Worldwide VAT, GST and Sales Tax Guide
United Arab Emirates
Dubai
EY
ICD Brookfield Place
Al Mustaqbal Street
Dubai International Financial Center P.O. Box 9267
Dubai
Indirect tax contacts
Aamer Bhatti
Sana Azam
+971 50 8050 757 aamer.bhatti@ae.ey.com
+971 54 3054 736 sana.azam@aey.ey.com
Stuart Halstead +971 50 7683 629 stuart.halstead@ae.ey.com
Dorwin Nyaga +971 55 1874 402 dorwin.nyaga@ae.ey.com
Stefan Majerowski +971 54 7911 861 stefan.majerowski2@ae.ey.com
Abu Dhabi
EY
Nation Tower 2
Corniche
P.O. Box 136
Abu Dhabi
Indirect tax contacts
James Bryson
Sana Azam
A. At a glance
Name of the tax
Local name
+971 56 199 2349 james.bryson@ae.ey.com
+971 54 3054 736 sana.azam@ae.ey.com
Value-added tax (VAT)
Date introduced 1 January 2018
Trading bloc membership Gulf Cooperation Council (GCC) Greater Arab Free Trade Area (GAFTA)
Administered by Federal Tax Authority (FTA) (www.tax.gov.ae)
VAT rates Standard
Other Zero-rated (0%) and exempt VAT number format XXXXXXXXXXXXXXX (15-digit combination)
VAT return periods Quarterly (general)/Monthly (discretion of the FTA)
Thresholds Registration AED375,000
Recovery of VAT by non-established businesses Yes, subject to certain conditions
B. Scope of the tax
VAT applies to the following transactions:
• The supply (and deemed supply) of goods and services made in the United Arab Emirates (UAE) by a taxable person
• The acquisition of goods from another Gulf Cooperation Council (GCC) Member State by a taxable person
• Reverse-charge services received by a taxable person in the UAE
• The importation of goods into the UAE, regardless of the status of the importer
Designated Zones. A “Designated Zone” specified by a decision of the UAE Cabinet shall be treated as being outside the UAE and outside the GCC, subject to the following conditions:
• The Designated Zone is a specific fenced geographic area and has security measures and customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area.
• The Designated Zone shall have internal procedures regarding the method of keeping, storing and processing of goods therein.
• The operator of the Designated Zone complies with the procedures set by the authority.
Note that not all Free Zones in the UAE qualify as Designated Zones for VAT purposes.
A transfer of goods between Designated Zones shall not be subject to VAT if the following two conditions are met:
• Where the goods, or part thereof, are not released and are not in any way used or altered during the transfer between the Designated Zones.
• Where the transfer is undertaken in accordance with the rules for customs suspension according to the GCC Common Customs Law.
Where goods are moved between Designated Zones, the FTA may require the owner of the goods to provide a financial guarantee for the payment of the VAT, which that person may become liable for, should the conditions for movement of the goods not be met.
If a supply of goods is made within a Designated Zone to a person to be used by him or by a third person, special rules apply. The place of supply shall be the UAE unless the goods are to be incorporated into, attached to or otherwise form part of or are used in the production or sale of another good located in the same Designated Zone that itself is not consumed.
The place of supply of water or any form of energy shall be inside the UAE if the place of supply is in a Designated Zone.
Goods located in a Designated Zone on which the owner has not paid VAT will be treated as imported into the UAE by the owner, with VAT chargeable subject to normal rules if the goods are consumed by the owner. An exception to this applies where these goods are incorporated into, attached to or otherwise form part of or are used in the production of another good located in a Designated Zone that itself is not consumed.
Any person established, registered or who has a place of residence in a Designated Zone shall be deemed to have a place of residence in the UAE for the purposes of the VAT law.
There are minimal special rules or exemptions for services rendered in Designated Zones. If the place of supply is in the Designated Zone, the service is provided within the UAE. This means that services provided in a Designated Zone may be taxable under the normal VAT rules. A special rule does, however, exist for certain services related to the shipping and delivery of goods supplied within a Designated Zone or moved from a Designated Zone to a location within the UAE.
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in that jurisdiction where it has customers that are not taxable persons. In the UAE the “use and enjoyment” provisions are applicable to businesses making supplies of telecommunication and electronic services. Where a business is making such supplies to a non-VAT-registered customer in the UAE (i.e., business-to-consumer (B2C) supplies), it may have an obligation to register in the UAE and account for VAT. For further details, see the subsection Digital economy below.
Transfer of a going concern. Normally the sale of the assets of a VAT-registered or VAT-registrable business will be subject to VAT at the appropriate rate. However, a transfer of a business as a going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is the sale of a business or part of a business capable of separate operation including assets. Where the sale meets the conditions, the supply is treated as outside the scope of VAT. In the UAE, a TOGC is treated as outside the scope of VAT where the following conditions are met:
• There must be a transfer of a whole or an independent part of a business (for example, a transfer of shares does not constitute a whole or independent part of a business, nor does a standalone transfer of inventory/assets where such assets are not all things necessary to allow the recipient to operate the whole or independent part of the business being transferred).
