants in the UAE.
Once your company completes the registration, you can obtain a VAT certificate which ensures your social responsibility fulfillment. To learn further about VAT registration in the UAE and to learn how tax consultants in Dubai can support you in VAT registration, reach out to us!
FAQ
- What is a VAT certificate in UAE?
A VAT certificate is issued by the Federal Tax Authority, which is a statutory document that confirms the registration of the applicant. It includes the tax registration number(TRN), and the duration for which the tax returns should be filed.
- What is the VAT percentage in Dubai?
Considering the standard-rated supplies, the VAT percentage is 5%. But there are also zero-rated supplies and exempt categories.
- What are the penalties for failing to file VAT returns in the UAE?
In case of failure of the registrant in the submission of tax returns within a specific duration as per the tax law, the penalty would be 1000 for the first time, and 2000 upon repetition within 24 months.
- Are there any possibilities for refusal of an application when registered as a tax group?
Yes. The following circumstances would count for the refusal of VAT registration in UAE as a tax group:
The concerned persons need the definition for related parties as mentioned by the authority;
There are valid reasons to believe that the registration might cause tax evasion, a significant reduction in the tax revenues of authority, or an increase in the administrative burden of authority;
Any of the applicants prove not to be a legal person;
Anyone of the person is a government entity.
Any of the applicants is a charity. - Should International companies register under VAT?
If you are a non-UAE resident who sells goods in the UAE to UAE customers, you must register for VAT, regardless of the turnover you make from such sales. International companies should register under VAT and obtain the VAT number before selling in the UAE.
- Is VAT registration necessary for my new company?
VAT registration is not necessary for a new company. The newly found companies do not need VAT registration services in the UAE. VAT registration is applicable for new companies only when it expects a turnover of about 1,87,500. Below this turnover, they need not register since FTA (Federal Tax Authority) can reject the VAT registration application and will not issue a TRN (Tax Registration Number).