VAT (Value Added Tax) is a tax that is levied on the use of services in addition to goods in the business. It is also called consumption tax because the final loss of tax falls on the end-user who buys or uses goods and services. Taxes are collected, managed, and accounted for by the government through businesses. The amount of VAT that the consumer pays is based on the price of the product.
VAT Registration in Dubai
VAT was introduced in the United Arab Emirates (UAE) on January 1, 2018, at the fixed rate of 5%. This rate could, of course, be changed by later legislation. The introduction of VAT in the UAE serves as a new source of income for the economy, which will help the country to use more funds to develop facilities for citizens.
VAT (Value Added Tax) rules in the UAE
The Federal Tax Authority (FTA) is the body that oversees all tax-related matters on behalf of the government. Businesses will collect taxes from customers and pay them to the government in the form of VAT returns and the government will refund the VAT paid by the businesses to the suppliers.
Any business whose taxable supplies and imports exceed 375,000 AED per year must register for VAT. Businesses will be responsible for carefully documenting their business income, expenses, and related VAT charges.
Penalties for VAT Non-Compliance
It has been established that penalties will range from a minimum of AED 500 to a maximum of three times the tax owed. Not maintaining accounting records will attract a penalty of AED 10,000 for the first violation and AED 50,000 for subsequent violations. Additionally, if an Arabic translation of transactions, records, and information is not provided when demanded by the FTA, a penalty of AED 20,000 will be imposed. Failing to file a tax return on time will incur a penalty of AED 1,000 initially, escalating to AED 2,000 for subsequent failures within 24 months. Not registering for tax within the specified period will lead to a penalty of AED 20,000. Late payment of taxes will be penalized with an immediate 2% of the unpaid tax due, increasing to 4% on the seventh day past the due date, followed by a daily 1% penalty after one month, with a cap of 300%. Submitting an incorrect tax return will result in a fine of AED 3,000 initially and AED 5,000 for each subsequent incorrect submission. A penalty of AED 5,000 will also be applied for failing to issue tax invoices and tax credit notes.
Documents and Information Required for VAT Registration in Dubai
To apply for VAT registration, requires a few documents with soft copies that can be uploaded with the application If you want to register a business for VAT, you will be able to complete all the needed procedures on the FTA’s official website. All legal documents (commercial license, MOA, AOA, etc.) that are in the presence of a legal entity should be uploaded on the website along with all the necessary identities such as passport, Emirates ID, etc. In addition to legal documents and proof of identity, annual business for the last 12 months is required to be submitted with the FTA in order to set up your eligibility for VAT registration.
How CBD Accounting & Advisory Assist
We manage end-to-end VAT registration for businesses in the UAE. If you’d like to register your business for UAE VAT, get the best counseling and help from CBD Accounting for more details.