• The transfer must be made to a taxable person.
• The recipient intends to continue the business which was transferred.
Transactions between related parties. The value of the supply or deemed supply or the value of any import of goods or services that is undertaken between related parties shall be considered to be equal to the market value in cases where the original value of the supply is actually lower than market value (or supply for no consideration, in some cases) and the recipient of the supply cannot claim the related input tax in full. There is no explicit difference in the valuation methods for supplies of goods and services. The same principle outlined here shall apply.
C. Who is liable
A “taxable person” is any person registered or required to register for VAT in the UAE.
Every individual/business who has a place of residence in the UAE, or in another GCC Member State, where the total value of all taxable supplies made in the past 12 months, or expected taxable supplies in the next 30 days, exceeds AED375,000, must register for, collect and remit VAT.
Where a person has a requirement to register based on the above, they must apply to the FTA to register within 30 days of being required to register. Where a person does not file its VAT registration application despite being required to do so, the FTA shall register that person with effect from the date on which the person first became liable to be registered for VAT and impose the necessary penalties.
For registrations based on supplies made in the last 12 months, the registration will take effect from the first day of the month following the month in which the person is required to register or from an earlier date as agreed between the FTA and the person.
For registrations based on expected supplies in the next 30 days, the registration will take effect from the date on which there are reasonable grounds for believing the person will be required to register or from an earlier date as agreed between the FTA and the person.
A taxable person who has been late in registering for VAT is liable to account for and pay to the FTA the VAT due on all taxable supplies and imports made by that person before registering.
Exemption from registration. A taxable person providing zero-rated supplies only may, upon application to the FTA, be excepted from the mandatory VAT registration obligation. Any taxable person excepted from the VAT registration obligation must inform the FTA of any changes to its business that would make it subject to VAT within 10 business days of making such supplies.
The FTA has the right to collect any VAT due and to levy administrative penalties for the period of exception if the taxable person was not entitled to the exception from VAT registration.
Voluntary registration and small businesses. A taxable person who is not obliged to register for VAT may apply for VAT registration if its taxable supplies or expenses over the past 12 months exceeded AED187,500. Alternatively, an application for voluntary registration can also be made if it is expected that its supplies or expenses will exceed AED187,500 in the next 30 days. It should be able to provide evidence of an intention to make taxable supplies or incur expenses that are subject to VAT (at the standard rate) greater than AED187,500.
Where a taxable person applies to register for VAT voluntarily, the FTA shall register it with effect from the first day of the month following the month in which the application is made or from an earlier date as agreed between the FTA and the person.
Group registration. Two or more taxable persons may apply for VAT registration as a tax group if all of the following conditions are met:
• Each taxable person has a place of establishment or fixed establishment in the UAE.
• The taxable persons must be related parties.
• One or more taxable persons must control the other taxable person(s), i.e., there must be common ownership.
A tax group must select one of its registered members to act as the representative member of the tax group.
An application to form a tax group must be made by a taxable person. This person is the representative member of the tax group.
Any goods or services supplied to any of the members of the tax group (including imports) will be deemed to be supplied to the representative member. Any supplies made by a member of the tax group shall be deemed to be made by the representative member, which includes output tax charges or input tax incurred by any of the members.
All members of a VAT group in the UAE are jointly and severally liable for VAT debts and penalties. While the representative member is deemed to have made supplies and acquisitions (and account for output tax and input tax) for the members of the VAT group as if it had made them itself, all members of a tax group shall be personally and jointly liable for the payable tax of the VAT group (reported by the representative member on behalf of the VAT group) during any tax period that the member is part of the VAT group.
Any supplies made by a member of the VAT group to another member of the same group may be disregarded for VAT purposes. The tax group registration takes effect from the first day of the tax period following the tax period in which the application is received, or any date as determined by the FTA.
Digital economy. For the purposes of UAE VAT, telecommunication services include those supplied using communications equipment or devices that can deliver, broadcast, convert or receive communications, such as wired/wireless communications, music, viewable images and signals used to operate machinery, etc.
Where telecommunication and electronic services are supplied within the UAE, the place of supply will be within the UAE to the extent that the use and enjoyment of the supply is within the UAE. Where the services are supplied outside the UAE, the place of supply shall be outside the UAE to the extent that the use and enjoyment of the supply is outside the UAE. The actual use and enjoyment shall be where the recipient consumes and enjoys the services, regardless of the place of contract or payment.
Telecommunications services may be zero-rated where the supplier has a place of residence within the UAE and makes the supply to either:
• Another telecommunications supplier who has a place of residence outside the implementing states.
