What is the value added tax (VAT) in the UAE?

The standard VAT rate in the United Arab Emirates is 5%. The UAE adopted VAT rules based on the European VAT principles, so if you understand how VAT works in the EU, it should not be hard to understand the basic rules of VAT in the UAE.

All entities in the UAE, including mainland, free zone and offshore companies, fall under the VAT regime if they are engaged in activities to which VAT is applicable.

VAT returns should be submitted quarterly, unless annual turnover exceeds 150 million AED (at this threshold, monthly reporting becomes required).

VAT does not apply to export supplies. Goods or services sold to customers established outside of the UAE, are considered to be exported supplies, therefore, VAT is only applicable in cases in which the customer - either a company or an individual - is established in the UAE.

The annual VAT registration threshold is 375 000 AED. If taxable supplies and imports exceed the threshold, the company should be VAT-registered. In certain cases, acquisitions might also be subject to VAT and must be registered, similarly to the European reverse charge mechanism. However, if there will be no local supplies, no actual VAT liabilities emerge.

If the business does not have any VAT-subject transactions, it can remain unregistered for VAT, however, there is a requirement to apply for this exemption. Any business which owns capital exceeding 375 000 AED should submit either a request to be registered for VAT or a request for VAT registration exemption.

All entities incorporated in the UAE should keep records in case the authorities would request the data in order to inspect whether the company properly fulfilled its liabilities.

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