The UAE introduced VAT, or Value Added Tax, back in January 2018 at the standard rate of 5%. Since then, the country’s taxation outlook has changed significantly. The purpose of VAT is no different than any other tax: it was designed and implemented to raise revenue in order to finance government spendings. In the UAE, it is now mandatory for every business to present a Tax registration number (TRN) in order to claim credits of taxes paid.

In essence, VAT is a consumer tax that is imposed on different goods and services, and every small and large business operating within the UAE has to apply it on all eligible transactions. UAE companies and businesses are required to comply with these rules and laws set by the Federal Tax Authority. VAT implementation is mandatory, and any non-compliance can lead to fines, while mistakes can lead to mistakes while maintaining records and books.

Should I hire a professional VAT agent?

For many business owners, dealing with taxes is difficult, as most lack the proper knowledge of how VAT processes and calculations actually work—and that’s understandable. As a business owner, you should be focused on running your organization, and not drowning in paperwork while doing taxes. Luckily, VAT consultancy firms like Level.ae can make business owners’ lives so much easier.

There’s really no shortcut to proper VAT implementation, and Level tax agents are committed to doing all the work to ensure your business runs as smoothly as possible. Alternatively, as a business owner, you can take the necessary time to learn everything about VAT, including key details about this tax type, as well as the entire implementation process.

That’s why we created this guide: to aid you in discovering the most important aspects of VAT.

Here are 8 essential things to know about VAT

1. What exactly is VAT?
   VAT is an indirect tax, or a consumer tax, that is imposed on the majority of goods and services in the UAE. Every small and large business operating within the country has to apply VAT on all eligible transactions. The end-consumer bears the cost of VAT, however, businesses are responsible to impose VAT on their goods and services.
2. Is VAT an expense?
   One of the most important things about VAT is to acknowledge the fact that it is not an expense covered by a business. The 5% VAT tax is paid by the end consumer and as a business, you hold and keep track of all the purchases until it’s time to transfer the funds to tax authorities. Any VAT collected will be paid to the Federal Tax Authority by the end of each month, or each quarter.
3. What’s the purpose of VAT?
   VAT was designed and implemented to raise revenue in order to finance government spendings. Just like any country, the UAE facilitates various high-quality services, including building and maintaining public hospitals, schools, roads, parks, and other civil services. These services are paid by the government, and collected VAT tax payments help fund certain projects.
4. How can I register for VAT?
   Registering for VAT is simple. You can head over to the UAE Federal Tax Authority website, create an account, and register your business for VAT. You can find any information about VAT on the website, and you can also find contact information if you want to get in contact with them via phone. Alternatively, you can ask us here at Level to handle the entire VAT process for you.
5. Is it mandatory to register for VAT?
   Registering for VAT might be optional in some instances, but as a business owner, you should register anyway. The official guideline states that a company or business must register for VAT if it has an average revenue of more than AED 375,000/year. If your revenue is below this threshold, registration becomes voluntary.
6. Which sectors are subject to VAT?
   VAT is applied to most industries in the UAE, including goods and services, real estate, tourism, and more. Consumers pay VAT in almost every circumstance, whether the business supplies goods or services that are tax-exempt or zero-rated. This leads us straight into the next question: what’s the difference between the two?
7. What’s the difference between tax-exempt goods and zero-rated supplies?
   As far as the consumers go, there’s no difference at all: they just pay the VAT. When it comes to businesses, however, there is a slight difference. VAT for tax-exempt services, including financial services or certain real estate or transport services cannot be recovered by a business, while the VAT tax for zero-rated services such as export, international transport, and certain healthcare services—to name a few—can be claimed.
8. Should I keep a record of VAT payments?
   Absolutely. We recommend you keep a record of all transactions and taxes. Keeping your books in order isn’t the easiest task, that’s why Level agents are at your service to aid you when it comes to maintaining your books in order. A clean and spotless record is mandatory for any respectable UAE business, that’s why recording every transaction and tax payment is so important.

Conclusion

Dealing with VAT can be a total headache, and understanding how everything works can take a lot of time and effort. Even with a lot of research, when faced with the task at hand, errors can occur and sooner or later these mistakes will come back to haunt your business. If you want to learn more about VAT, head over to the Federal Tax Authority website or contact us for any assistance or questions you might have.