• A person who is not a telecommunications supplier but who has a place of residence outside the UAE, where the services are initiated outside the implementing states.
Nonresident providers of electronically supplied services for B2C supplies are required to register and account for VAT on the supplies made in the UAE. This is because for nonresident suppliers, the registration threshold is nil.
Nonresident providers of electronically supplied services for business-to-business (B2B) supplies are not required to register and account for VAT on the supplies made in the UAE. Instead, the customer is required to self-account for the VAT due via the reverse-charge mechanism (see the Reverse-charge subsection above).
There are no other specific e-commerce rules for imported goods in the UAE.
Online marketplaces and platforms. Electronic services include those delivered automatically over an electronic network or marketplace, including the supply of domain names, web hosting, software (including updates), images, music, magazines, advertising space, distance learning and livestreaming.
At the time of preparing this chapter, the respective tax authorities of the UAE, Saudi Arabia, Bahrain and Oman are not treating each other as implementing states. Consequently, until being recognized as implementing states by the UAE, GCC Member States are treated the same as nonGCC jurisdictions. Therefore, the zero-rating provisions should still be considered in the context of GCC Member States. This situation should, however, be monitored as going forward GCC Member States that implemented VAT may be recognized as implementing states. Note that where we refer to the GCC, we are referring to GCC Implementing States.
Registration procedures. A UAE VAT registration application must be made online on the FTA portal (www.eservices.tax.gov.ae). The following details must be provided:
• Company information: including, the UAE trade license; if the company has a place of residence in the UAE; legal name of the company in English and Arabic; certificate of incorporation
• Details of the authorized signatory and manager of the business: including copy of the signatory’s/manager’s passport; copy of the signatory’s/manager’s Emirates ID; signatory’s/manager’s scanned copy of proof of authorization, for example, power of attorney
• Contact and bank account details for the taxable person
• Actual or estimated financial information, for example, audited or non-audited financial statements or revenue forecasts
• Cross-border flows of goods and/or services, specifying if they will be in relation to any other GCC Member States
• Details and evidence of business relationships
– Buildings converted from nonresidential to residential through sale or lease
• The supply or import of crude oil and natural gas
• The supply of educational services and related goods and services, for nurseries, preschool, school education and higher education institutions owned or funded by federal or local government and providing the curriculum and the educational institution are recognized by the competent federal or local government entity
• The supply or import of preventive and basic health care services and related goods and services, made by a health care body or institution, doctor, nurse, technician, dentist or pharmacy, licensed by the Ministry of Health or by any other competent authority – this includes the supply of medications and medical equipment registered with the Ministry of Health and Prevention or imported with permission or approval
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Financial services, as outlined below, that are not conducted in return for an explicit fee, discount, commission and rebate or similar. Also, any Islamic financial products, being financial products under contract that are certified as Islamic Shariah compliant, which simulate the intention and achieve effectively the same result as a non-Shariah compliant financial product, will be treated in a similar manner as the equivalent non-Shariah financial product for the purpose of applying exemption from VAT
– Issue, allotment, or transfer or ownership of an equity security or debt security
– Provision or transfer of ownership of a life insurance contract or the provision of reinsurance in respect of any such contract
– Exchange of currency, whether effected by the exchange of bank notes or coin, by crediting or debiting accounts or otherwise
– The issue, payment, collection or transfer of ownership of a cheque or letter of credit
– The issue, allotment, drawing, acceptance, endorsement or transfer of ownership of a debt security
– The provision of any loan, advance or credit
– The renewal or variation of a debt security, equity security or credit contract
– The provision, taking, variation or release of a guarantee, indemnity, security or bond in respect of the performance of obligation under a check, credit, equity security, debt security
– The operation of any current, deposit or savings account
– The provision or transfer of ownership of financial instruments such as derivatives, options, swaps, credit default swaps and futures
– The payment or collection of any amount of interest, principal, dividend or other amount whatever in respect of any debt security, equity security, credit and contract of life insurance
– The management of investment funds, which is defined as “services provided by the fund manager independently for a consideration, to funds licensed by a competent authority in the State, including but not limited to, management of the fund’s operations, management of investments for or on behalf of the fund, monitoring and improvement of the fund’s performance”
– The transfer of ownership of virtual assets, including virtual currencies
– The conversion of virtual assets
– Keeping and managing virtual assets and enabling control thereof
– The transfer of ownership, conversion and management of virtual assets
– Agreeing to do or arrange any of the activities outlined above, other than advising thereon
• Supply of residential buildings, unless it is zero-rated, where the lease is more than six months, or the tenant of the property is a holder of an ID card issued by the Federal Authority for Identity and Citizenship
• Supply of bare land, meaning land that is not covered by completed or partially completed buildings or civil engineering works
• Supply of local passenger transport services in a qualifying means of transport by land, water or air from a place in the UAE to another place in the UAE
Option to tax for exempt supplies. The option to tax exempt supplies is not available in the UAE.
