Frequently Asked Questions
FAQ
Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. VAT grouping would generally simplify accounting for VAT.
A Person required registering for VAT needs to submit a registration application to the FTA within 30 days of being required to register.
Registration applications shall be submitted via the e-Services Portal on the FTA website
A registered taxable person must issue a valid VAT invoice for its taxable supplies. To be considered as a valid VAT invoice, the document must include certain particulars as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned in the legislation.
Penalties will be imposed in cases of non-compliance with tax legislation.
Examples of actions and omissions that may trigger penalties include:
A person failing to register when required to do so;
A person failing to submit a tax return or to make a payment within the required period;
A person failing to keep the records required under the issued tax legislation;
Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.
A business must register for VAT if its taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Furthermore, a business may choose to register for VAT voluntarily if its supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.
Similarly, a business may register voluntarily if its expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
It is prohibited to practice the profession of a Tax Agent without completing the registration and receiving accreditation from the FTA. Doing so constitutes a legal offense.
VAT will be charged at 0% in respect of the following main categories of supplies:
Exports of goods and services to outside the GCC;
International transportation, and related supplies;
Supplies of certain sea, air and land means of transport (such as aircraft and ships);
Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
Supply of certain education services, and supply of relevant goods and services;
Supply of certain healthcare services and supply of relevant goods and services.
Excise Tax
Excise Tax came into effect on 1 October 2017 based on Federal Decree-Law No. (7) of 2017 on Excise Tax.
Excise Tax is calculated based on the excise price. The excise price is the higher of the price published by the FTA in a standard price list if available and the designated retail sales price for the excise good less the tax included therein.
The following goods are subject to excise tax in the UAE at the following rates of tax:
- Carbonated drinks – 50%
- Energy drinks – 100%
- Tobacco – 100%
The following groups are required to register for excise tax:
- Producers of excise goods.
- Importers of excise goods.
- Stockpilers of excise goods.
- Warehouse keepers supervising designated zones for Excise Tax
A stockpiler is a person that owns excise goods and cannot prove that excise tax has previously been paid on those goods.
Excise Tax is due when goods are ‘released for consumption’ i.e. when they enter free circulation in the UAE. Excise tax is due when:
- Excise goods are imported into the UAE;
- Excise goods are released for consumption in the UAE (e.g. manufactured and released from a designated zone/excise warehouse etc); or
- Excise goods are acquired by a stockpiler, where tax has not previously been paid on these goods.
Excise tax is not a transaction-based tax, which means that goods do not need to be sold in order for the tax to be due.
A designated zone is the term used in the UAE to describe a specified area that is considered outside the UAE for excise tax purposes.
For an area to be treated as a designated zone, it must be officially registered and approved by the FTA and a warehouse keeper must be appointed as responsible over the designated zone.
A designated zone should be a fenced area intended to be a free zone that cannot be entered or exited except through a designated road and any area designated by the FTA as being subject to the supervision of a warehouse keeper.
A designated zone should be a fenced area intended to be a free zone that cannot be entered or exited except through a designated road and any area designated by the FTA as being subject to the supervision of a warehouse keeper.
Unlike VAT, excise tax is paid once in the supply chain and businesses that have purchased excise goods cannot obtain a refund of the excise tax paid on those goods.
There are a limited number of cases where a refund of excise tax will be available. Those cases are:
- When excise tax has been paid on an excise good, which is then produced in to a ‘new’ excise good, on which excise tax is again due;
- When excise tax has been paid on an excise good that is then exported outside the UAE; or
- When amounts have been paid to the FTA in error.
In the above cases, a business registered for excise tax will be entitled to a refund of the excise tax paid. The refund will be granted by allowing a deduction of the refundable amount from the tax due in the next excise tax return period.
There are also a limited number of cases where refunds will be available to people who are not registered for excise tax. Those cases are:
- Where excise tax has been paid by certain international governments, diplomatic missions and international organisations in the course of their official activities, where a reciprocal agreement is in place between the UAE and the entity’s home country; and
- Where excise tax has been paid in the UAE by a person who is registered for excise tax in another GCC country that is implementing excise tax and who has then exported the excise goods out of the UAE and paid excise tax in that other GCC country.
A refund request form will be available on the FTA website that can be used to request refunds.
Travellers entering the UAE with excise goods for non-business purposes will not be required to register as an importer of excise goods.
Travellers may need to pay the excise tax due on the goods depending on the value of the goods being imported. Where the value of the goods is below the threshold for exemption from Customs Duty as per the Customs Laws, no excise tax is due.
Where the value of excise goods exceeds the value of the exemption for Customs Duty purposes, then excise tax will be due on the total value of the goods.
Physical payment of excise tax will be required before or at the time of import. Further details on the obligations of travellers or non-registered persons bringing excise goods into the UAE can be found in the Excise Tax Importers User Guide available on the FTA’s website.
Excise is not a transaction based tax so no relief will be available for suppliers that have sold excise goods to a customer and have not received payment from that customer. Excise tax is due based on the date the goods are released for consumption (i.e. enter free circulation) in the UAE, regardless of whether they are subject to an onward sale.
