VAT compliance
VAT compliance is mandatory for businesses operating in the UAE. The Federal Tax Authority (FTA) requires all registered businesses to maintain detailed financial records for a minimum of five years for potential inspection. Recent amendments to the UAE VAT Executive Regulations have introduced new rules for various sectors and have clarified existing regulations.
1. VAT Registration
Companies must register for VAT if their annual turnover meets the minimum criteria. A unique Tax Payer Registration Number (TRN) is issued to all registered businesses.
- Compulsory Registration: Required if your taxable supplies and imports over the previous 12 months, or in the next 30 days, are AED 375,000 or more. This includes a wide range of goods, services, and imports, but excludes exempt supplies.
- Voluntary Registration: Optional for companies with taxable supplies between AED 187,500 and AED 375,000. Startups with high expenses can also opt for voluntary registration to recover input tax.
- VAT Grouping: A group of companies can register as a single taxable entity if they meet eligibility requirements. This allows them to balance tax credits and conduct internal trade without incurring tax.
Taxable Supplies are all supplies of goods and services subject to VAT, which can be either standard-rated (5%) or zero-rated (0%).
Zero-Rated Supplies (0% VAT): These are still considered taxable but at a 0% rate. Businesses must secure and maintain a record of these zero-rated supplies in their VAT accounts. Examples include:
- Exports of goods and services to outside the GCC.
- International transportation services.
- Healthcare and education services.
- The first supply of residential properties.
- Recent updates have also added the management of investment funds and the transfer and conversion of virtual assets to this category.
- Exempt Supplies: These are non-taxable, and businesses that deal exclusively in them are not required to register for VAT or recover input tax. Examples include:
- Certain financial services.
- Local passenger transport.
- Bare land and subsequent supplies of residential properties.
2. VAT Invoices
A VAT invoice is a mandatory document issued by a registered supplier as proof of a transaction involving VAT. The invoice must include specific details as required by UAE VAT law, such as the company’s name, address, TRN, unique invoice number, date, description of goods/services, and the VAT amount. An invoice must be issued within 14 days of the supply of goods or services.
3. VAT Returns
A VAT return is a report that every registered business must submit to the FTA, typically on a quarterly or monthly basis. The due date for filing a VAT return is the 28th day after the end of the tax period. All returns, including a “NIL” return for periods with no transactions, must be filed online through the FTA’s portal.
4. Financial Records
Under UAE law, VAT-registered businesses are required to keep detailed records for at least five years. These records include:
- Records of all supplies and imports.
- All tax invoices and credit notes issued and received.
- Records of adjustments or corrections made.
- It is vital to maintain well-kept financial records as they may be requested and inspected by the FTA.
5. Audit and Penalties
The government, through the FTA, can audit a company’s tax returns and financial records. Non-compliance with VAT regulations can result in significant administrative penalties.
Key Penalties for Non-Compliance:
- Late Registration: AED 20,000.
- Failure to Deregister on Time: AED 10,000.
- Failure to Keep Required Records: AED 10,000 for the first offense and AED 50,000 for each repeat violation.
- Late Submission of VAT Return: AED 1,000 for the first offense and AED 2,000 for repeat offenses within 24 months.
- Late Payment of VAT: A penalty of 2% of the unpaid tax is due immediately, with an additional 4% after seven days, and a 1% daily penalty after one month, up to a maximum of 300%.
- Failure to Issue a Tax Invoice: AED 5,000 for each missing invoice.
- Failure to display prices inclusive of VAT: AED 15,000.