Preamble: VAT has been introduced for the first time in Gulf countries as recommended by the Gulf Cooperation Council (GCC). In June, 2016 GCC countries signed the VAT Framework Agreement. There are six member countries in GCC, namely, Kingdom of Saudi Arabia (KSA), Bahrain, Qatar, UAE, Kuwait and Oman. VAT has been introduced in KSA and UAE w.e.f. 01.01.2018. Bahrain introduced VAT from 1st January, 2019. Other three member countries of GCC are yet to implement VAT.
VAT is a new source of income in the hands of the Govt. of UAE. The revenue generated from VAT will help the Govt. to reduce its dependence on oil and other hydrocarbons as a source of revenue. UAE has reputation of providing high quality public services. Quality of public services may be augmented with the help of new source of revenue. Presently, VAT rate in UAE is 5% across all taxable sectors. Certain classes of goods and services shall be classified as exempt supplies or zero rated supplies.
Q 1: When does a person is required to get himself registered under VAT?
Ans :
(a) Mandatory Registration
(i) Every person who has a place of residence in the State or an Implementing State and is not already registered shall apply for registration in the following situations:
(a) Where value of taxable supplies exceeded AED 375,000 (three hundred and seventy five thousand dirhams) over the previous 12 months period; or
(b) Where it is anticipated that the value of taxable supplies will exceed AED 375,000 ((three hundred and seventy five thousand dirhams) in next thirty (30) days.
(ii) Every person who does not have a place of residence in the State or an Implementing State and is not already registered shall apply for registration if he makes taxable supply and there is no other person who is obligated to pay tax on such supply in the state.
(b) Voluntary Registration
Any person may optionally apply for registration under VAT:
(i) If he proves, at the end of a given month, that the total taxable value of supply or expenses which are subjected to tax, were incurred during the previous 12 months period, exceeded AED 187,500 (one hundred eighty seven thousand and five hundred dirham).
(ii) If he anticipates that the total taxable value of supply or expenses which are subjected to tax that will be incurred, will exceed AED 187,500 (one hundred eighty seven thousand and five hundred dirham) during next 30 days period.
Note:
- Person: A natural or legal person
- Implementing states: The GCC States that are implementing a Tax law pursuant to an issued legislation.
- Place of residence: The place where a Person has a Place of Establishment or Fixed Establishment, in accordance with the provisions of the Decree-Law.
- Taxable supply: A supply of Goods or Services for a Consideration by a Person conducting Business in the State, and does not include Exempt Supplies.
Q 2: How to calculate Mandatory or Voluntary registration threshold (i.e. AED 375,000/ AED 187,500)?
Ans:
Total of following shall be considered:
(i) The value of Taxable Goods and Services.
(ii) The value of Concerned Goods and Concerned Services received by the Person unless covered by point (i).
(iii) The value of the whole or relevant part of Taxable Supplies that belong to said Person if he has, wholly or partly, acquired a Business from another Person who made the supplies.
(iv) The value of Taxable Supplies made by Related Parties. Where a transaction between related parties is at a value less than the market value, value of such supply shall be considered at market value.
Note:
1. Concerned goods are goods that have been imported and would not be exempt if supplied in the state.
2. Concerned services are services that have been imported, and would not be exempt if supplied in the state.
Q 3: When application for registration should be filed?
Ans:
In case of Mandatory Registration: Within 30 days of being required to register.
In case of Voluntary Registration: No time limit.
Q 4: Consequence of failure to apply for registration within the prescribed time limit
Ans:
(i) The authority (suo moto, i.e. on its own motion) shall register the person with effect from the date on which the person first became liable to be registered for tax. A person first becomes liable to be registered on the first day of the month following the month in which his taxable supplies exceed mandatory registration threshold.
(ii) A penalty of AED 20,000/- shall be imposed on such a person who fails to submit the application for registration within the time frame.
Q 5: Once a person is registered under VAT, is it possible for cancellation of registration?
Ans:
Yes. A registrant shall apply to the authority for tax deregistration in any of the following two cases:
(i) If he stops making taxable supplies or
(ii) If the value of taxable supplies over a period of previous 12 consecutive months is less than the voluntary registration threshold and said registrant does not anticipate that during next 30 days his taxable value of supply and taxable expenses will exceed voluntary registration threshold.
Q 6: Is there any time limit for submission of application for cancellation of registration
Ans:
Yes. Within 20 business days from the date of occurrence of any of two events of Ans5 above.
Q 7: Where a taxable person’s all supplies are of zero rated, can he apply for exception from registration.
Ans:
Yes. He may apply to the appropriate authority
Q 8: When taxable supplies of two or more legal persons are aggregated
Ans:
Taxable supplies of two legal persons are aggregated on fulfilling following conditions:
(i) If they are related parties
(ii) They are not registered as a tax group
(iii) They have artificially segregated their business
On satisfying the above three conditions, the taxable supplies of each of the persons shall be treated as aggregated to determine whether they all have exceeded the mandatory registration threshold and voluntary registration threshold. In that case each of the persons shall apply for tax registration where aggregated turnover exceeded mandatory registration threshold.
Note:
(A) Where point number (iii) is not satisfied (i.e. not artificially segregated) but other two pints (i) and (ii) are satisfied, but the authority considers that there is a Tax revenue loss due to segregation, the authority may treat taxable supplies of each of the persons as aggregated.
(B) Related Parties: Two or more Persons who are not separated in economic, financial or regulatory aspects, where one can control the others either by Law, or through the acquisition of shares or voting rights.
Q 9: What is Tax Group?
Ans:
Two or more Persons registered with the Authority for Tax purposes as a single Taxable Person in accordance with the provisions of the Decree-Law.
Q 10: How to apply for VAT registration in UAE?
Ans:
It is a two steps process.
Step 1: Creation of an E-service account
(i) Visit the website of Federal Tax Authority (https://eservices.tax.gov.ae)
(ii) Click on SIGN-UP on top right hand corner of the screen
(iii) Fill up the sign up page and then click on sign up available on the bottom of the page.
(iv) You will receive an e-mail at your registered e-mail address. Verify the e-mail.
(v) Now log in to your account with credentials (i.e. e-mail address and password)
Step 2: VAT registration process
(i) After logging to e-service account, click on register for VAT option.
(ii) Fill-up the online form and attached necessary documents.
(iii) Click on submit for approval.
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