E. Time of supply
The time at which VAT becomes due is called the “date of supply” (referred to as “time of supply” or “tax point” in this section). The time of supply is the earliest of any of the following dates:
• The date on which the goods were transferred (if such transfer was under the supervision of the supplier).
• The date on which the recipient of the goods took possession of the goods (if the transfer was not under the supervision of the supplier).
• Where the goods are supplied with assembly and installation, the date on which the assembly or installation of the goods was completed.
• Where the goods are supplied on a returnable basis, the date on which the recipient of the goods accepted the supply or a date no later than 12 months after the date on which the goods were transferred or placed under the recipient of goods disposal.
• The date when the performance of services has taken place.
• The date of receipt of payment or the date on which the tax invoice was issued.
Deposits and prepayments. The receipt of a deposit or prepayment would create a tax point where this forms part of the total payment of a particular supply if it precedes the issuance of a tax invoice.
Continuous supplies of services. The date of supply of goods or services for contract that includes periodic payments or consecutive invoices shall be the earliest of any of the following dates:
• The date of issuance of any VAT invoice
• The date payment is due as shown on the VAT invoice
• The date of receipt of payment
• The date of expiration of one year from the date the goods or services were provided
Goods sent on approval for sale or return. There are no special time of supply rules in the UAE for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).
Reverse-charge services. Generally, reverse-charge VAT is also applicable to the purchase of goods or services from a place outside the UAE. Where these types of purchases are made, which would be taxable if supplied in the UAE, the taxable person shall be treated as making a supply to itself. Therefore, the taxable person is responsible for all applicable VAT obligations and accounting for the tax due in respect of these supplies.
The above mechanism applies where the following conditions are satisfied:
• The taxable person is UAE VAT registered at the time of import.
• The taxable person keeps sufficient and appropriate records concerning the supply received.
• In the case of goods, the taxable person has given the FTA its customs registration number.
• The taxable person has cooperated and complied with the FTA in respect of the import.
In terms of the time of supply, the taxable person who has received the goods and/or services must declare and pay the due tax in the VAT return that relates to the tax period at the date of supply for which the purchase took place. Where any relevant VAT amount is expressed in a currency other than AED, the amount must be converted to AED using the daily rate prescribed by
the UAE central bank at the date of supply. Supplies within the same legal entity, e.g., branch to branch or head office to branch are, however, disregarded.
Leased assets. At the time of preparing this chapter, there are no special time of supply rules in the UAE for the supply of leased assets. As such, the general time of supply rules applies (as outlined above). It is expected that both operational and finance asset leases are treated as continuous supplies of services (see above), provided that legal title to the goods does not pass to the recipient and there is no express contemplation that the title will transfer at some point in the future. Goods supplied on terms that expressly contemplate that the title will transfer at some point in the future (e.g., under hire-purchase or conditional sale agreements) are treated in the same way as a normal sale of goods where title passes at the outset. Unless periodic VAT invoices are issued and the payments do not exceed one year from the provision of such goods/services, the time of supply should be linked to the basic tax point (see above). This means that the full amount of VAT may become payable up front, instead of being due as and when installment payments are made. It is also expected that leases made under Islamic finance arrangements should follow the same VAT treatment as their conventional finance equivalents.
Imported goods. For the supply of imported goods, the time of supply rule is the date when the goods are imported into the UAE, under the customs legislation.
Other supplies. Deemed supplies. The tax point of a deemed supply of goods or services shall be the date of their supply, disposal, change or usage or the date of deregistration, whichever is applicable.
Vouchers. The tax point of supply of a voucher shall be the date of issuance or supply thereafter.
Vending machines. The tax point of supply, in cases where payment is made through vending machines, shall be the date on which the funds are collected from the machine.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. Recovery is by way of deducting input tax against output tax, which is the VAT charged on supplies made by the business.
Input tax includes VAT accounted on imports of goods and self-assessed through the reversecharge mechanism, and the importer must receive and retain invoices and other import documents as supporting documents to substantiate the recovery of VAT.
The time limit for a taxable person to reclaim input tax in the UAE is the first tax return period or a later tax period as outlined below. The key test for recovering input tax is that it must be recovered in the first tax period in which two conditions are satisfied:
• The tax invoice is received.
• An intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment is formed.
Upon receipt of a tax invoice, a taxable person can recover input tax only when an intention to make the payment within a prescribed period is formed. Therefore, if the intention to make the payment is formed in a tax period that is later than the tax period in which the tax invoice is received, the input tax can be recovered only in the later tax period.