Goods released for consumption in a freezone will be subject to excise tax. This includes any freezone that may also be registered as a designated zone. If goods are held out for retail sale, or intended for consumption within a freezone, excise tax will need to be paid by the importer or producer that ‘released’ the goods.
Samples of excise goods that are given away for free will also be subject to excise tax. Excise tax is not a transaction based tax so tax is due on the goods when they are released for consumption (i.e. enter free circulation) in the UAE, regardless of whether or not they are intended for sale.
General VAT Questions
Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.
A sales tax is also a consumption tax, just like VAT. For the general public there may be no observable difference between how the two types of taxes work, but there are some key differences. In many countries, sales taxes are only imposed on transactions involving goods. In addition, sales tax is only imposed on the final sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services so as to ensure that a level playing field is maintained for domestic providers of those same goods and services.
Many countries prefer a VAT over sales taxes for a range of reasons. Importantly, VAT is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government and cuts down on misreporting and tax evasion.
The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide the UAE with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
The UAE is part of a group of countries which are closely connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group of nations have historically worked together in designing and implementing new public policies as such a collaborative approach is best for the region.
The standard rate of VAT in the UAE is 5%.
Businesses are responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
VAT, as a general consumption tax, is applied at 5% to all transactions of goods and services unless specifically exempt in Article 46 of the Federal Decree-Law No. (8) of 2017 on Value Added Tax or subject to a rate of 0% as per Article 45 of the Federal Decree-Law.
VAT is intended to help improve the economic base of the country. Therefore, there are rules that require businesses to be clear about how much VAT you are paying for each transaction. Consumers should have the required information to decide whether to buy something or not.
Any person is able to object to a decision of the Federal Tax Authority.
As a first step, the person shall request the FTA to reconsider its decision. Such request of reconsideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.
If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before
objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.
As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision
A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:
- Any place that is not a building fixed to the ground and can be moved without being damaged.
- Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.
- A serviced apartment for which services in addition to the supply of accommodation are provided.
- Any building constructed or converted without
A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.
A supply of real estate may include the sale, lease or giving the right in any real estate.
The first supply of a new residential building within the first three years of it being constructed is zero-rated. All subsequent supplies are exempt, even if within the first three years.
All supplies of commercial properties are subject to VAT at 5%, and this includes all buildings or parts thereof that are not residential buildings.
The owners of residential buildings who only make exempt supplies do not have to register for VAT if they do not have any taxable business activities. Where owners have taxable business activities, they should consider their obligations further.
The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over the coming 30 days.
An owner of a residential building is not able to recover VAT in respect of expenses related to the exempt supply of the residential building.
An owner of a commercial building is generally able to recover VAT in respect of expenses related to the supply of the commercial building.
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply within the first three years of completion of construction or a subsequent supply.
The rent of a residential building will generally be exempt from VAT.
The rent of a commercial building will be subject to VAT at 5%
Real Estate
A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:
- Any place that is not a building fixed to the ground and can be moved without being damaged.
- Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.
- A serviced apartment for which services in addition to the supply of accommodation are provided.
- Any building constructed or converted without lawful authority.
A commercial building is any building or part thereof that is not a residential building. Examples would be offices, warehouses, hotels, shops, etc.
A supply of real estate may include the sale, lease or giving the right in any real estate.
The first supply of a new residential building within the first three years of it being constructed shall be zero-rated. All subsequent supplies shall be exempt, even if within the first three years.
All supplies of commercial properties or parts thereof, are subject to VAT at 5%.
The owners of residential buildings do not have to register for VAT if they do not have any other business activities. Where owners have other business activities, they should consider their obligations further.
The owner of any building that is not residential, will have to register if the value of the supplies over the preceding 12 months exceeds AED 375,000 or it is expected that they will exceed AED 375,000 over coming 30 days.
An owner of residential building will not be able to recover VAT in respect of expenses relating to the exempt supply of the residential buildings.
An owner of a commercial building will generally be able to recover VAT in respect of expenses relating to the supply of the building.
The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply or a subsequent supply.
The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.
The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.
The rent of residential building will generally be exempt from VAT.
The rent of commercial building will be subject to VAT at 5%
Other Questions
Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for things such public hospitals, schools and universities, defence and other important aspects of daily life.
- A direct tax is collected by a government from the person on whom it is imposed (e.g., income tax, corporate tax).
- An indirect tax is collected for a government by an intermediary (e.g. a retail store) from the person that ultimately pays the tax (e.g., VAT, Sales Tax).
As per global best practice, the UAE is exploring other tax options as well. However, these are still being analysed and it is unlikely that they will be introduced in the near future. The UAE is not currently considering personal income taxes, however.
Our analysis suggests that it will help the country strengthen its economy by diversifying revenues away from oil and will allow us to fund many public services. This is a sign of a maturing economy.
The FTA website includes guides, public clarifications and other references that aim at assisting persons with a better understanding of UAE tax legislation.
A telephone hotline has been set up so that you can call and speak to one of our employees directly on 600599994.
The FTA provides information and education to businesses to help them with their tax implementation. The government will not pay for businesses to buy new technologies or hire tax specialists and accountants. That is the responsibility of each business.
Everyone is urged to fully comply with their VAT obligations.
Administrative penalties for violations have been issued by Cabinet Decision No. (40) of 2017 and can be found under the Legislation section on the FTA website.