Where the timeframe above is not met, then a taxable person must submit a voluntary disclosure to recover any outstanding input tax (see the Correcting errors in previous returns subsection below, under Section I. Returns and payment).
Nondeductible input tax. Input tax may not be recovered in respect of certain expenses specifically listed as nondeductible.
The following lists provide examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.
Examples of items for which input tax is nondeductible
• VAT incurred for making exempt supplies
• Provision of entertainment services to anyone not employed by a taxable person, including customers, potential customers, officials, or shareholders or other owners or investors
• Where goods or services were purchased to be used by employees for no charge to them and for their personal benefit, including the provision of entertainment services, except in certain specific cases
• Where a motor vehicle was purchased, rented or leased for use in the business and is available for personal use by any person
• Business gifts supplied for no consideration, unless the total value of these gifts is less than AED500 per recipient within a 12-month period
• Health insurance for dependents, except in respect of non-national Abu Dhabi employees
• Staff party expenses
Examples of items for which input tax is deductible (if related to a taxable business use)
• Motor vehicles not available for private use where this can be sufficiently evidenced
• Where an employee requires hotel accommodation/subsistence for an overnight stay on a domestic business trip
• Food and drink in the normal course of a business meeting (e.g., simple refreshments)
• Short-term accommodation provided to a new employee joining the business (i.e., less than one month)
• Phones, airtime and data packages for use by employees solely for business purposes where this can be sufficiently evidenced
Partial exemption. Input tax related to goods and services used to provide supplies that are subject to VAT and other supplies that are exempt, may be deducted in accordance with the proportion of costs related to the supplies subject to the VAT.
The standard partial exemption method consists of the following two-stage calculation:
• Attribution of input tax exclusively used in making either taxable or exempt supplies.
• Apportionment of non-attributable input tax using the standard input-based calculation, which will calculate the percentage of recoverable input tax. This percentage is based on values of VAT incurred wholly to make taxable supplies and, for particular categories of entities for the purposes of its charitable and sovereign activities, to total input VAT incurred.
The percentage calculated shall be rounded to the nearest whole number.
The percentage calculated shall be multiplied by the amount of total non-attributable input tax incurred to establish the recoverable portion of that input tax.
The calculations referred to above shall be undertaken in respect of each tax period where input tax incurred relates to making exempt supplies or to activities that are not in the course of business.
At the end of each tax year the taxable person shall undertake the calculation outlined above, but in respect of the entire tax year just ended (not on a tax period but by tax period basis as above) and include the result in the first tax period of its subsequent tax year (“annual wash-up adjustment”). The amount calculated for the tax year shall be compared to the input tax amount recovered in all the tax periods making up the tax year, and an adjustment to the recoverable tax shall be made in the tax period. The FTA prescribes several different methods to ascertain the actual
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in the UAE is recoverable.
The FTA may refund VAT paid for any supply received by or import carried out by any of the following:
• A citizen of the UAE in respect of the goods and services related to the construction of a new residence that is not part of the person’s business.
• A nonresident who is not a resident of a GCC Member State and conducts a business and is not a taxable person.
• A nonresident, for goods supplied to them in the UAE that will be exported.
• Foreign governments, international organizations, diplomatic bodies and missions according to treaties that the UAE is a party to.
• Any persons or classes listed in a cabinet decision issued at the suggestion of the minister.
Designated persons. The FTA may allow certain persons to apply for a refund of VAT paid by them on supplies of goods or services received in the UAE. These persons include (officials of) foreign governments, international organizations, diplomatic bodies and missions. A claim may be submitted to the FTA requesting a repayment of the VAT incurred.
This mechanism is subject to the following conditions:
• The goods and services are for official use.
• The jurisdiction in which the person is established excludes the same type of entities from the burden of any VAT in that jurisdiction, i.e., reciprocity.
• The refund claim is consistent with the terms of any international treaty or other agreement concerning the liability to tax of such persons.
• Officials of the person should not hold UAE nationality nor have a residence visa under the sponsorship of an entity other the person.
• The person should not carry out any business in the UAE.
Designated charities. The FTA may allow certain charities to apply for a refund of VAT paid by them on supplies of goods or services received in the UAE for the purposes of charitable activities, to the extent that the VAT paid does not relate to onward exempt supplies made or those expenses are not blocked from input tax recovery.
Refund of VAT to taxable persons in other GCC Member States Persons who are registered for VAT in another GCC Member State may apply for refund of VAT incurred in the UAE in accordance with the mechanism agreed between the GCC Member States.
Refund of VAT to taxable persons nonresident in the UAE. The FTA has implemented a business VAT refund scheme for foreign businesses to allow the repayment of VAT on expenses incurred in the UAE by a foreign entity that has no place of establishment or fixed establishment in the UAE or in an implementing GCC Member State and is not taxable in the UAE. The foreign entity must be registered as an establishment with a competent tax authority in the jurisdiction in which it is established, and that foreign jurisdiction should have a reciprocal arrangement to provide refunds of VAT to eligible UAE businesses. The FTA has provided a list of jurisdictions that may be eligible for VAT refunds. In the event that a jurisdiction is not on the approved list or does not have a VAT system, the Ministry of Finance of that jurisdiction would have to contact the UAE Ministry of Finance for inclusion on the approved list.
A foreign entity is not entitled to make a claim under the VAT refunds for foreign businesses scheme in the following cases:
• If it makes supplies that have a place of supply in the UAE or implementing GCC State, unless the recipient of the goods or services is obliged to account for VAT on those supplies through the reverse-charge mechanism.
Summary invoices. A registrant does not need to issue separate VAT invoices in respect of supplies where it makes more than one supply of goods or services to the same person and those supplies are included on a summary VAT invoice. The summary VAT invoice must be issued to the recipient of the goods or services.
Self-billing. Self-billing is allowed in the UAE. Where a recipient agreed to raise a VAT invoice on behalf of a VAT registered supplier, in respect of a supply of goods or services, that document shall be treated as if it had been issued by the supplier if the following conditions are met:
• The recipient of the goods or services is VAT registered.
• The supplier and the recipient agree in writing that the supplier shall not issue a VAT invoice in respect of any supply between the parties.
• The VAT invoice shall contain the full VAT invoicing requirements (as outlined above).
• The words “tax invoice raised by buyer” are clearly displayed on the VAT invoice.
Under self-billing, any invoice issued by the supplier shall be deemed to not be a VAT invoice. The same rules above apply for issuing VAT credit notes.
Proof of exports and intra-GCC supplies. Where a taxable person makes a supply of goods from the UAE to a place outside an implementing GCC Member State, the taxable person shall retain official and commercial evidence of export of those goods. The official and commercial evidence may include the following:
• A customs declaration, and commercial evidence that proves the export.
• A shipping certificate and official evidence that prove the export.
• A customs declaration that proves the suspension arrangement of customs duties, if the goods are put into customs suspension.
There are specific documentation requirements relating to the official and commercial evidence required where the zero-rate is being applied to a supply of exported goods by the supplier. In addition, the FTA may not accept the documents if they do not constitute sufficient evidence for the FTA that the goods left the UAE and the FTA may identify other types of evidence or proof according to the nature of the exportation or the nature of the goods to be exported.
Where a taxable person makes a supply of goods from the UAE to a person who has a place of residence in an implementing GCC Member State, and the supply requires the goods to be physically moved to that other GCC Member State, the taxable person shall retain official and commercial evidence of export of those goods to that other GCC Member State.
Where a supply of the goods and goods or services is considered as supplied in another implementing state in the GCC, the taxable person must include the following additional particulars in the document issued:
• The VAT registration number of the recipient of the goods or services issued to them by the competent authority of the implementing state in which the supply is treated as taking place
• A statement identifying the supply between the UAE and the implementing state
• Any other information specified by the FTA
At the time of preparing this chapter, the respective tax authorities of the UAE, Bahrain, Oman and Saudi Arabia are not treating each other as implementing states and the tax treatment of supplies/acquisitions with counterparties in these jurisdictions should be assessed under the general VAT rules.
Foreign currency invoices. Tax invoices must be issued in the domestic currency, which is the UAE dirham (AED). If the supply is made in a currency other than AED, the amount stated on the tax invoice must be converted into AED according to the exchange rate approved by the UAE central bank at the date of the supply.
Supplies to nontaxable persons. In the UAE, a taxable person is not required to provide a full tax invoice for goods and services where the recipient is not registered. Simplified VAT invoice provisions exist, with the requirements as outlined above in the Simplified VAT invoices section.
Records. Records of all goods and services supplied by a taxable person or on its behalf, showing goods and services, suppliers and their agents, must be kept and retained in sufficient detail to enable the FTA to readily identify goods and services, suppliers and agents.
VAT return data, records and documents can be submitted to the FTA in English, except where the FTA specifically states that it will accept the information submitted by the taxable person to be in Arabic. This decision is at the discretion of the FTA and it may request that some or all the information is translated into Arabic. The taxable person bears the responsibility of ensuring the translated document’s accuracy and correctness.
In the UAE, examples of what records must be held for VAT purposes include the following:
• Records of all supplies and imports of goods and services
• All tax invoices and alternative documents related to receiving goods or services
• All tax credit notes and alternative documents received
• All tax invoices and alternative documents issued
• All tax credit notes and alternative documents issued
• Records of goods and services that have been disposed of or used for matters not related to business, showing taxes paid for the same
• Records of goods and services purchased and for which the input tax was not deducted
• Records of exported goods and services
• Records of adjustments or corrections made to accounts or tax invoices
• Records of any taxable supplies made or received in respect of the reverse-charge mechanism, including any declarations provided or received in respect of those taxable supplies
• A tax record that includes the following information:
– VAT due on taxable supplies
– VAT due on taxable supplies pursuant to the reverse-charge mechanism
– VAT due after the error correction or adjustment
– Recoverable VAT for supplies or imports
– Recoverable VAT after the error correction or adjustment
• Accounting records and commercial books for UAE tax purposes, including:
– Records of payments, receipts, purchases, sales, revenue and expenditure
– Balance sheets and profit and loss accounts
– Records of wages and salaries
– Records of fixed assets and inventory
In the UAE, VAT books and records can be held outside of the country. There is no legal requirement to keep the records of supplies within the country. Taxable persons are allowed to store records anywhere as long as these records are readily available for the FTA in the event of an audit. Further, a taxable person who makes taxable supplies of goods or services in the UAE must keep records of such transactions to prove the Emirate in which the fixed establishment related to the supply is located. If the taxable person who makes a taxable supply of goods or services does not have a fixed establishment in the UAE, the taxable person must keep records of the transaction to prove the Emirate in which the supply is received.
From 1 July 2023, taxable persons supplying goods and services through e-commerce that exceed AED100 million in a calendar year are required to report taxable supplies in the emirate in which the supply is received for the following periods:
• For businesses making supplies amounting to more than AED100 million in sales during the year ending on 31 December 2022, the above rules shall apply for 18 months starting from the first tax period after 1 July 2023.
Annual returns. Annual returns are not required in the UAE.
Supplementary filings. No supplementary filings are required in the UAE.
Correcting errors in previous returns. A taxable person in the UAE is required to make a voluntary disclosure to notify the FTA where an error or omission is made in its periodical VAT return, tax assessment or tax refund application. The regulations state voluntary disclosures should be made where:
• A filed VAT return or a tax assessment is incorrect, resulting in a calculated tax liability that is understated by more than AED10,000
• A filed VAT return or a tax assessment is incorrect, resulting in a calculated tax liability that is understated by up to AED10,000 and there is no VAT return through which the error can be corrected
• A filed VAT return resulting in an error or omission resulting in no difference in the amount of due tax
• A filed VAT refund application is incorrect, resulting in a calculation of a refund to the taxable person of more than the correct amount, unless the error was a result of an incorrect VAT return or tax assessment
A voluntary disclosure cannot be submitted upon expiry of five years from the end of the relevant tax period. Voluntary disclosures can be made by using the tax authority’s online portal by the taxable person. The taxable person is also required to upload details and supporting documents by way of a letter, which may provide the background information and a detailed description of the errors intended to be rectified by the taxable person with the FTA. This letter should indicate the reasons for the voluntary disclosure and the errors disclosed, as well as the impact on the relevant sections/boxes of the VAT return. The letter will assist the FTA in acknowledging a taxable person’s request.
Digital tax administration. There are no transactional reporting requirements in the UAE.
J. Penalties
Penalties for late registration. Any taxable person who has not applied for VAT registration within the set time frame shall receive a penalty of AED10,000.
Penalties for late payment and filings. A taxable person who fails to submit a VAT return within the prescribed time frame, shall receive a fixed penalty of AED1,000 for the first instance and AED2,000 in the case of repetition within 24 months. If a taxable person fails to pay the VAT due within the prescribed time frame, e.g., within 28 days from the end of the taxable person’s tax period, the following late payment penalty is levied up to a maximum of 200%:
• 2% of the unpaid tax is immediately levied when the payment is not received by the FTA on the due date.
• 4% monthly penalty is due after one month from the due date of payment, and on the same date monthly thereafter, on the unsettled VAT amount to date .
For the purposes of the above penalty, the due date of payment in the case of the voluntary disclosure and tax assessment is as follows:
• 20 business days from the date of submission, in the case of a voluntary disclosure
• 20 business days from the date of receipt, in the case of a VAT assessment
The FTA may impose a VAT assessment on a taxable person irrespective of a VAT return filed by the taxable person. The FTA may make a new VAT assessment to amend a previous assessment made by it. The FTA must notify the taxable person of a VAT assessment within five business days.
The FTA may not issue or amend an assessment in respect of any tax period, after a period of five years after the end of the tax period to which the assessment relates.
In cases where any transaction is being carried out with the intention of breaching the provisions of the UAE VAT law and regulations, or in cases where a person is required to register but fails to do so, the FTA may issue or amend assessments up to a period of 15 years after the end of the tax period to which the assessment relates.
Penalties for errors. If a taxable person recognizes an error in an already submitted VAT return, it has 20 days to notify the FTA of the error by submitting a correction form. If the error results in a discrepancy of VAT due under AED10,000, the correction can be made by adjusting the net VAT on the business’s next VAT return.
Any taxable person who carries out the following:
• Files an incorrect VAT return to the FTA.
• Amends a VAT return after filing or files any document with the FTA due by them that results in an error and, hence, in an amount that is less than the VAT due, shall be liable for both a:
– Fixed penalty: AED1,000 for the first time and AED2,000 for subsequent voluntary disclosures. Where the incorrect VAT return results in a tax difference that is less than the fixed penalty amount of AED1,000 or AED2,000, the FTA will impose a penalty equal to higher of the VAT difference and AED500.
– Percentage-based penalty based on the amount unpaid due to error and resulting tax benefit:
– 5% on the difference, where the voluntary disclosure is submitted within one year from the due date of submission of the VAT return, the VAT assessment or the relevant refund application.
– 10% on the difference, where the voluntary disclosure is submitted within second year from the due date of submission of the VAT return, the VAT assessment or the relevant refund application.
– 20% on the difference, where the voluntary disclosure is submitted within the third year following the due date of submission of the VAT return, the VAT assessment or the relevant refund application.
– 30% on the difference, where the voluntary disclosure is submitted within the fourth year following the due date of submission of the VAT return, the VAT assessment or the relevant refund application.
– 40% on the difference, where the voluntary disclosure is submitted after the fourth year following the due date of submission of the VAT return, the VAT assessment or the relevant refund application.
A taxable person must notify the FTA within 20 days of becoming aware of an error or incorrect amount, by submitting a voluntary disclosure. This notification must be given if the taxable person becomes aware of an error or an incorrect amount in a filed VAT return; or becomes aware of such facts which should have led him to be aware of such error or incorrect amount, which has resulted in the amount of VAT payable to the FTA being understated and that amount of net tax payable is more than AED10,000.
In cases where a taxable person becomes aware of an error or an incorrect amount in a filed VAT return that has resulted in the amount of VAT payable to the FTA being overstated, the taxable person may correct that error at any time, by submitting a voluntary disclosure.
Subject to the above, if the understatement of net VAT is less than AED10,000, the taxable person may correct that error by adjusting the net VAT in its next VAT return. If there is no VAT return through which the error can be corrected, the taxable person must instead make a voluntary disclosure.
No correction to any VAT return relating to an overstatement of VAT in respect of a tax period may be made after a period of five years has passed from the end of the calendar year in which the tax period takes place. In the case of an understated amount of VAT payable or an overstated
amount of VAT refundable that is notified by the FTA pursuant to a tax assessment, two penalties may apply:
• Fixed penalty: AED1,000 for the first time and AED2,000 for subsequent voluntary disclosures
• Percentage based penalty based on the amount unpaid due to the error and resulting tax benefit: – 50% of the underpaid tax along with 4% of the underpaid tax per month from the due date of the VAT return
A taxable person who fails to issue a tax invoice or alternative document, as appropriate, shall be liable for a fine of AED2,500 for each detected case.
A fine of AED20,000 shall be imposed on any taxable person that:
• Fails to submit data, records and documents related to UAE VAT in Arabic to the tax authority when requested.
• Prevents or obstructs the employees of the tax authority or anyone working for the tax authority from performing their duties.
Where the taxable person has failed to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes, they shall be liable for a separate fine of AED2,500 for each detected case.
The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details may result in a penalty of AED5,000 being charged for the first default and AED10,000 in the case of repetition. For further details, see the subsection Changes to a VAT registration details above.
Penalties for fraud. Tax evasion shall be punishable by a prison sentence and/or a fine not exceeding three times the amount of VAT evaded. By way of example, the following would be classified as tax evasion for UAE VAT purposes:
• A taxable person who deliberately understates the actual value of its business or fails to consolidate its related businesses with intent of remaining below the required registration threshold.
• A person who charges and collects amounts from its clients claiming them to be tax without being registered.
• A person who deliberately provides false information and data and incorrect documents to the authority.
• A person who prevents or hinders the authority’s employees from performing their duties.
• A person who deliberately decreases the payable tax through tax evasion or conspiring to evade tax.
The imposition of fines shall not prejudice the payment of any tax due, and the application of any other penalty stipulated by any other UAE law. In cases where any transaction is being carried out with the intention of breaching the provisions of the UAE VAT law and regulations, or in cases where a person is required to register but fails to do so, the FTA may issue or amend assessments up to a period of 15 years after the end of the tax period to which the assessment relates.
A prison sentence and a monetary penalty not exceeding AED1 million, or either of the two, shall be imposed on anyone who commits any of the following acts:
• Deliberately providing false information, data and incorrect documents to the FTA
• Deliberately concealing or destroying documents, information and data, or other material that is required to keep and provide to the FTA
• Stealing documents or other materials that are in the possession of the FTA or deliberately misusing or destroying them
• Deliberately preventing or hindering the FTA’s employees from performing their duties